Millennium
Project
Global Challenges Facing Humanity
7.
Rich-Poor Gap
How can ethical market economies be
encouraged to help reduce the gap between rich and poor?
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.
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.
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.
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.
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.
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.
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.
Graph: Share
of people living on less than $1 a day (%)
Source:
Global Monitoring Report 2008, World Bank-IMF
You
are invited to participate in updating and improving this challenge. Please
click here
for the online suvey form.
Millennium Project Homepage