Monday, October 19, 2015

Extreme Poverty

One of the most encouraging trends in the world (for me) has been the dramatic decline in extreme poverty over the past several decades. Asia has led the way, especially East Asia and more especially China, which had long been among the poorest countries in the world. South Asia is catching up, but still lags behind. Extreme poverty, defined as living on less than $2 (inflation and purchasing power parity factors include) per day, is now most concentrated in sub Saharan Africa and in conflict zones.

Poverty statistics are hard to come by for much of the world, but thanks to the work of recent Nobelist Angus Deaton and others, are becoming much better. By many measures, extreme poverty has gone from something more than 30% a few decades ago to less than 10% today. This suggests that eliminating it completely is a realistic goal for the coming decades.

So what accounts for this dramatic trend? I think that there are several important factors, including technology, better governance and especially the adoption of market economics. Important as these are, the central fact in poverty decline seems to be reduction in the birth rated. The largest progress has occurred in nations like China that have most dramatically reduced their fertility rate. The ongoing disasters are most prominent in sub-Saharan Africa and in conflict ridden Islamic countries where fertility has remained high. Dr Malthus has never been more in evidence than in the modern world where fertility can swamp every kind of technological advance.

Reducing the fertility rate well below the replacement rate has its benefits, but it comes at a price. Eventually such countries will have an aging population and a shrinking workforce. Recent history suggests that this is not a bad bargain, because it's a far better deal to be a rich country with slowly declining population than a desperately poor one with a rapidly increasing one.

Of course we shall have to see how this plays out in Japan and Germany, two very rich nations with very old populations already in slow decline, not to mention China, which will face this problem in a decade or two. I like their prospects a lot better than I like Nigeria's.