In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation

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In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
       Reprinted from The Economist in 2014

In this issue:
Long-term living standards
Crises and their impact
Technology and jobs
Migration and climate change
In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
                                                                                                                      Reprinted from The Economist - 2014

3 The future of securing livelihoods:
  Policies, strategies and tools for better
  lives today and tomorrow

                                                 Challenges and opportunities for livelihoods
   Livelihoods: The big picture
                                              25 The future of jobs
4 The future of jobs                             The great mismatch
  The onrushing wave
                                              27 Technology and jobs
7 The world economy                              Coming to an office near you
  For richer, for poorer
                                              28 Working conditions in factories
9 Poverty                                        When the jobs inspector calls
  Not always with us
                                              29 Migration after the crash
11 The world economy                             Moving out, on and back
   A game of catch-up
                                              30 Migration and climate change
                                                 A new (under) class of travellers
                                              31 Youth unemployment
                                                 Generation jobless
                                              33 Health care and technology
   The pillars of livelihoods
                                                 Fantastic Voyage
14 Innovation pessimism
   Has the ideas machine broken down?
17 Asian welfare states
   New cradles to graves                                                          SPECIAL EDITION
                                                                         SECU R I N G LIVE LI H O O DS
                                                                               Reprinted from The Economist in 2014

20 Pensions
                                                                        In this issue:
   Falling short
                                                                        Long-term living standards
22 Working women                                                        Crises and their impact

   Still struggling                                                     Technology and jobs
                                                                        Migration and climate change
23 Work and family
   Baby blues

For more information about
“The future of livelihoods” please go to
In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
From the conveners

The future of securing livelihoods:
Policies, strategies and tools for better lives today and tomorrow
    As private and public players at all levels examine      some less prosperous countries need to harness           affect livelihoods. Local safety issues also weigh on
our progress in moving people out of poverty, the            their still-growing working-age population to drive      livelihood development possibilities. Violence and
time is right to explore if and how livelihoods have         economic growth. With this backdrop, creating job        crime are prevalent in many urban areas. Conflicts
improved. What factors really determine livelihoods?         opportunities for those who enter the workforce          within societies, as evidenced by protests during
Which issues will most affect them over the next 20          is essential. At the same time, social protection        the Arab Spring in the Middle East and elsewhere,
to 30 years as economic growth shifts from West              systems, including health insurance and retirement       are both a symptom and a trigger of livelihood
to East, amid increasing global interdependence?             programs, are weak or nonexistent in low-income          disruption. Cyber-crime also affects the security of
And how can rising living standards across the               countries. These need to be strengthened, particularly   financial and intellectual assets. Finally, cyber-war
globe be ensured and sustained?                              for those whose livelihoods are at risk.                 risks raise the spectre of new security threats to
    Livelihoods are constantly at risk. Local                    Climate change is also increasingly affecting        critical infrastructures and lives.
and global crises, demographic shifts, climate               livelihoods. Extreme weather events, such as                 Confronting the many challenges of future
change, new technologies and other challenges                floods and hurricanes, occur more often and              livelihoods and imagining opportunities for them
impact livelihoods in many ways. These challenges            with increased intensity. These events take lives;       is a massive, complex undertaking. Livelihood
vary dramatically across countries, cultures and             destroy crops, homes and roads; create health            debates and solutions draw from many different
communities. Their impacts’ complexity demands               hazards and trigger mass migration. They also            policy areas and a vast number of stakeholders.
that relevant stakeholders from the public and               take a heavy toll on the sustainability of insurance     So, by extension, when changes or reforms are
private sectors, universities, nonprofits and the            systems. Longer term, biodiversity loss and rising       required, strong resistance often follows. All too
public join forces in a holistic way to design future        sea levels may significantly reduce global economic      often, policy-makers are biased by short-term
strategies for securing sustainable livelihoods.             growth and deeply transform our living conditions.       and personal vested interests, rather than long-
    The recent financial and economic crisis, for            Interestingly, climate change represents both a          term societal goals. Forging consensus and quick,
example, affected livelihoods in a variety of ways           threat and an opportunity for livelihoods. Many          coordinated action among national governments in
and triggered more inequality and unemployment.              sectors are joining forces to build sustainable          such urgent areas as global warming, international
Inequality further worsens the situation of people           economies and climate-resilient infrastructures.         financial regulation and cyber-crime remains,
who already struggle because it disproportionately               To face such challenges, technology offers a host    unfortunately, particularly challenging.
reduces their opportunities to make a living, and            of opportunities and solutions for future livelihoods.       This special edition of The Economist, with the
erodes their ability to cope with economic shocks.           Better access to and improved information and            theme “Securing Livelihoods”, features informative
    As for unemployment, youth, in particular, struggle      communication technologies, nanotechnology               and provocative articles from recent editions of the
to find jobs and to earn resources to pay for their lives’   and biotechnology, as well as “green innovation”,        magazine. It brings insights into the trends concerning
core needs. Paradoxically, in parallel, firms in many        are but a few advances that could materially help        global livelihoods, and asks provocative questions
industries and countries struggle to find the talent         livelihoods. Technology already helps prevent            about some of the “pillars” that shape them, such as
they need, and face skill shortages and mismatches.          more environmental degradation and damage from           technology, demographics, jobs, pensions, poverty,
This is sparking new employer practices and thinking         natural disasters, playing a critical role in social     inequality and climate change. The selected articles
about the private sector’s role in skills development.       areas, such as health. Over time technology will         also help identify future challenges and opportunities,
At the same time, many lack the entrepreneurial skills       foster conditions for better and more-sustainable        such as maintaining social protections—for example,
that can help spark job creation. Major changes are          livelihoods. It remains unclear, nonetheless, whether    pensions, coping with escalating health costs in
therefore required throughout education systems, from        technological trends will create or destroy jobs in      ageing societies, creating sustainable jobs and
pre-kindergarten to college to workforce training, and       the future, and the debate over whether innovation       responding to climate change.
will be crucial for the future of livelihoods.               is slowing down or speeding up continues.                    These articles do not cover all angles of livelihoods
    Demographic shifts due to medical progress                   Global security represents a very different          and the challenges and opportunities that shape
and fertility-rate fluctuations also pose significant        livelihood challenge. Since the end of the Cold          their sustainability. But we hope this publication will
challenges to societies. Pensions, for example, need         War, the world has not experienced a major global        spark debate among participants brought together
to be rethought, particularly in wealthier countries,        conflict. Nevertheless, security concerns are            by the OECD Development Centre, the Economist
where people now live long after retirement, and             mounting across the world, and these concerns            Intelligence Unit and the Rockefeller Foundation
                                                                                                                      at the Foundation’s Bellagio Center in August 2014.
                                                                                                                          Exploring key trends and strategies affecting the
                                                                                                                      future of livelihoods, and examining the complex
                                                                                                                      interdependencies of the many factors that shape
                                                                                                                      livelihoods in a systematic way will undoubtedly prove
                                                                                                                      challenging. Identifying potential future scenarios
                                                                                                                      with stories of systems and their interactions
                                                                                                                      demands creativity, imagination, optimism and
                                                                                                                      innovation. We hope the conversation and post-
                                                                                                                      meeting publications will inform and inspire global,
                                                                                                                      national and local debate about the strategies and
                                                                                                                      policies that can secure and improve livelihoods
                                                                                                                      today and in the coming decades.
                                                                                                                          Together we hope to provide strategic guidance
                                                                                                                      to public and private organisations, and the public,
Mario Pezzini                                                Robert Garris                                            on how to address the coming challenges and
Director of the Development Centre                           Managing Director                                        to leverage opportunities to improve livelihoods
OECD                                                         Bellagio Programs                                        across the globe. n
                                                             The Rockefeller Foundation

