Dazzled in Davos: What Bill Gates Forgot to Mention

Edward B. Barbier

At the 2014 World Economic Forum in Davos, Switzerland, the founder of Microsoft and leading global philanthropist Bill Gates, along with his wife Melinda, released the 2014 Gates Annual Letter “3 Myths That Block Progress for the Poor”.  In the letter, Gates notes that, since 1960, more than a billion people have risen out of extreme poverty.  He then goes on to make this bullish prediction:

“By 2035, there will be almost no poor countries left in the world… Every nation in South America, Asia, and Central America (with the possible exception of Haiti), and most in coastal Africa, will have joined the ranks of today’s middle income nations.”

I have no quarrel with such a prediction, optimistic though it might be.  I also don’t question the global poverty trends—they pretty much match what is stated in “The State of the Poor” of the World Bank’s Poverty Reduction and Economic Management Network (PREM).  According to the World Bank, extreme poverty has fallen by 25% in the past 30 years for the developing world.

However, what Bill Gates did not mention is the following.

First, the encouraging global poverty trends mask some important differences between and among developing countries.

The World Bank’s “State of the Poor” estimates that, over the past 30 years in low-income countries, the number of extremely poor individuals actually increased by more than 100 million.  What is more, the average income of the poor in these countries was stagnant, remaining almost as low in 2010 as it was in 1981.

In addition, the World Bank report points out that most of the 25% decline in extreme poverty across the developing world has occurred in China and India.  But “for the rest of the developing world, individuals living in extreme poverty today appear to be as poor as those living in extreme poverty 30 years ago.”

Second, with inequality worsening worldwide, average income per capita is an inaccurate indicator of the state of poverty within a country.

In the World Bank’s World Development Indicators, low-income economies are those in which 2012 gross national income (GNI) per capita was $1,035 or less.  Middle-income economies are those in which 2012 GNI per capita was between $1,036 and $12,615.  Thus, if Bill Gates is correct, and nearly all developing countries achieve at least middle-income status by 2035, it will be a remarkable accomplishment.

However, the Oxfam report “Working for the Few”, also released to coincide with Davos, finds that almost half of the world’s wealth is now owned by just one percent of the population, and seven out of ten people live in countries where economic inequality has increased in the last 30 years.  The combined wealth of the world’s richest 85 people is now equivalent to that owned by half of the world’s population—or 3.5 billion of the poorest people.

Third, poverty is not evenly distributed within countries.

The World Bank’s “State of the Poor” estimates that 78% of those living in extreme poverty in developing countries are in rural areas, and 63% of the extremely poor earn a living from agriculture. Since there are still around 1.2 billion poor people across the developing world, global poverty will remain largely a rural problem for the foreseeable future.

As I pointed out in a previous blog post, “The Hidden Global Poverty Problem”, around 1.3 billion people in developing countries live on marginal lands or fragile environments unsuitable for agriculture, and 430 million inhabit remote rural areas. At least half of the population in less favored areas (631 million) is extremely poor. Thus, the rural poor are clustered largely on less-favored lands in remote locations—a trend that will continue with projected increases in rural populations and inequality in the developing world.

In a policy research paper for the World Bank, I have argued that alleviating poverty in developing economies will therefore require a much more robust strategy than current global economic development efforts.  Specific policies need to be targeted at the poor where they live, especially the rural poor clustered in fragile environments and remote areas. This will require involving the poor in these areas in payment for ecosystem services, targeting investments directly to the rural poor, reducing their dependence on exploiting environmental resources, and tackling their lack of access to affordable credit, insurance, land, and transport. Where possible, efforts should be made to boost rural employment opportunities, especially for those poor households dependent on outside labor employment.

Such a comprehensive development strategy for alleviating global poverty is urgently needed—something else that Bill Gates forgot to mention at Davos.

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3 Responses to “Dazzled in Davos: What Bill Gates Forgot to Mention”

  1. […] Chris Blattman, a political science professor at Columbia University, has graded the letter on his blog, and Edward Barbier, an economics professor at the University of Wyoming, points out “what Bill Gates forgot to mention.” […]

  2. Thanks for this analysis and I couldn’t agree with you more – I would add that we need to think beyond policy if we are to see the 2035 Bill Gates prediction or is it a forecast. As long as these policies are still desk top policies informed by old theories of development that have long forgotten what it is to consult and engage the poor then this will remain just another dream. I believe in the right to self determination and I believe the poor have that right and they should be given a chance to use it. I am big fan of community resilience and I know that bottom up approaches work (though considered expensive) and could help our governments to stop being the voice of the voiceless without having made the attempt to listen to these voiceless people. At the end of the day the question I ask from these big corporates is “Is this the change that they want to see, a world rid of poverty and lack” or are we still enjoying entrenching stereotypes that are meant to keep the poor at the bottom of the food chain…so that they can be perpetual recipients of aid? Thanks again.

  3. Chris Hall says:

    I hope everyone understands that the current fiat money system is a debt money system. A debt money system is an unstable monetary system. Too much debt can create financial crisis. The current policy of relying primarily on central banks to control economic cycles creates poverty and moves wealth to the people at the top of the economic ladder. There is a way to make our money more stable which will increase the wealth of the working poor and expand the middle class.

    The problem with fiat money is that it is almost impossible to control the private sector banking system from creating too much money (debt). The current system of raising, and lowering interest rates has not been effective in controlling rising prices. The Federal Reserve inflation target is 2%. In the last 50 years prices have risen 1000%. If the Fed’s monetary policies were effective, a 2% rise in prices in a 50 year period would have produced price increases of 100%. The Fed has missed their 2% target by 900%. These results can only lead to the conclusion that their monetary tool of raising and lowering of interest rates is ineffective in controlling the amount of money (debt) being created.

    So what “tool” would be effective in controlling the amount of money (debt) the private financial sector creates. We know that in a debt money system to create money somebody has to go into debt. Problems begin to occur when too many people want to go into debt, which creates too much money, creating inflation, and instability in the financial sector.

    So what encourages people to create too much money (debt)? The answer is the income tax. The interest deduction, the lower long term capital gains rate, and the tax on interest earned on money investments all work to create the “animal sprites” that John Maynard Keynes, the British economist, wrote about. These tax polices are needed to increase economic activity when the economy is in the recession cycle. The solution high inflation/appreciation rates is to automatically neutralize these tax policies as the economy recovers, and before the “animal sprits” are created.

    We need to enact the “2% Appreciation/inflation Taxation Policy” Please go to http://www.taxpolicyusa.wordpress.com Please read the third article “Tax Policy Changes Needed Before The Fed Changes Monetary Policy For Stable Interest Rates”