There is no question that “extreme poverty” by whatever definition has shrunk across the globe over the last 20 plus years. Although hundreds of millions of people are still living in squalid conditions with no running water and little to no food security, the overall percentage of desperately destitute and starving people on Earth has declined notably over the last couple of decades.
In fact, according to a new report from the World Bank, based on its new definition of “extreme poverty”, less than 10% of the world’s population is poor. The World Bank report notes that the trend is mainly related to strong economic growth rates in developing countries and continued investments in education, health, and social safety nets.
Michael Mauboussin: Here’s what active managers can do
New poverty numbers come with a major caveat
In 2015, the World Bank decided to use a new income figure of $1.90 per day to define “extreme poverty.” This figure is up more than 50% from $1.25 per day figure for extreme poverty used since 2005. Based on this new figure, the percentage of the world’s population in extreme poverty declines from 12.8% in 2012 to 9.6% today.
However, one has to take this new 50% higher definition of poverty with a grain of salt. Granted it’s important to compare apples to apples, and the definition of poverty certainly needs to be moved up over time to reflect inflation. But moving it up 50% in one year obviously dramatically skews the results as it would lead one to think that global poverty had dropped by more than 2% from 2014 to 2015.
The key question is why is the extreme poverty level number not updated annually or at least biannually. Waiting 10 years to update it is a very bad idea as it leads to distortions in the statistics like we are seeing in this year’s numbers compared to last year’s numbers. Keep in mind that most global policy analysts would agree that given ongoing conflicts in the Middle East and elsewhere, as well as slowing economic growth across the world, global poverty has actually increased notably over the last 12 months.
Statement from World Bank president
“We are the first generation in human history that can end extreme poverty,” World Bank President Jim Yong Kim commented in the press release on the new report.
That said, he went on to note that continued progress would be “extraordinarily hard, especially in a period of slower global growth, volatile financial markets, conflicts, high youth unemployment, and the growing impact of climate change“.
The World bank report also noted that extreme poverty is “becoming deeper and more entrenched in countries that are either conflict ridden or overly dependent on commodity exports”.
See full study below.