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                               Reprinted from The Economist - 2014

                                                                                                          Also in this section

                                                                                                           7 The world economy
                                                                                                           9 Poverty
                                                                                                           11 The world economy

                                                                                                       Graeber argues, is not an economic choice;
                                                                                                       it is something the ruling class does to keep
                                                                                                       control over the lives of others.
                                                                                                          Be that as it may, drudgery may soon enough
                                                                                                       give way to frank unemployment. There is
                                                                                                       already a long-term trend towards lower levels
                                                                                                       of employment in some rich countries. The
                                                                                                       proportion of American adults participating
                                                                                                       in the labour force recently hit its lowest
                                                                                                       level since 1978, and although some of that
The future of jobs                                                                                     is due to the effects of ageing, some is not.

The onrushing wave                                                                                     In a recent speech that was modelled in part
                                                                                                       on Keynes’s “Possibilities”, Larry Summers, a
                                                                                                       former American treasury secretary, looked at
Reprinted from The Economist, Jan 18th 2014                                                            employment trends among American men
                                                                                                       between 25 and 54. In the 1960s only one in
Previous technological innovation has always Industrialisation did not end up eliminating the          20 of those men was not working. According
delivered more long-run employment, not need for human workers. On the contrary, it                    to Mr Summers’s extrapolations, in ten years
less. But things can change                      created employment opportunities sufficient to        the number could be one in seven.
                                                 soak up the 20th century’s exploding population.         This is one indication, Mr Summers says,
IN 1930, when the world was “suffering… Keynes’s vision of everyone in the 2030s being                 that technical change is increasingly taking
from a bad attack of economic pessimism”, a lot richer is largely achieved. His belief they            the form of “capital that effectively substitutes
John Maynard Keynes wrote a broadly would work just 15 hours or so a week has                          for labour”. There may be a lot more for such
optimistic essay, “Economic Possibilities for not come to pass.                                        capital to do in the near future. A 2013 paper
our Grandchildren”. It imagined a middle                                                               by Carl Benedikt Frey and Michael Osborne,
way between revolution and stagnation that When the sleeper wakes                                      of the University of Oxford, argued that jobs
would leave the said grandchildren a great Yet some now fear that a new era of automation              are at high risk of being automated in 47% of
deal richer than their grandparents. But the enabled by ever more powerful and capable                 the occupational categories into which work is
path was not without dangers.                    computers could work out differently. They            customarily sorted. That includes accountancy,
   One of the worries Keynes admitted was a start from the observation that, across the rich           legal work, technical writing and a lot of other
“new disease”: “technological unemployment… world, all is far from well in the world of work.          white-collar occupations.
due to our discovery of means of economising The essence of what they see as a work crisis is             Answering the question of whether such
the use of labour outrunning the pace at that in rich countries the wages of the typical               automation could lead to prolonged pain for
which we can find new uses for labour.” His worker, adjusted for cost of living, are stagnant.         workers means taking a close look at past
readers might not have heard of the problem, In America the real wage has hardly budged                experience, theory and technological trends.
he suggested—but they were certain to hear a over the past four decades. Even in places like           The picture suggested by this evidence is a
lot more about it in the years to come.          Britain and Germany, where employment is              complex one. It is also more worrying than
   For the most part, they did not. Nowadays, touching new highs, wages have been flat for             many economists and politicians have been
the majority of economists confidently wave a decade. Recent research suggests that this is            prepared to admit.
such worries away. By raising productivity, they because substituting capital for labour through
argue, any automation which economises on automation is increasingly attractive; as a result           The lathe of heaven
the use of labour will increase incomes. That owners of capital have captured ever more of               Economists take the relationship between
will generate demand for new products and the world’s income since the 1980s, while the                innovation and higher living standards for
services, which will in turn create new jobs share going to labour has fallen.                         granted in part because they believe history
for displaced workers. To think otherwise has       At the same time, even in relatively egalitarian   justifies such a view. Industrialisation clearly
meant being tarred a Luddite—the name taken places like Sweden, inequality among the                   led to enormous rises in incomes and living
by 19th-century textile workers who smashed employed has risen sharply, with the share                 standards over the long run. Yet the road to
the machines taking their jobs.                  going to the highest earners soaring. For             riches was rockier than is often appreciated.
   For much of the 20th century, those arguing those not in the elite, argues David Graeber,              In 1500 an estimated 75% of the British
that technology brought ever more jobs and an anthropologist at the London School of                   labour force toiled in agriculture. By 1800
prosperity looked to have the better of the Economics, much of modern labour consists                  that figure had fallen to 35%. When the shift
debate. Real incomes in Britain scarcely doubled of stultifying “bullshit jobs”—low- and mid-          to manufacturing got under way during the
between the beginning of the common era level screen-sitting that serves simply to occupy              18th century it was overwhelmingly done at
and 1570. They then tripled from 1570 to 1875. workers for whom the economy no longer                  small scale, either within the home or in a
And they more than tripled from 1875 to 1975. has much use. Keeping them employed, Mr                  small workshop; employment in a large factory

