Smart Ways to End Poverty

Extreme poverty – or living on less than 1.25 dollars a day – is a continuing problem for far too many people today. In Ethiopia, for instance, such poverty still afflicts about 32.9 million people, according to the World Bank.

It is also arguably one of the most important challenges to address because more prosperous people can afford more to eat, get better access to education and healthcare and generally live better lives. So it is good to see that excellent progress has been made in poverty reduction in recent years. The proportion of people in developing countries living in poverty more than halved between 1990 and 2010; however, with Ethiopia’s national standard, the number of poor here increased from 25.9 million people in 1995 to 26.5 million in 2011.

Globally, according to the World Bank, just over one billion people continue to live in poverty, although that is down from 1.9 billion in 1990. The big question now is whether this rapid improvement can be maintained so that we can truly make poverty history.

This is the question which John Gibson (Prof.) of the University of Waikato, New Zealand, sets out to answer in a study commissioned by the Copenhagen Consensus Centre (CCC). He is one of more than 60 expert economists looking at a range of ambitious targets covering 18 broad themes and estimating the costs and benefits of various options. This is the most effective way for a level playing field enabling sensible choices between the large number of competing options designed to make the world a better place.

At the turn of the century, the Millennium Development Goals (MDGs) were agreed, and great progress has been made in a range of important areas, including poverty reduction. Now 193 national governments are working at the United Nations to agree to a new set of global targets for the next 15 years. Since we have limited means to address all the world’s ills, the targets have to be chosen carefully to be both achievable and cost-effective.

The obvious solution is probably not to address poverty head-on but focus on another policy that could help dramatically: free trade. The costs of successfully completing the Doha Round of World Trade Organisation (WTO) talks would generate more than 2,000 times their value in benefits for developing countries and lift 160 million out of poverty. For Ethiopia, this would mean 110 dollars more per person in 2030.

However, this policy has also turned out to be very hard to implement, and Doha is languishing.

Gibson points out that already for the MDGs in 2000, a number of targets were assessed and rejected in favour of a simple one: halving the rate of absolute poverty. He argues that this kind of target is still the most sensible one.

However, any target can sound deceptively simple but measuring progress – or even setting a reliable baseline – can be fraught with difficulty. Collecting reliable statistical data is almost impossible in countries with little survey infrastructure, the very places where poverty is still a big problem. And, if we cannot measure it, we do not know if resources are being used properly.

The best which can be done is to take figures where they are available and draw whatever broader lessons we can. This is possible for Vietnam, which has made astonishing progress in recent years.

In 1993, 64pc of the population were below the poverty line; by 2010 this had fallen to just five percent. The benefits are wide-ranging. Not only are people earning more and have better access for good nutrition but more prosperous people are typically better educated, live longer and can make a bigger contribution to the wider economy.

We can estimate the lowest cost for taking people out of poverty as the sum of money needed to plug their poverty gap. It turns out that each dollar transferred pays back six to nine dollars in overall benefits, both measured in increased longevity, better education and higher incomes.






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