World Poverty:The Darkside of Fairy Tales.

There is always a great deal of talk about world poverty. Flyers come through our doors, advertisements on the TV, news stories of the latest tragedy, be it: drought, hurricane, earthquake, famine or volcano. We are all, or should be aware of the plight of others that share the planet with us. We talk, we like to talk, we plan, we like to plan, and we set targets, we like to set targets as does the World Bank (WB). If we are a politician or a top echelon bureaucrat we have lunch and/or dinner and we discuss the problem, set a target, job done, problem solved, until the next meeting. Chow!

The World Bank (WB) has noted a sizable drop in the number of people adjudged to be living in ‘extreme’ poverty. Their figures tell us that between 1981 and 2005 that those living below the poverty line have fallen by 40% from 2billion to 1.2bn, a very significant number. www.globalpublicsquare.blogs.cnn.com  The basis of their analysis is correlated from a $1 a-day spending threshold. It should be a time to celebrate but the story is not as glossy as first appears.

China, now the world’s second most industrialised nation accounted for 680 million souls being lifted from ‘extreme’ poverty. However, outside of China poverty only fell by 10% and in Africa, poverty actually doubled! (bbc.co.uk)

thCA2OLY29China’s success story has given heart to those who seek an eradication of poverty, as we all do, but how realistic is the goal? There has been significant industrial development in the country, leading to a 10 fold increase in Gross Domestic Product (GDP) since 1978 (CIA). In the last decade, China has grown on average above 8% per annum. Millions of their workers have obviously got employment and earn a wage and therefore based on the WB threshold of $1 a-day have risen above what constitutes ‘extreme’ poverty. Can China sustain its present development course?

China has helped change the figure but cannot maintain such drops in poverty level.”                   Laurance Chandy, Brooking Institution.

How reliable is the statement by Chandy? There are a number of pointers to suggest that Chandy might be right in his analysis. For example, “ …per capita income is below world average.”  This means that the ordinary people don’t have much to spend and therefore China will find it hard to develop a strong and viable home market for its goods. A strong tendency to save rather than spend compounds the situation.  Consequently, the country is more reliant on the export market. Increased foreign trade would be a possibility if the world economy was thriving but unfortunately business worldwide is contracting which has affected China’s growth rate:                                         2010=10.4%     2011=9.3%            2012=7.8%

Growth is sluggish throughout the world as economies find it hard to bounce back from the banking collapse of 2008 which brought about the world recession. No one knows quite how long the recession will last and economists have differing views on how to overcome the depth and extent of the crises. The facts are stark: five years on, as of May 2013, 9 out of 17 countries of the European Union (EU) are in recession. Nor does the future look bright according to the new Bank of England, Governor: “Deep challenges persist in its financial system. [Europe] Without sustained and significant reforms, a decade of stagnation threatens.” (dailymail.co.uk May 22nd 2013)

Brazil is teetering on the brink with an industrial production growth rate of -0.3% for 2012. (CIA) India, likewise is feeling the strain as it tries to control inflation. The USA, the world’s largest economy is growing at around 2%, not as positive as it could be. The importance of these figures is that trade is obviously affected and thus China’s ability to export its goods is seriously hit.

Equally damaging for China is an analysis carried out by, Dr Damian Tobin, which highlights serious flaws in the nation’s economic longevity. www.bbc.co.uk/new/business-13945072

“…inequality in China has now surpassed that in the United States, and surged through the 0.4 level in the mid-2000s.” This is based on a rating called a ‘Gini-coefficient’.

“A Gini-coefficient of 0.4 is generally regarded as an international warning level for dangerous levels of inequality.” China’s Gini-coefficient stood at 0.47 in 2010.  The Gini-coefficient is named after the originator, an Italian sociologist called Gini in 1912.

I can only assume that Dr Tobin, when talking about ‘dangerous levels of inequality’ is alluding to political consequences. In the past glaring inequality has brought attempts at and actual revolution.

While America is a deeply unequal society it has in its favour an embedded cultural belief in democracy. China, on the other hand has a history of dictatorship, latterly a communist dictatorship. The question arises therefore as to how the people respond to any major downturn in the economy and how that will affect their new found aspirations. There is a distinct East/West divide in China, generated by the rapid industrialisation that has taken place. It has become a nation of haves and have-nots.

Moreover, poverty is not restricted to rural areas or to the Western provinces, urban poor are on the increase; in 1993 the figure stood at 12m, which rose to 22m by 2006. (Wall St Journal). Of course this could be due in large measure to the huge migration from the countryside to the towns and cities. It is estimated that a vast army of 250m has made the move; this in itself creates a massive social problem. As yet China has been able to cope and has avoided the manifestation of shanty towns but for how much longer as the migration figure is set to increase. To accommodate this huge influx will require substantial spending.

Nonetheless, without a buoyant domestic market to purchase the goods being thCAG7AHDSmanufactured and an export market that maintains its buoyancy, China may experience trouble sustaining its growth level. The vagaries of the market place and the spin of trade cycles could easily force it off the road. The consequences of failure could leave China facing widespread industrial disruption and as a result the flight of investment capital. Tobin’s analysis may yet prove critical for China and with it the dream of the World Bank. Can the Bank rely on any other country or countries to step into the breach and save its goal?

Coming soon: the situation elsewhere, e.g. in Africa, America and Brazil. ++Bono’s belief that the WB is right!

 

 

 

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