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                                     Reprinted from The Economist - 2014

was a rarity. By the end of the 19th century         effects of the imperialism driven by European                          it becomes easier to break production down
huge plants in massive industrial cities were        industrialisation continued to be felt by billions.                    into routine components, then automate those
the norm. The great shift was made possible             The impacts of technological change take                            components as technology allows.
by automation and steam engines.                     their time appearing. They also vary hugely                               If, that is, automation makes sense. As David
   Industrial firms combined human labour            from industry to industry. Although in many                            Autor, an economist at the Massachusetts
with big, expensive capital equipment. To            simple economic models technology pairs                                Institute of Technology (MIT), points out in
maximise the output of that costly machinery,        neatly with capital and labour to produce                              a 2013 paper, the mere fact that a job can be
factory owners reorganised the processes of          output, in practice technological changes do                           automated does not mean that it will be; relative
production. Workers were given one or a few          not affect all workers the same way. Some                              costs also matter. When Nissan produces cars
repetitive tasks, often making components of         find that their skills are complementary to                            in Japan, he notes, it relies heavily on robots.
finished products rather than whole pieces.          new technologies. Others find themselves                               At plants in India, by contrast, the firm relies
Bosses imposed a tight schedule and strict           out of work.                                                           more heavily on cheap local labour.
worker discipline to keep up the productive             Take computers. In the early 20th century a                            Even when machine capabilities are rapidly
pace. The Industrial Revolution was not simply       “computer” was a worker, or a room of workers,                         improving, it can make sense instead to seek
a matter of replacing muscle with steam; it          doing mathematical calculations by hand, often                         out ever cheaper supplies of increasingly skilled
was a matter of reshaping jobs themselves            with the end point of one person’s work the                            labour. Thus since the 1980s (a time when, in
into the sort of precisely defined components        starting point for the next. The development of                        America, the trend towards post-secondary
that steam-driven machinery needed—cogs in           mechanical and electronic computing rendered                           education levelled off) workers there and
a factory system.                                    these arrangements obsolete. But in time it                            elsewhere have found themselves facing
   The way old jobs were done changed; new jobs      greatly increased the productivity of those                            increased competition from both machines
were created. Joel Mokyr, an economic historian      who used the new computers in their work.                              and cheap emerging-market workers.
at Northwestern University in Illinois, argues          Many other technical innovations had similar                           Such processes have steadily and relentlessly
that the more intricate machines, techniques         effects. New machinery displaced handicraft                            squeezed labour out of the manufacturing
and supply chains of the period all required         producers across numerous industries, from                             sector in most rich economies. The share of
careful tending. The workers who provided            textiles to metalworking. At the same time it                          American employment in manufacturing has
that care were well rewarded. As research by         enabled vastly more output per person than                             declined sharply since the 1950s, from almost
Lawrence Katz, of Harvard University, and            craft producers could ever manage.                                     30% to less than 10%. At the same time, jobs
Robert Margo, of Boston University, shows,                                                                                  in services soared, from less than 50% of
employment in manufacturing “hollowed                Player piano                                                           employment to almost 70% (see chart 2). It
out”. As employment grew for highly skilled          For a task to be replaced by a machine, it                             was inevitable, therefore, that firms would
workers and unskilled workers, craft workers         helps a great deal if, like the work of human                          start to apply the same experimentation and
lost out. This was the loss to which the Luddites,   computers, it is already highly routine. Hence                         reorganisation to service industries.
understandably if not effectively, took exception.   the demise of production-line jobs and some                               A new wave of technological progress may
   With the low-skilled workers far more             sorts of book-keeping, lost to the robot and                           dramatically accelerate this automation of
numerous, at least to begin with, the lot of         the spreadsheet. Meanwhile work less easily                            brain-work. Evidence is mounting that rapid
the average worker during the early part of          broken down into a series of stereotyped                               technological progress, which accounted for
this great industrial and social upheaval was        tasks—whether rewarding, as the management                             the long era of rapid productivity growth
not a happy one. As Mr Mokyr notes, “life did        of other workers and the teaching of toddlers                          from the 19th century to the 1970s, is back.
not improve all that much between 1750 and           can be, or more of a grind, like tidying and                           The sort of advances that allow people to
1850.” For 60 years, from 1770 to 1830, growth       cleaning messy work places—has grown as a                              put in their pocket a computer that is not
in British wages, adjusted for inflation, was        share of total employment.                                             only more powerful than any in the world 20
imperceptible because productivity growth               But the “race” aspect of technological                              years ago, but also has far better software and
was restricted to a few industries. Not until the    change means that such workers cannot rest                             far greater access to useful data, as well as to
late 19th century, when the gains had spread         on their pay packets. Firms are constantly                             other people and machines, have implications
across the whole economy, did wages at last          experimenting with new technologies and                                for all sorts of work.
perform in line with productivity (see chart 1).     production processes. Experimentation with                                The case for a highly disruptive period of
   Along with social reforms and new political       different techniques and business models                               economic growth is made by Erik Brynjolfsson
movements that gave voice to the workers, this       requires flexibility, which is one critical advantage                  and Andrew McAfee, professors at MIT, in “The
faster wage growth helped spread the benefits        of a human worker. Yet over time, as best                              Second Machine Age”, a book to be published
of industrialisation across wider segments of        practices are worked out and then codified,                            later this month. Like the first great era of
the population. New investments in education                                                                                industrialisation, they argue, it should deliver
provided a supply of workers for the more                Long time coming                                               1   enormous benefits—but not without a period of
skilled jobs that were by then being created in          Britain’s average annual growth, %                                 disorienting and uncomfortable change. Their
ever greater numbers. This shift continued into                                                                             argument rests on an underappreciated aspect
                                                              Real output per person             Real wages
the 20th century as post-secondary education                                                                                of the exponential growth in chip processing
became increasingly common.                                                                                                 speed, memory capacity and other computer
   Claudia Goldin, an economist at Harvard                                                                        1.5       metrics: that the amount of progress computers
University, and Mr Katz have written that                                                                         1.2       will make in the next few years is always equal
workers were in a “race between education                                                                                   to the progress they have made since the very
and technology” during this period, and for                                                                                 beginning. Mr Brynjolfsson and Mr McAfee
the most part they won. Even so, it was not                                                                       0.6       reckon that the main bottleneck on innovation
until the “golden age” after the second world                                                                     0.3       is the time it takes society to sort through the
war that workers in the rich world secured real                              nil                                            many combinations and permutations of new
prosperity, and a large, property-owning middle          1760-1800 1800-30 1830-60 1860-1900
                                                                                                                            technologies and business models.
class came to dominate politics. At the same                                                                                   A startling progression of inventions seems to
                                                         Source: “Engels’ Pause: Technical Change, Capital
time communism, a legacy of industrialisation’s          Accumulation, and Inequality in the British Industrial             bear their thesis out. Ten years ago technologically
harsh early era, kept hundreds of millions of            Revolution” by R.C. Allen, Explorations in Economic                minded economists pointed to driving cars in
                                                         History (2009)
people around the world in poverty, and the                                                                                 traffic as the sort of human accomplishment

