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?
The global economy grew 5.4% in 2006, to $66 trillion (PPP). The population
grew 1.1%, increasing the average world per capita income by 4.3%. At this rate
world poverty will be cut more than half between 2000 and 2015, meeting the
UN MDG, although probably not in sub-Saharan Africa. Although the developing
world produces half of world annual economic growth and it grew at 7% during
2006, income disparities are still enormous: 2% of the world’s richest
people own more than half of the world’s wealth and the poorest half of
the world owns only 1% of the wealth. The World Bank reported that 2004 was
the first year in which the number of people living on less then $1 a day fell
below 1 billion, and it estimated that the share of world population living
in extreme poverty could decline to 10% by 2015. Yet almost half the people
in the world live on less than $2 a day, although that is expected to decrease
to nearly a third by 2015.
Official development assistance from OECD DAC members fell 5.1% to $103.9 billion
in 2006, while private finance for developing countries reached a record $647
billion. According to UNDP, all agricultural subsidies by industrial countries
cost developing countries $72 billion per year. The WTO has agreed to eliminate
agriculture export subsidies by 2013. This, plus improved fair trade, increased
economic freedom, and successful Doha Round negotiations, is expected to boost
growth in developing countries substantially. Carbon emissions trading might
soon reach $200 billion a year, with half flowing to the developing world. The
Index of Economic Freedom, the Corruption Perceptions Index, and the Bribe Payers
Index show that reducing corruption and increasing freedom correlates with improved
economic development. A World Bank study found that bribery may have passed
$1 trillion in 2006. The UN Convention against Corruption entered into force
in December 2005.
According to WTO, China’s exports totaled $969 billion in 2006, compared
with $1,037 billion from the U.S. If trends continue, China will pass the U.S.
during 2007. Its high tech–low wage condition plus the increasing development
of India will make it very difficult for other developing countries to compete.
Hence, it would be wise for most developing countries to rethink their export-led
growth strategies and to create alternative development strategies that not
only build on their agricultural and industrial domestic markets but leapfrog
into new activities via the Internet as a key means of production in the information,
service, and knowledge economies. Policies should support individuals seeking
markets via the Internet rather than seeking non-existent jobs. Doing Business
reports 43 countries in 2005–06 made it easier for individuals to start
businesses.
A strategic plan for a global partnership between the rich and poor should
be created and implemented that uses the strength of free markets and rules
based on global ethics to reduce the disparities that otherwise might grow enough
to increase migration of the poor to richer regions, increasing conflicts. The
strategy should also include massive investments into tele-education and tele-work,
replacing welfare attitudes with entrepreneurial spirit, reinforced by expanded
microcredit mechanisms coupled with technical assistance, while using state
welfare in states with not much of a private sector.
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.
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: In 1997 only one
African country had a sovereign credit rating; now 20 have, giving Africa far
better credit access to invest into future-oriented activities rather than commodity
exports. Excluding South Africa, sub-Saharan Africa averaged 4.5% growth, but
poverty continues to grow due to high birth rates, corruption, armed conflicts,
poor governance, environmental degradation, poor health conditions, and lack of
education. Africa now accounts for 30% of the world’s extreme poor, compared
with 19% in 1990 and only 11% in 1981. The New Partnership for Africa’s
Development gives focus for development cooperation to promote private-sector
activity, 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: The extraordinary
economic growth of China and India—lifting millions from poverty, led by
200 million entrepreneurs—is threatened by increasing water and energy shortages,
widening rural-urban income gaps, and general environmental conditions. The region
produces about a third of world output and has two-thirds of the world’s
poor. 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: The combination of high unemployment,
aging population, and expensive public services is not sustainable without increasing
numbers of immigrants and more tele-entrepreneurs among the next generation of
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.
Latin America: Latin America and the
Caribbean economies grew 5.6% in 2006, and 4.7% growth is expected for 2007. The
region has a long way to go to close the largest rich-poor gap in the world and
to pull more than 100 million people out of extreme poverty. Some free-market
leaders did not make serious progress improving economic development and social
justice for the poor majority. This opened the way for new leftist governments
to move toward more state-centered policies, with some nationalizing resources.
Distribution of the means of production and land tenure must change, with the
participation of lower-income people in all phases of development projects, reinforced
by an educated middle class and an active civil society.
North America: The U.S. negative balance
of trade reached historic highs—helping employment overseas but threatening
its economy at home—while U.S. national debt is approaching $9 trillion,
promising future inflation. The small businesses that employ half of all private-sector
workers and create two-thirds of the net new jobs in the U.S. should prepare for
these uncertain economic conditions. The income gap in the U.S. continues to widen:
income during 2005 for the top 300,000 Americans equaled the bottom 150 million.
The richest 10% of Canadian families earned 82 times more than the poorest 10%
in 2004.
Graph: Share
of People Living on Less than $1.08 a Day (%)

Source:
Global Monitoring Report 2007, World Bank
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