Millennium Project
Updating the Global Challenges Facing Humanity
7. Rich-Poor Gap
How can ethical market economies be encouraged to help reduce the gap between rich and poor?

This is the short description of the challenge as appears in the print version of the 2008 State of the Future report. The more complete version of this challenge along with actions to address it, graphs, and indicators to measure change is available on the CD-ROM included with the report. Please add your suggestions in the space provided after each paragraph and feel free to contact us with any questions.

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General Description

A strategic plan for a global partnership between rich and poor should use the strength of free markets and rules based on global ethics to reduce the disparities. The world economy grew 4.9% in 2007 to $66 trillion (IMF’s new PPP weights) or $55 trillion (official exchange rates). As population is growing at 1.16% per year, world income per capita increased just under 4%. At this rate, world poverty will be cut by more than half between 2000 and 2015, except for sub-Saharan Africa.

Although developing countries grew about 8%, producing more than 40% of the world’s economy, income disparities are still enormous. The number of people living on $1 or less per day continues to fall, but the number living on $2 per day has grown to nearly half the world. ILO reports that families of an estimated 487 million workers live on less than $1 per person per day, and 1.3 billion (43.5% of all workers) have under $2 per day. Economic inequality within countries as measured by the Gini coefficient has increased in the vast majority of countries over the past two decades. About 30% of the developing world is either unemployed or underemployed.

International trade continues to grow faster than the overall economy. Foreign direct investment grew to an estimated $1.5 trillion in 2007, an increase of 16% to developing countries and 41% to transition economies. Although overseas development assistance grew 2.4% in 2007, the 2005 G8 commitments for ODA are behind schedule. Remittances are three times more than ODA and could be augmented by connecting tele-volunteers overseas with the development process back home.

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Approaches to address this challenge

The high tech–low wage conditions of China and India will make it very difficult for other developing countries to compete; hence, developing countries should rethink their export-led growth strategies. In addition to improved agricultural and industrial productivity investments for domestic markets, technical assistance to leapfrog into new activities via tele-education and tele-work should be coupled with microcredit mechanisms for people to seek markets rather than non-existent jobs. The WTO has agreed to eliminate agriculture export subsidies by 2013, which cost developing countries $72 billion per year, according to UNDP estimates. This, plus improved fair trade, increased economic freedom, and successful Doha Round negotiations, is expected to boost growth in developing countries substantially. Half the $200 billion in carbon emissions trading income should go to the developing world.

Ethical market economies require a “level playing field” guaranteed by an honest judicial system and by governments that provide political stability, a chance to participate in local development decisions, business incentives to comply with social and environmental goals, fair trade, a healthy investment climate, and access to land, capital, and information. The Index of Economic Freedom and the Corruption Perceptions Index show that reducing corruption and increasing freedom correlates with improved economic development. Affordable food and fuel prices will also help reduce poverty.

Challenge 7 will be addressed seriously when market economy abuses and corruption by companies and governments are intensively prosecuted and when the development gap—by all definitions—declines in 8 out of 10 years.

Please suggest other actions to address this challenge or edits to the ones above:

Regional Considerations

Africa: Africa has grown over 5% for the fifth straight year, averaging 5.4% over the past 10 years. Booming commodity markets helped it grow 6.2% in 2007, and trade with China grew to $73.3 billion in 2007. China’s loans to Africa outgrew the World Bank’s and others, making China a dominant player in Africa’s growth. Nevertheless, high birth rates, an infrastructure gap, high indirect costs, corruption, armed conflicts, poor governance, environmental degradation, climate change, poor health conditions, and lack of education continue to impede Africa’s development. The New Partnership for Africa’s Development helps focus national and international cooperation to promote private-sector activity, support infrastructure development, improve ICT, diversify production and exports, foster environmental stewardship, encourage small businesses, and fight corruption. Government budgets should be tied to local self-help, as in Egypt; cultures should become more scientifically and entrepreneurially oriented.

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Asia and Oceania: China became the world’s second largest economy (at PPP) during 2007, and its annual $1,221 billion in exports passed the U.S. But its increasing water and energy shortages, widening rural-urban income gaps (the wealthiest 10% of Chinese hold 45% of urban wealth), migration of 18 million people annually from rural to urban regions, and worsening environmental conditions put unprecedented strain on resources and stability. Asia produces about a third of the world’s output, has two-thirds of the world’s poor, and confronts problems similar to China’s. ASEAN plans to accelerate integration among its members and to establish an ASEAN Community by 2015. The keys to economic growth in the Middle East are greater economic freedom, resolution of the Israeli-Palestinian conflict, the rule of law, increased literacy, gender equality, and small business development.

Please suggest edits concerning Asia and Oceania:

Europe: Russia has the fastest-growing economy in Europe at 8.1% in 2007. EU’s 27 member states increased their investment in non-member states by 53% in 2007 over 2006. The combination of aging population, shrinking middle class in some countries, and expensive public services is not sustainable without increasing numbers of immigrants and more tele-entrepreneurs among the retired Europeans. EU enlargement continues to expand ethical markets and harmonize legal systems, yet the rich-poor gaps widen, social services are cut, and work migrates to lower-wage countries. In southeastern Europe and the former Soviet republics, despite record FDI of $98 billion and economic growth of 8.5%, unemployment persists at 8.5%, and rampant corruption and internal tensions continue.

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Latin America: The region grew 5.6% in 2007 and FDI reached $126 billion, with inflows for Brazil, Chile, and Mexico doubling, but it has the largest rich-poor gap in the world, and poverty households headed by women increased to 36%. To reduce the rich-poor gap, distribution of the means of production and land tenure should change, including larger participation of lower-income people in all phases of development projects. The new Union of South American Nations and its Bank of the South intend to strengthen regional integration, fight organized crime and corruption, and improve social standards.

Please suggest edits concerning Latin America:

North America: The U.S. negative balance of trade continues at historic highs—helping employment overseas but threatening its economy at home, while its debt is over $9.4 trillion, promising future inflation. The income gap in the U.S. continues to widen: the richest 1% holds almost $17 trillion, $2 trillion more than the bottom 90%. In Canada, as a result of strong economic growth, the income of the poorer segment grew 5.6% in 2006, while that of the richest remained stable, shrinking the income gap.

Please suggest edits concerning North America:

Graph: Share of people living on less than $1 a day (%)

Source: Global Monitoring Report 2008, World Bank-IMF

If you want to suggest a better graphic representation for this challenge, please indicate the source(s) of data:

Additional Comments
Please suggest any additional comments concerning this challenge:



Thank you for your participation. The results will be sent to you in the next State of the Future.



Survey conducted by the Millennium Project of the WFUNA