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                                  Reprinted from The Economist - 2014

                                                                   opening the way to eventual automation this          will be real, even if they mostly accrue to
    Bring on the personal trainers                             ?
                                                                   could reduce the satisfaction from such work,        the owners of the machines. Some will be
    Probability that computerisation will lead to job              just as the satisfaction of making things was        spent on goods and services—golf instructors,
    losses within the next two decades, 2013                       reduced by deskilling and interchangeable parts      household help and so on—and most of
                                                                   in the 19th century. If such jobs persist, they      the rest invested in firms that are seeking to
    Job                                       Probability          may engage Mr Graeber’s “bullshit” detector.         expand and presumably hire more labour.
    Recreational therapists                          0.003             Being newly able to do brain work will not       Though inequality could soar in such a world,
    Dentists                                         0.004         stop computers from doing ever more formerly         unemployment would not necessarily spike.
    Athletic trainers                                0.007         manual labour; it will make them better at           The current doldrum in wages may, like that of
                                                                   it. The designers of the latest generation of        the early industrial era, be a temporary matter,
    Clergy                                           0.008
                                                                   industrial robots talk about their creations as      with the good times about to roll (see chart 3).
    Chemical engineers                                0.02         helping workers rather than replacing them;             These jobs may look distinctly different from
    Editors                                           0.06         but there is little doubt that the technology        those they replace. Just as past mechanisation
    Firefighters                                      0.17         will be able to do a bit of both—probably more       freed, or forced, workers into jobs requiring
    Actors                                            0.37         than a bit. A taxi driver will be a rarity in many   more cognitive dexterity, leaps in machine
    Health technologists                              0.40
                                                                   places by the 2030s or 2040s. That sounds            intelligence could create space for people to
                                                                   like bad news for journalists who rely on that       specialise in more emotive occupations, as yet
    Economists                                        0.43
                                                                   most reliable source of local knowledge and          unsuited to machines: a world of artists and
    Commercial pilots                                 0.55         prejudice—but will there be many journalists         therapists, love counsellors and yoga instructors.
    Machinists                                        0.65         left to care? Will there be airline pilots? Or          Such emotional and relational work could
    Word processors and typists                       0.81         traffic cops? Or soldiers?                           be as critical to the future as metal-bashing was
    Real estate sales agents                          0.86             There will still be jobs. Even Mr Frey and Mr    in the past, even if it gets little respect at first.
    Technical writers                                 0.89
                                                                   Osborne, whose research speaks of 47% of job         Cultural norms change slowly. Manufacturing
                                                                   categories being open to automation within           jobs are still often treated as “better”—in some
    Retail salespersons                               0.92
                                                                   two decades, accept that some jobs—especially        vague, non-pecuniary way—than paper-pushing
    Accountants and auditors                          0.94         those currently associated with high levels of       is. To some 18th-century observers, working
    Telemarketers                                     0.99         education and high wages—will survive (see           in the fields was inherently more noble than
    Source: “The Future of Employment: How Susceptible are
                                                                   table). Tyler Cowen, an economist at George          making gewgaws.
    Jobs to Computerisation?” by C.Frey and M.Osborne (2013)       Mason University and a much-read blogger,               But though growth in areas of the economy
                                                                   writes in his most recent book, “Average is Over”,   that are not easily automated provides jobs,
that computers were highly unlikely to master.                     that rich economies seem to be bifurcating into      it does not necessarily help real wages. Mr
Now Google cars are rolling round California                       a small group of workers with skills highly          Summers points out that prices of things-
driver-free no one doubts such mastery is                          complementary with machine intelligence,             made-of-widgets have fallen remarkably in past
possible, though the speed at which fully                          for whom he has high hopes, and the rest,            decades; America’s Bureau of Labour Statistics
self-driving cars will come to market remains                      for whom not so much.                                reckons that today you could get the equivalent
hard to guess.                                                         And although Mr Brynjolfsson and Mr              of an early 1980s television for a twentieth of
                                                                   McAfee rightly point out that developing the         its then price, were it not that no televisions
Brave new world                                                    business models which make the best use of           that poor are still made. However, prices of
Even after computers beat grandmasters at chess                    new technologies will involve trial and error        things not made of widgets, most notably
(once thought highly unlikely), nobody thought                     and human flexibility, it is also the case that      college education and health care, have shot
they could take on people at free-form games                       the second machine age will make such trial          up. If people lived on widgets alone— goods
played in natural language. Then Watson, a                         and error easier. It will be shockingly easy         whose costs have fallen because of both
pattern-recognising supercomputer developed                        to launch a startup, bring a new product to          globalisation and technology—there would
by IBM, bested the best human competitors                          market and sell to billions of global consumers      have been no pause in the increase of real
in America’s popular and syntactically tricksy                     (see article). Those who create or invest in         wages. It is the increase in the prices of stuff
general-knowledge quiz show “Jeopardy!”                            blockbuster ideas may earn unprecedented             that isn’t mechanised (whose supply is often
Versions of Watson are being marketed to                           returns as a result.                                 under the control of the state and perhaps
firms across a range of industries to help with                        In a forthcoming book Thomas Piketty, an         subject to fundamental scarcity) that means
all sorts of pattern-recognition problems. Its                     economist at the Paris School of Economics,          a pay packet goes no further than it used to.
acumen will grow, and its costs fall, as firms                     argues along similar lines that America may             So technological progress squeezes some
learn to harness its abilities.                                    be pioneering a hyper-unequal economic               incomes in the short term before making
   The machines are not just cleverer, they also                   model in which a top 1% of capital-owners
have access to far more data. The combination                      and “supermanagers” grab a growing share of             Not what it was                                           2
of big data and smart machines will take over                      national income and accumulate an increasing            US employment by sector, % of total employment
some occupations wholesale; in others it will                      concentration of national wealth. The rise of
allow firms to do more with fewer workers.                         the middle-class—a 20th-century innovation—                                                                  70
Text-mining programs will displace professional                    was a hugely important political and social                                                                  60
jobs in legal services. Biopsies will be analysed                  development across the world. The squeezing out                        Services
more efficiently by image-processing software                      of that class could generate a more antagonistic,                                                            50
than lab technicians. Accountants may follow                       unstable and potentially dangerous politics.                                                                 40
travel agents and tellers into the unemployment                        The potential for dramatic change is                    Manufacturing                                    30
line as tax software improves. Machines are                        clear. A future of widespread technological
already turning basic sports results and financial                 unemployment is harder for many to accept.                                                                   20
data into good-enough news stories.                                Every great period of innovation has produced                                                                10
   Jobs that are not easily automated may                          its share of labour-market doomsayers, but                              Agriculture
still be transformed. New data-processing                          technological progress has never previously failed                                                           0
                                                                                                                           1948      60     70       80    90       2000   11
technology could break “cognitive” jobs down                       to generate new employment opportunities.
                                                                                                                           Source: US Bureau of Labour Statistics
into smaller and smaller tasks. As well as                             The productivity gains from future automation

