More Poverty for the Poor Jomo Kwame Sundaram

Many low-income countries (LICs) continue to slip further behind the rest of the world. Meanwhile, people in extreme poverty have been increasing again after decades of decline.

Falling further behind

World output more than doubled from $36 trillion in 1990 to $87 trillion by 2021 (in constant US dollars), but this growth has not been evenly distributed, causing most LICs to fall further behind.

Many of the world’s poorest economies have had meagre growth since the 1960s. As most developing countries have made progress, income gaps among nations have declined.

World economic stagnation adversely affects most countries and people, especially developing countries relying on commodity demand and prices. As much of the world grew, most LICs fell further behind.

Hundreds of millions are stuck in extreme poverty, with incomes per capita in many post-colonial countries barely changing. A World Bank paper argues the poor are especially worse off.

Many poor nations have not caught up, let alone diversified their colonial-type economies. Meanwhile, many poor nations remain mired in conflict, deepening their stagnation.

Poverty has risen due to poor progress as populations grew. Another World Bank report found lower growth correlated with conflict deaths and institutional fragility. Unsurprisingly, these countries often had the world’s highest poverty rates.

Worse, global warming disproportionately harms poor tropical nations and their populations much more. Climate change is expected to push well over a hundred million into extreme poverty by 2030.

Left Behind

Paper co-author Paul Collier identified 58 countries in Africa, Asia and Latin America, with about 1.4 billion people in 2021, as the ‘Bottom Billion’. Collier argues most still face problems and have failed to progress since.

These nations have long suffered from persistent poverty, low growth, and failure to develop. Their plight has been exacerbated by civil conflict, geographic constraints, and, often, the inability to use their natural resources to accelerate economic development.

Since the 1980s – not the 1960s and 1970s, as the Bank paper claims – the Bottom Billion countries have failed to grow, falling behind instead. By contrast, the few former LICs that sustained high growth now enjoy per capita outputs at least thrice that of other Bottom Billion countries.

Except for these few notable exceptions, most of the 58 Bottom Billion countries remain LICs or have become lower-middle-income countries. Only six have achieved upper-middle-income country status in the past decade, mainly due to rapid growth thanks to oil and gas.

Although the Bottom Billion countries exist in all regions, about two-thirds (38 of 58) are in SSA. They account for 77% of the Bottom Billion population. Over half have abundant natural resources, but most have not used their mineral wealth to sustain economic progress.

In 2012, the IMF classified 34 of the 58 Bottom Billion countries as ‘resource-rich’, with non-renewable resource exports and revenue often exceeding 20% of their total exports and government revenue, respectively. But most still experience lacklustre growth, if any.

Since 1990, Sub-Saharan Africa (SSA) averaged barely 0.8% annual per capita income growth. Meanwhile, global growth rates doubled as regions like East Asia registered more than 6% yearly per capita growth rates.

Anaemic growth meant that the average incomes of Africans and other slow-growing LICs slipped further behind the rest of the world. Using the World Bank’s global poverty line, the number of poor Africans grew by tens of millions.

If current growth and poverty trends persist, many slow-growing or stagnant LICs, mainly in Africa, will be unable to end extreme poverty, let alone catch up with the rest of the world.

Poorest worst off

Conventional growth models imply that countries lagging behind should grow faster than those already ahead. East Asian industrialisation – supposedly emulating earlier European growth – supports this notion.

Growth in many LICs has slowed since the turn of the century. The paper finds that “The Bottom Billion fared worst of all”, as per capita output barely rose.

The poorest Bottom Billion did not experience convergence by catching up with the others. While some studies suggest overall income convergence, the world’s poorest are relatively worse off.

Now, the Bottom Billion are ‘falling behind’ while those in extreme poverty may be rising again. Incomes of the world’s poorest countries and people are likely to fall behind, even if only relatively, despite some convergence among countries.

The situation has worsened since 2022. In addition to the commodity-price collapse since 2015, the COVID-19 pandemic, the Ukraine and Gaza wars, and geopolitically driven unilateral sanctions have ensured protracted stagnation.

Bottom Billion countries lack the policy and fiscal space to cope with, let alone address, the impending debt crises. The situation has been exacerbated by tighter credit with high interest rates set by the US Fed.

Despite decades of recognising LIC characteristics, the World Bank has yet to develop strategies, policies and means to overcome their poverty. It is unclear why the Bank has endorsed the Bottom Billion designation, although it has not enhanced our understanding of poverty.

(This article was originally published in Inter Press service (IPS) news on July 24, 2024)