Technology is changing. The climate is changing. Economic inequality is growing. These issues dominate much public debate and shape policy discussions from local city council meetings to the United Nations. Can we tackle them, or are the issues divisive enough that they’ll eventually get the better of us? In terms of global poverty, economist Marcelo Giugale believes that human beings have the resources and will to overcome the dire state of circumstances under which many people live. In this excerpt from his latest book, Economic Development: What Everyone Needs to Know, Giugale asserts that humans have the means to quash abject poverty on a global scale and make it a thing of the past.
Define poverty as living with two dollars a day or less. Now imagine that governments could put those two dollars and one cent in every poor person’s pocket with little effort and minimal waste. Poverty is finished. Of course, things are more complicated than that. But you get a sense of where modern social policy is going—and what will soon be possible.To start with, there is a budding consensus—amply corroborated by the 2008–9 global crisis—on what reduces poverty: it is the combination of fast and sustained economic growth (more jobs), stable consumer prices (no inflation), and targeted redistribution (subsidies only to the poor). On those three fronts, developing countries are beginning to make real progress.
So, where will poverty fighters focus next? First, on better jobs. What matters to reduce poverty is not just jobs, but how productive that employment is. This highlights the need for a broad agenda of reforms to make an economy more competitive. It also points toward something much closer to the individual: skills, both cognitive (e.g., critical thinking or communication ability) and non-cognitive (e.g., attitude toward newness or sense of responsibility).
Second, poverty fighters will target projects that augment human opportunity. As will be explained next, it is now possible to measure how important personal circumstances—like skin color, birthplace, or gender—are in a child’s probability of accessing the services—like education, clean water, or the Internet—necessary to succeed in life. That measure, called the Human Opportunity Index, has opened the door for policymakers to focus not just on giving everybody the same rewards but also the same chances, not just on equality but on equity. A few countries, mostly in Latin America, now evaluate existing social programs, and design new ones, with equality of opportunity in mind. Others will follow.
And third, greater focus will be put on lowering social risk and enhancing social protection. A few quarters of recession, a sudden inflationary spike, or a natural disaster, and poverty counts skyrocket—and stay sky-high for years. The technology to protect the middle class from slipping into poverty, and the poor from sinking even deeper, is still rudimentary in the developing world. Just think of the scant coverage of unemployment insurance.
But the real breakthrough is that, to raise productivity, expand opportunity, or reduce risk, you now have a power tool: direct cash transfers. Most developing countries (thirty-five of them in Africa) have, over the last ten years, set up logistical mechanisms to send money directly to the poor—mainly through debit cards and cell phones. Initially, the emphasis was on the conditions attached to the transfer, such as keeping your child in school or visiting a clinic if you were pregnant. It soon became clear that the value of these programs was to be found less in their conditions than in the fact that they forced government agencies to know the poor by name. Now we know where they live, how much they earn, and how many kids they have.
That kind of state–citizen relationship is transforming social policy. Think of the massive amount of information it is generating in real time—how much things actually cost, what people really prefer, what impact government is having, what remains to be done. This is helping improve the quality of expenditures, that is, better targeting, design, efficiency, fairness, and, ultimately, results. It also helps deal with shocks like the global crisis (have you ever wondered why there was no social explosion in Mexico when the US economy nose-dived in early 2009?). Sure, giving away taxpayers’ money was bound to cause debate (how do you know you are not financing bums?). But so far, direct transfers have survived political transitions, from left to right (Chile) and from right to left (El Salvador). The debate has been about doing transfers well, not about abandoning them.
A final point. For all the promise of new poverty-reduction techniques, just getting everybody in the developing world over the two-dollar-a-day threshold would be no moral success. To understand why, try to picture your own life on a two-dollar-a-day budget (really, do it). But it would be a very good beginning.
Marcelo M. Giugale is the Director of Economic Policy and Poverty Reduction Programs for Africa at the World Bank and the author of Economic Development: What Everyone Needs to Know. A development expert and writer, his twenty-five years of experience span Africa, Central Asia, Eastern Europe, Latin-America and the Middle-East. He received decorations from the governments of Bolivia and Peru, and taught at American University in Cairo, the London School of Economics, and Universidad Católica Argentina.