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                           Reprinted from The Economist - 2014

                                                  3           than a bygone peasant to have savings. This          concentration of incomes over the past 30 years,
     A history to repeat?                                     means that the “reservation wage”—the wage           on a scale that matches, or even exceeds, the
     Average real wage, year 1=100                            below which a worker will not accept a job—is        first Gilded Age. Including capital gains, the
           Britain, year 1=1770                               now high in historical terms. If governments         share of national income going to the richest
           United States, year 1=1970                         refuse to allow jobless workers to fall too far      1% of Americans has doubled since 1980, from
                                                          160 below the average standard of living, then this      10% to 20%, roughly where it was a century ago.
                                                          140 reservation wage will rise steadily, and ever        Even more striking, the share going to the top
                                                              more workers may find work unattractive. And         0.01%—some 16,000 families with an average
                                                          120 the higher it rises, the greater the incentive to    income of $24m—has quadrupled, from just
                                                          100 invest in capital that replaces labour.              over 1% to almost 5%. That is a bigger slice of
                                                                 Everyone should be able to benefit from           the national pie than the top 0.01% received
                                                          80  productivity gains—in that, Keynes was united        100 years ago.
      1 10 20 30 40 50 60 70 80 90 100
                                                              with his successors. His worry about technological       This is an extraordinary development, and
                         Years since start
                                                              unemployment was mainly a worry about                it is not confined to America. Many countries,
     Sources: “Pessimism Preserved: Real Wages in the
     British Industrial Revolution” by R.C. Allen (2013);     a “temporary phase of maladjustment” as              including Britain, Canada, China, India and
     US Bureau of Labour Statistics                           society and the economy adjusted to ever             even egalitarian Sweden, have seen a rise in
                                                              greater levels of productivity. So it could          the share of national income taken by the top
everyone richer in the long term, and can drive well prove. However, society may find itself                       1%. The numbers of the ultra-wealthy have
up the costs of some things even more than it sorely tested if, as seems possible, growth                          soared around the globe. According to Forbes
eventually increases earnings. As innovation and innovation deliver handsome gains to                              magazine’s rich list, America has some 421
continues, automation may bring down costs the skilled, while the rest cling to dwindling                          billionaires, Russia 96, China 95 and India 48.
in some of those stubborn areas as well, employment opportunities at stagnant wages. n                             The world’s richest man is a Mexican (Carlos
though those dominated by scarcity—such as                                                                         Slim, worth some $69 billion). The world’s
houses in desirable places—are likely to resist                                                                    largest new house belongs to an Indian. Mukesh
the trend, as may those where the state keeps                                                                      Ambani’s 27-storey skyscraper in Mumbai
market forces at bay. But if innovation does                                                                       occupies 400,000 square feet, making it 1,300
make health care or higher education cheaper, The world economy                                                    times bigger than the average shack in the
it will probably be at the cost of more jobs, and                                                                  slums that surround it.
give rise to yet more concentration of income.           For richer, for                                               The concentration of wealth at the very top

The machine stops                                        poorer                                                    is part of a much broader rise in disparities
                                                                                                                   all along the income distribution. The best-
Even if the long-term outlook is rosy, with                                                                        known way of measuring inequality is the Gini
the potential for greater wealth and lots of             Reprinted from The Economist, Oct 13th 2012               coefficient, named after an Italian statistician
new jobs, it does not mean that policymakers                                                                       called Corrado Gini. It aggregates the gaps
should simply sit on their hands in the mean             Growing inequality is one of the biggest                  between people’s incomes into a single measure.
time. Adaptation to past waves of progress               social, economic and political challenges                 If everyone in a group has the same income,
rested on political and policy responses. The            of our time. But it is not inevitable, says               the Gini coefficient is 0; if all income goes to
most obvious are the massive improvements                Zanny Minton Beddoes                                      one person, it is 1.
in educational attainment brought on first                                                                             The level of inequality differs widely around
by the institution of universal secondary                IN 1889, at the height of America’s first Gilded          the world. Emerging economies are more
education and then by the rise of university             Age, George Vanderbilt II, grandson of the                unequal than rich ones. Scandinavian countries
attendance. Policies aimed at similar gains              original railway magnate, set out to build a              have the smallest income disparities, with
would now seem to be in order. But as Mr                 country estate in the Blue Ridge mountains of             a Gini coefficient for disposable income of
Cowen has pointed out, the gains of the 19th             North Carolina. He hired the most prominent               around 0.25. At the other end of the spectrum
and 20th centuries will be hard to duplicate.            architect of the time, toured the chateaux of the         the world’s most unequal, such as South
   Boosting the skills and earning power of              Loire for inspiration, laid a railway to bring in         Africa, register Ginis of around 0.6. (Because
the children of 19th-century farmers and                 limestone from Indiana and employed more                  of the way the scale is constructed, a modest-
labourers took little more than offering schools         than 1,000 labourers. Six years later “Biltmore”          sounding difference in the Gini ratio implies
where they could learn to read, write and do             was completed. With 250 rooms spread over                 a big difference in inequality.)
algebra. Pushing a large proportion of college           175,000 square feet (16,000 square metres), the               Income gaps have also changed to varying
graduates to complete graduate work successfully         mansion was 300 times bigger than the average             degrees. America’s Gini for disposable income is
will be harder and more expensive. Perhaps               dwelling of its day. It had central heating, an           up by almost 30% since 1980, to 0.39. Sweden’s
cheap and innovative online education will               indoor swimming pool, a bowling alley, lifts              is up by a quarter, to 0.24. China’s has risen by
indeed make new attainment possible. But                 and an intercom system at a time when most
as Mr Cowen notes, such programmes may                   American homes had neither electricity nor
tend to deliver big gains only for the most              indoor plumbing.
conscientious students.                                     A bit over a century later, America’s second
   Another way in which previous adaptation              Gilded Age has nothing quite like the Vanderbilt
is not necessarily a good guide to future                extravaganza. Bill Gates’s home near Seattle is
employment is the existence of welfare. The              full of high-tech gizmos, but, at 66,000 square
alternative to joining the 19th-century industrial       feet, it is a mere 30 times bigger than the average
proletariat was malnourished deprivation.                modern American home. Disparities in wealth
Today, because of measures introduced in                 are less visible in Americans’ everyday lives
response to, and to some extent on the proceeds          today than they were a century ago. Even
of, industrialisation, people in the developed           poor people have televisions, air conditioners
world are provided with unemployment                     and cars.
benefits, disability allowances and other forms             But appearances deceive. The democratisation
of welfare. They are also much more likely               of living standards has masked a dramatic

