Global Challenges Facing Humanity
7. Rich-Poor Gap How can ethical market economies be encouraged to help reduce the gap between rich and poor?
About 1 billion people live on $1.25/day and 2.2 billion on $2/day. The IMF estimated that the world economy grew 5.2% in 2007 and 3.4% in 2008, reaching $69.5 trillion (PPP) or $62.25 trillion (exchange rates), while the World Bank expects the world economy to contract by 3% in 2009 but to grow again at 2.3% in 2010. UN estimates developing countries to recover and grow at 7% if development polices are coordinated. WTO predicts world trade volume to shrink by 9% this year. Assuming the world slowdown does not last longer than several years, the world is on track to halve the 1990 poverty rate (except in sub-Saharan Africa) by 2015, but due to high population growth, about a billion people may still live on less than $1.25 a day in 2015.
Although half the world has become middle-class, the ILO reports that half the jobs are insecure, 80% of workers do not have adequate social protection, and global unemployment rates could reach 6.5–7.4% in 2009, although 30% if underemployment is included. Youth unemployment could reach 15%. The world needs a long-term strategic plan for a global partnership between rich and poor to improve economic security and create 50 million jobs per year over the next 10 years in developing countries. Such a plan should use the strength of free markets and rules based on global ethics. The World Bank proposes a “Vulnerability Fund” to which industrial countries would contribute 0.7% of their stimulus package to help mitigate the effects of the current crises on the poor. Hundreds of billions of dollars in carbon emissions trading income could go to the developing world.
Foreign direct investment decreased 20% to $1.4 trillion in 2008. Only 79% of exports from least developed countries get duty-free access to industrial countries, despite the 97% target set in 2005. Reduction of tariffs on agriculture exports is slow, although WTO has agreed to eliminate agriculture export subsidies by 2013. UNDP estimates that these subsidies cost developing countries $72 billion per year. The World Bank estimates that tax evasion costs developing countries $800 billion a year.
The high tech–low wage conditions of China and India 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. International migration and globalization are effective tools for reducing poverty while also improving economic efficiency by matching skills with demand. Ethical market economies require improved fair trade, increased economic freedom, 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, 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. An alternative to trying to beat the brain drain is to connect people overseas to the development process back home by a variety of Internet systems.
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: The rapidly evolving
Chinese-African alliances for energy, food, agriculture, and economic development
are a new geopolitical reality that could help reduce income gaps for both sides.
Despite increasing ODA and an average of 5% economic growth for the past 10 years,
half of Africa has consistently been in extreme poverty for the past 25 years,
due in part to rapid population growth. Half of the world’s children out
of school are in sub-Saharan Africa. The region’s development continues
to be impeded by 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. The New Partnership for
Africa’s Development provides a framework for development. Government budgets
should be tied to local self-help, and culture should become more scientifically
and entrepreneurially oriented.
Asia and Oceania: China has a current
account balance of $368.2 billion, was the world’s second largest economy
($7.8 trillion in PPP) and second largest exporter ($1.4 trillion) in 2008, and
has nearly doubled outward FDI. But its increasing water and energy problems and
its rich-poor gap (the highest in Asia) threaten its continued economic growth.
The East Asian poverty rate decreased from 80% in 1981 to 18% today. The economic
crises might affect 56–80 million people in East and South Asia, about half
of whom are in India, while China and India need to create 8–10 million
jobs annually for young people entering the work force.
Europe: FDI by EU-based companies fell
28% in 2008, to €354 billion, while investments to the EU by companies based
outside the bloc fell 57% to €173 billion. EU allocates €50 billion
for troubled non-euro member states and €75 billion to the IMF to help cope
with the crisis. 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 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. Several countries are offering migrant workers incentives to return
to their home countries. Russia continues to have the fastest-growing economy
in Europe, at 8.1% in 2007, 5.6% in 2008, and estimated 6% for 2009.
Latin America: FDI was at a record
high in 2008, close to $129 billion, but likely to fall by 35–45% because
of the financial crisis. ECLAC notes that 10–15 million more people could
slip below the poverty line, and about 25% of young people are excluded from the
labor market and the education system. 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 and improved salaries
paid by major international companies. Economic growth is expected to shrink in
2009 by almost 1% on average, but in Mexico and Central America by 4%. Mexico
is experiencing its worse recession, being double-hit by the U.S. financial crisis
and H1N1 influenza. An estimated 30% of Mexican adults are unable to find full-time
work. The Union of South American Nations founded in May 2008 has stalled, as
nations fail to reach agreement.
North America: The U.S. is the most
indebted country, at $11.3 trillion. The Congressional Budget Office showed that
the rich-poor gap tripled in the U.S. between 1979 and 2006. Its negative current
account balance of $568.8 billion helped employment overseas but increased joblessness
at home and decreased confidence in the U.S. dollar. Canada’s unemployment
was 8.4% in May 2009; the figure in the U.S. was 9.4%, with 14.5 million unemployed.
Wall Street executives received an estimated $18.4 billion in bonuses in 2008.
Graph: Share
of people living on less than $1.25 a day (%)
Source:
World Bank Regional Aggregation and Millennium Development Goals