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-- Brief overview --

The continued economic growth in India and China is a major engine for the reduction of world poverty, because 66% of the people living on just $1 a day are in Asia, while 26% live in sub-Saharan Africa and 6.7% in Latin America. Although significant growth has occurred in some developing countries, income per capita has been dropping steadily over the past 30 years in poorer countries. Yet in absolute numbers, the number of people living on less than $1 a day has been falling over the past 20 years, even while population growth added over a billion people. The rich-poor gap is also getting wider within richer countries.

The world economy has grown from $5 trillion to over $35 trillion during the last 50 years. Over the last 40 years, life expectancy in developing countries has increased from 46 to 64 years, infant mortality rates have been reduced by 50%, the proportion of children enrolled in primary school has increased by more than 80%, and access to safe drinking water and sanitation has doubled. Yet without major policy interventions, the world could average 2.5 billion people living on less than $2/day over the next 25 years. In addition to the moral implications, the disparity in wealth could lead to increased migration of the poor to richer regions, resulting in conflict. Remittances have now become a major source of foreign currency in poor regions.

According to the World Bank, countries that are free account for $26.8 trillion of the world’s annual GDP and represent 89% of global economic activity. By contrast, partly free countries account for $1.5 trillion in output (5%), and countries that are not free produce $1.7 trillion (6%). International meetings have recommended improved international financial governance, increased trade, debt relief, national economic policy reforms, mobilization of domestic financial resources, reduction of corruption, and the creation of partnerships among development actors. The International Monetary Fund (IMF) now allows countries to go bankrupt to negotiate new agreements.

Ethical market economies are encouraged when people have 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, and access to land, capital, and information. Since capital flows to profit potential, ethical activities have to be shown to be profitable.  Unfortunately, corruption and organized crime are still major impediments to development.

Richer nations should cut agricultural subsidies and open their markets. We have to replace welfare attitudes with entrepreneurial spirit, reinforced by expanded microcredit mechanisms coupled with technical assistance. Entrepreneurial skills and business math should be integrated in primary and secondary education. Policies should encourage employee ownership, use of the Internet to gain access to world markets, observance of standard central bank rules, and pursuit of macro policies that accelerate economic growth, balance trade-offs between incentives and sanctions for more ethical trade, design a network of regional and subregional organizations to support monetary and financial management, create rules to tame international currency markets, start incorporating alternative progress indicators, and support “global partnerships for development” as collaborations between high-income countries and those with less industrial and entrepreneurial cultures.

• Suggested Actions
• Indicators
• Regional Views
• Detailed discussion on this challenge is in the CD-ROM accompanying the State of the Future reports