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                                                                         Reprinted from The Economist - 2014

                                                                                                                                    36                                               18.6
                                                                                                                                    4.0                                             Russia
                                                                                       421‡                                      Britain
More or less unequal                                                                   10.5
Income inequality, Gini coefficient*                                                                                          55                                                                    95
                                                                                  United States                               7.2                                                    48             2.6
      1980 or earliest              2010 or latest                                                                                                                                  10.9
                                                                                                                           Germany                                                                China
                 0     0.1 0.2 0.3 0.4 0.5 0.6 0.7                                                                                                                                  India
 South Africa                                                     % change in
Brazil                                                            inequality
 China                                                                                                          37
                                                                      More equal                                6.2                                                             Number of
 United States                                                        20              No data                                                                            inequality of disposable income; where
                                                                                                                           Sources: Forbes;                        unavailable consumption or expenditure data
 Sweden                                                               More unequal                                         IMF; The Economist       †Or closest year available ‡September 2012 §March 2012

around 50% to 0.42 (and by some measures      narrowing seemed so inevitable that Simon                                                                       economies, more inequality often means that
to 0.48). The biggest exception to the generalKuznets, a Belarusian-born Harvard economist,                                                                   people at the bottom and even in the middle
upward trend is Latin America, long the world’s
                                              in 1955 famously described the relationship                                                                     of the income distribution are falling behind
most unequal continent, where Gini coefficients
                                              between inequality and prosperity as an                                                                         not just in relative but also in absolute terms.
have fallen sharply over the past ten years.  upside-down U. According to the “Kuznets                                                                           The Occupy Wall Street campaign proved
But the majority of the people on the planet  curve”, inequality rises in the early stages of                                                                 incoherent and ephemeral, but inequality and
live in countries where income disparities    industrialisation as people leave the land,                                                                     fairness have moved right up the political
are bigger than they were a generation ago.   become more productive and earn more in                                                                         agenda. America’s presidential election is
   That does not mean the world as a whole hasfactories. Once industrialisation is complete and                                                               largely being fought over questions such as
become more unequal. Global inequality—the    better-educated citizens demand redistribution                                                                  whether taxes should rise at the top, and how
income gaps between all people on the planet— from their government, it declines again.                                                                       big a role government should play in helping
has begun to fall as poorer countries catch      Until 1980 this prediction appeared to have                                                                  the rest. In Europe France’s new president,
up with richer ones. Two French economists,   been vindicated. But the past 30 years have put                                                                 François Hollande, wants a top income-tax
François Bourguignon and Christian Morrisson, paid to the Kuznets curve, at least in advanced                                                                 rate of 75%. New surcharges on the richest
have calculated a “global Gini” that measures economies. These days the inverted U has turned                                                                 are part of austerity programmes in Portugal
the scale of income disparities among everyoneinto something closer to an italicised N, with                                                                  and Spain.
in the world. Their index shows that global   the final stroke pointing menacingly upwards.                                                                      Even in more buoyant emerging economies,
inequality rose in the 19th and 20th centuries   Although inequality has been on the rise                                                                     inequality is a growing worry. India’s government
because richer economies, on average, grew    for three decades, its political prominence                                                                     is under fire for the lack of “inclusive growth”
faster than poorer ones. Recently that patternis newer. During the go-go years before the                                                                     and for cronyism that has enriched insiders,
has reversed and global inequality has startedfinancial crisis, growing disparities were hardly                                                               evident from dubious mobile-phone-spectrum
to fall even as inequality within many countries
                                              at the top of politicians’ to-do list. One reason                                                               auctions and dodgy mining deals. China’s leaders
has risen. By that measure, the planet as a   was that asset bubbles and cheap credit eased                                                                   fear that growing disparities will cause social
whole is becoming a fairer place. But in a    life for everyone. Financiers were growing                                                                      unrest. Wen Jiabao, the outgoing prime minister,
world of nation states it is inequality withinfabulously wealthy in the early 2000s, but                                                                      has long pushed for a “harmonious society”.
countries that has political salience, and this
                                              others could also borrow ever more against                                                                         Many economists, too, now worry that
special report will focus on that.            the value of their home.                                                                                        widening income disparities may have
                                                 That changed after the crash. The bank                                                                       damaging side-effects. In theory, inequality
From U to N                                   rescues shone a spotlight on the unfairness                                                                     has an ambiguous relationship with prosperity.
The widening of income gaps is a reversal of of a system in which affluent bankers were                                                                       It can boost growth, because richer folk save
the pattern in much of the 20th century, when bailed out whereas ordinary folk lost their                                                                     and invest more and because people work
inequality narrowed in many countries. That houses and jobs. And in today’s sluggish                                                                          harder in response to incentives. But big

Gini coefficient*, late 2000s                                   Global inequality, Gini coefficient*                                              Top 1% income share‡, %
     Market income               Disposable income                                                                                                       US          Britain          Germany             France         Sweden

           0         0.1   0.2      0.3      0.4      0.5                                                                                 0.70                                                                                  30
States                                                                                                                                    0.65                                                                                  25
Britain                                                                                                                                                                                                                         20
Japan                                                                                                                                                                                                                           15
OECD-29                                                                                                                                   0.55
Germany                                                                                                                                   0.50                                                                                  5
Sweden                                                         1820      50       70   90 1910 29          50         70      92 2008†            1913 20       30     40      50      60    70      80     90 2000 10

Sources: The World Top Incomes Database; IMF; OECD; World Bank; “Inequality among World Citizens: 1820-1992", by Bourguignon & Morrisson, The American                         *0=perfect equality, 1=perfect inequality †Estimate
Economic Review, 2002; "A short history of global inequality: The past two centuries”, by Branko Milanovic, Explorations in Economic History, May 2011                           ‡Includes capital gains, except Britain and France

