Tackling Inequality Vital to Ending Extreme Poverty by 2030

A new World Bank study on poverty and shared prosperity says that extreme poverty worldwide continues to fall despite the lethargic state of the global economy. But it warns that given projected growth trends, reducing high inequality may be a necessary component to reaching the world’s goal of ending extreme poverty by 2030.  

According to the inaugural edition of Poverty and Shared Prosperity—a new series that will report on the latest and most accurate estimates and trends in global poverty and shared prosperity annually—nearly 800 million people lived on less than US $ 1.90 a day in 2013. That is around 100 million fewer extremely poor people than in 2012.

Progress on extreme poverty was driven mainly by East Asia and Pacific, especially China and Indonesia, and by India. Half of the world’s extreme poor now live in Sub-Saharan Africa, and another third live in South Asia.

In 60 out of the 83 countries covered by the new report to track shared prosperity, average incomes went up for people living in the bottom 40 percent of their countries between 2008 and 2013, despite the financial crisis. Importantly, these countries represent 67 percent of the world’s population.

“It’s remarkable that countries have continued to reduce poverty and boost shared prosperity at a time when the global economy is underperforming—but still far too many people live with far too little,” said World Bank Group President Jim Yong Kim. “Unless we can resume faster global growth and reduce inequality, we risk missing our World Bank target of ending extreme poverty by 2030. The message is clear: to end poverty, we must make growth work for the poorest, and one of the surest ways to do that is to reduce high inequality, especially in those countries where many poor people live.”

Taking on Inequality

Contrary to popular belief, inequality between all people in the world has declined consistently since 1990. And even within-country inequality has been falling in many places since 2008—for every country that saw a substantial increase in inequality during this time period, two others saw a similar decrease. Inequality is still far too high, however, and important concerns remain around the concentration of wealth among those at the top of the income distribution.

Noting “no room for complacency” the reports finds that in 34 of 83 countries monitored, income gaps widened as incomes grew faster among the wealthiest 60 percent of people than among the bottom 40. And in 23 countries, the bottom 40 saw their incomes actually decline during these years: not just relative to wealthier members of society, but in absolute terms.

By studying a group of countries including Brazil, Cambodia, Mali, Peru, and Tanzania, which have reduced inequality significantly over recent years, and examining a wide body of available evidence, Bank researchers identified the following six high-impact strategies: policies with a proven track record of building poor people’s earnings, improving their access to essential services, and improving their long-term development prospects, without damaging growth.

These policies work best when paired with strong growth, good macroeconomic management, and well-functioning labor markets that create jobs and enable the poorest to take advantage of those opportunities.

Early childhood development and nutrition: these measures help children during their first 1,000 days of life, as nutritional deficiencies and cognitive underdevelopment during this period can lead to learning delays and lower educational achievement later in life.

Universal health coverage: Bringing coverage to those excluded from affordable and timely health care reduces inequality while at the same time increasing people’s capacity to learn, work, and progress.   

Universal access to quality education: school enrollments have grown across the globe, and the focus must shift from simply getting children into school towards ensuring that every child, everywhere benefits from a quality education. Education for all children must prioritize universal learning, knowledge, and skills development, as well as teacher quality. 

Cash transfers to poor families: These programs provide poor families with basic incomes, enabling them to keep children in school and allowing mothers to access basic health care. They can also help families buy things like seeds, fertilizer, or livestock, and cope with drought, floods, pandemics, economic crises, or other potentially devastating shocks. They have been shown to considerably reduce poverty and create opportunity for parents and children alike.   

Rural infrastructure- especially roads and electrification: Building rural roads reduces transportation costs, connects rural farmers to markets to sell their goods, allows workers to move more freely, and promotes access to schools and health care clinics. Electrification in rural communities in Guatemala and South Africa, for example, has helped increase women’s employment. Electricity also makes small home-based businesses more viable and productive, which is particularly of use in poor, rural communities.

Progressive taxation: Fair, progressive taxes can fund government policies and programs needed to level the playing field and transfer resources to the poorest, and tax systems can be designed to decrease inequality while at the same time keeping efficiency costs low.

“Some of these measures can rapidly affect income inequality. Others deliver benefits more gradually. None is a miracle cure,” said Kim. “But all are supported by strong evidence, and many are within the financial and technical reach of countries. Adopting the same policies doesn’t mean that all countries will get the same results, but the policies we’ve identified have worked repeatedly in different settings around the world”.