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                   Reprinted from The Economist - 2014

income gaps can also be inefficient, because         do not do very well. Yet the 20th century’s focus
they can bar talented poor people from access        on redistribution brought its own problems.
to education or feed resentment that results in      Too often high-tax welfare states turned out to
growth-destroying populist policies.                 be inefficient and unsustainable. Government
   The mainstream consensus has long been            cures for inequality have sometimes been
that a growing economy raises all boats, to          worse than the disease itself.
much better effect than incentive-dulling               This special report will explore how 21st-
redistribution. Robert Lucas, a Nobel prize-         century capitalism should respond to the present
winner, epitomised the orthodoxy when                challenge; it will examine the recent history
he wrote in 2003 that “of the tendencies             of both inequality and social mobility; and it
that are harmful to sound economics, the             will offer four contemporary case studies: the
most seductive and…poisonous is to focus             United States, emerging Asia, Latin America
on questions of distribution.”                       and Sweden. Based on this evidence it will          poverty could be halved in the past two decades,
   But now the economics establishment has           make three arguments. First, although the           why should the other half not be got rid of
become concerned about who gets what.                modern global economy is leading to wider           in the next two? If 21% was possible in 2010,
Research by economists at the IMF suggests           gaps between the more and the less educated,        why not 1% in 2030?
that income inequality slows growth, causes          a big driver of today’s income distributions           Why not indeed? In April at a press conference
financial crises and weakens demand. In a recent     is government policy. Second, a lot of today’s      during the spring meeting of the international
report the Asian Development Bank argued             inequality is inefficient, particularly in the      financial institutions in Washington, DC, the
that if emerging Asia’s income distribution          most unequal countries. It reflects market and      president of the World Bank, Jim Yong Kim,
had not worsened over the past 20 years, the         government failures that also reduce growth.        scrawled the figure “2030” on a sheet of
region’s rapid growth would have lifted an           And where this is happening, bigger income          paper, held it up and announced, “This is it.
extra 240m people out of extreme poverty.            gaps themselves are likely to reduce both social    This is the global target to end poverty.” He
More controversial studies purport to link           mobility and future prosperity.                     was echoing Barack Obama who, in February,
widening income gaps with all manner of                 Third, there is a reform agenda to reduce        promised that “the United States will join with
ills, from obesity to suicide.                       income disparities that makes sense whatever        our allies to eradicate such extreme poverty
   The widening gaps within many countries           your attitude towards fairness. It is not about     in the next two decades.”
are beginning to worry even the plutocrats.          higher taxes and more handouts. Both in rich           This week, that target takes its first step
A survey for the World Economic Forum                and emerging economies, it is about attacking       towards formal endorsement as an aim of
meeting at Davos pointed to inequality as the        cronyism and investing in the young. You could      policy round the world. The leaders of Britain,
most pressing problem of the coming decade           call it a “True Progressivism”. n                   Indonesia and Liberia are due to recommend
(alongside fiscal imbalances). In all sections of                                                        to the UN a list of post-2015 MDGs. It will be
society, there is growing agreement that the                                                             headed by a promise to end extreme poverty
world is becoming more unequal, and that                                                                 by 2030.
today’s disparities and their likely trajectory                                                             There is a lot of debate about what exactly
are dangerous.                                       Poverty                                             counts as poverty and how best to measure
                                                                                                         it. But by any measure, the eradication of
Not so fast                                          Not always with us                                  $1.25-a-day poverty would be an astonishing
That is too simplistic. Inequality, as measured                                                          achievement. Throughout history, dire poverty
by Gini coefficients, is simply a snapshot of        Reprinted from The Economist, Jun 1st 2013          has been a basic condition of the mass of
outcomes. It does not tell you why those gaps                                                            mankind. Thomas Malthus, a British clergyman
have opened up or what the trend is over             The world has an astonishing chance to              who founded the science of demography, wrote
time. And like any snapshot, the picture can         take a billion people out of extreme poverty        in 1798 that it was impossible for people to
be misleading. Income gaps can arise for good        by 2030                                             “feel no anxiety about providing the means of
reasons (such as when people are rewarded                                                                subsistence for themselves and [their] families”
for productive work) or for bad ones (if poorer      IN SEPTEMBER 2000 the heads of 147                  and that “no possible form of society could
children do not get the same opportunities as        governments pledged that they would halve           prevent the almost constant action of misery
richer ones). Equally, inequality of outcomes        the proportion of people on the Earth living in     upon a great part of mankind.” For most
might be acceptable if the gaps are between          the direst poverty by 2015, using the poverty       countries, poverty was not even a problem;
young people and older folk, so may shrink           rate in 1990 as a baseline. It was the first of     it was a plain, unchangeable fact.
over time. But in societies without this sort        a litany of worthy aims enshrined in the               To eradicate extreme poverty would also
of mobility a high Gini is troubling.                United Nations “millennium development              be remarkable given the number of occasions
   Some societies are more concerned about           goals” (MDGs). Many of these aims—such as
equality of opportunity, others more about           cutting maternal mortality by three quarters           Hooray!                                                   1
equality of outcome. Europeans tend to be            and child mortality by two thirds—have not             Global poverty rate, %
more egalitarian, believing that in a fair society   been met. But the goal of halving poverty has                                                               50
there should be no big income gaps. Americans        been. Indeed, it was achieved five years early.                                      Baseline scenario
and Chinese put more emphasis on equality               In 1990, 43% of the population of developing                                      Range based on best    40
of opportunity. Provided people can move up          countries lived in extreme poverty (then                                             and worst scenarios
the social ladder, they believe a society with       defined as subsisting on $1 a day); the absolute                                                            30
wide income gaps can still be fair. Whatever         number was 1.9 billion people. By 2000 the                                                                  20
people’s preferences, static measures of income      proportion was down to a third. By 2010 it was
gaps tell only half the story.                       21% (or 1.2 billion; the poverty line was then                                                              10
   Despite the lack of nuance, today’s debate over   $1.25, the average of the 15 poorest countries’
inequality will have important consequences.         own poverty lines in 2005 prices, adjusted for                                                              0
The unstable history of Latin America, long the      differences in purchasing power). The global           1990 95 2000 05          10    15    20    25   30
continent with the biggest income gaps, suggests     poverty rate had been cut in half in 20 years.         Source: Laurence Chandy, Natasha Ledlie and
                                                                                                            Veronika Penciakova
that countries run by entrenched wealthy elites         That raised an obvious question. If extreme

In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
Livelihoods: The big picture
                                                                                                                                                       Reprinted from The Economist - 2014

                                                                               since the 1930s. The three regions with the                    would have to be maintained at something like
     The fireman’s helmet                                              2
                                                                               largest numbers of poor people all registered                  its current rate. Most forecasters do expect that
     Number of people in poverty, m                                            strong gains in GDP after the recession: at 8%                 to happen, though problems in Europe could
                                                                               a year in East Asia; 7% in South Asia; 5% in                   spill over and damage the global economy. Such
                                                               80              Africa. As a rough guide, every 1% increase in                 long-range forecasts are inevitably unreliable but
                                                               70              GDP per head reduces poverty by around 1.7%.                   two broad trends make an optimistic account
                                                                                  GDP, though, is not necessarily the best measure            somewhat plausible. One is that fast-growing
                     2000                                                      of living standards and poverty reduction. It is               developing countries are trading more with
                                                               50              usually better to look at household consumption                each other, making them more resilient than
                                                               40              based on surveys. Martin Ravallion, until                      they used to be to shocks from the rich world.
                                   2020                                        recently the World Bank’s head of research,                    The other trend is that the two parts of the
                                                   2030                        took 900 such surveys in 125 developing                        world with the largest numbers of poor people,
                                                                               countries. These show, he calculates, that                     India and Africa, are seeing an expansion
                                                                               consumption in developing countries has                        of their working-age populations relative to
                                                               0               grown by just under 2% a year since 1980. But                  the numbers of dependent children and old
     0        1            2         3         4          5                    there has been a sharp increase since 2000.                    people. Even so, countries potentially face a
              Mean daily consumption (PPP $)
                                                                               Before that, annual growth was 0.9%; after it,                 problem of diminishing returns which could
     Source: Laurence Chandy, Natasha Ledlie
     and Veronika Penciakova
                                                                               the rate leapt to 4.3%.                                        make progress at the second stage slower
                                                                                  Growth alone does not guarantee less                        than at the first.
when politicians have promised to achieve                                      poverty. Income distribution matters, too.                        There is no sign so far that returns are in
the goal and failed. “We do have an historic                                   One estimate found that two thirds of the                      fact diminishing. The poverty rate has fallen
opportunity this year to make poverty history,”                                fall in poverty was the result of growth; one-                 at a robust one percentage point a year over
said Tony Blair, Britain’s prime minister in                                   third came from greater equality. More equal                   the past 30 years—and there has been no
2005. Three years before that, Thabo Mbeki,                                    countries cut poverty further and faster than                  tailing off since 2005. But diminishing returns
South Africa’s president said that “for the                                    unequal ones. Mr Ravallion reckons that a                      could occur for two reasons. When poverty
first time in human history, society has the                                   1% increase in incomes cut poverty by 0.6%                     within a country falls to very low levels, the
capacity, the knowledge and the resources to                                   in the most unequal countries but by 4.3% in                   few remaining poor are the hardest to reach.
eradicate poverty.” Going further back: “For                                   the most equal ones.                                           And, globally, as more people in countries
the first time in our history,” said Lyndon                                       The country that cut poverty the most was                   such as China become middle class, poverty
Johnson, “it is possible to conquer poverty.”                                  China, which in 1980 had the largest number                    will become concentrated in fragile or failing
That was in 1964. Much will have to change                                     of poor people anywhere. China saw a huge                      states which have seen little poverty reduction
if Mr Kim’s piece of paper is not to become                                    increase in income inequality—but even more                    to date.
one more empty promise.                                                        growth. Between 1981 and 2010 it lifted a
   So how realistic is it to think the world can                               stunning 680m people out poverty—more                          The sweetest spot
end extreme poverty in a generation? To meet                                   than the entire current population of Latin                    In a study for the Brookings Institution, a think-
its target would mean maintaining the annual                                   America. This cut its poverty rate from 84%                    tank in Washington, DC, Laurence Chandy,
one-percentage-point cut in the poverty rate                                   in 1980 to about 10% now. China alone                          Natasha Ledlie and Veronika Penciakova look
achieved in 1990-2010 for another 20 years.                                    accounts for around three quarters of the                      at the distribution of consumption (how many
That would be hard. It will be more difficult                                  world’s total decline in extreme poverty over                  people consume $1 a day, $2 a day and so on)
to rescue the second billion from poverty                                      the past 30 years.                                             in developing countries. They show how it has
than it was the first. Yet it can be done. The                                    What is less often realised is that the recent              changed over time, and how it might change
world has not only cut poverty a lot but also                                  story of poverty reduction has not been all                    in future. Plotted on a chart, the distribution
learned much about how to do it. Poverty can                                   about China. Between 1980 and 2000 growth                      looks like a fireman’s helmet, with a peak in
be reduced, albeit not to zero. But a lot will                                 in developing countries outside the Middle                     front and a long tail behind. In 1990 there
have to go right if that is to happen.                                         Kingdom was 0.6% a year. From 2000 to 2010                     were hardly any people with no income at
                                                                               the rate rose to 3.8%—similar to the pattern if                all, then a peak just below the poverty line
Growth Decreases Poverty                                                       you include China. Mr Ravallion calculates                     and then a long tail of richer folk extending
In 1990-2010 the driving force behind the                                      that the acceleration in growth outside China                  off to the right (see chart 2).
reduction of worldwide poverty was growth.                                     since 2000 has cut the number of people in                        As countries get richer, the helmet moves to
Over the past decade, developing countries                                     extreme poverty by 280m.                                       the right, reflecting the growth in household
have boosted their GDP about 6% a year—1.5                                        Can this continue? And if it does, will it                  consumption. The faster the rate, the farther
points more than in 1960-90. This happened                                     eradicate extreme poverty by 2030?                             to the right the line moves, so the strong 4.3%
despite the worst worldwide economic crisis                                       To keep poverty reduction going, growth                     annual growth in consumption since 2000 has
                                                                                                                                              pushed the line a good distance rightward.
     Chapters one to three                                                                                                                3      But the shape of the line also matters. The
                                                                                                                                              chart shows that in 1990 and 2000, the peak
     Number of people in poverty, m                                                                 1990            2010        2030
                                                                                                                                              was positioned slightly to the left of the poverty
     China                                          India                                       Sub-saharan Africa                            line. As the shape moved to the right, it took
         $1.25                                            $1.25                                     $1.25
                                              30                                           30                                        30       a section of the peak to the other side of the
                                              25                                           25                                        25       poverty mark. This represents the surge of
                                              20                                           20                                        20       people who escaped poverty in 1990-2010.
                                              15                                           15                                        15          At the moment the world is at a unique sweet
                                              10                                           10                                        10       spot. More people are living at $1.25 than at
                                              5                                            5                                         5        any other level of consumption. This means
                                              0                                            0                                         0        growth will result in more people moving
     0    1      2     3       4    5     6         0      1       2       3   4   5   6        0    1      2   3    4     5    6
                                                                                                                                              across the international poverty line than
         Mean daily consumption (PPP $)                   Mean daily consumption (PPP $)            Mean daily consumption (PPP $)
                                                                                                                                              across any other level of consumption. This
     Source: Laurence Chandy, Natasha Ledlie and Veronika Penciakova
                                                                                                                                              is a big reason why growth is still producing

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