TCS Daily

The Global Poor Are Getting Richer, Faster

By James Peron - December 13, 2006 12:00 AM

In a report out today, The World Bank looks both at current economic growth rates and projections for the next 25 years. The report, Global Economics Prospects 2007 says "developing economies are projected to grow by 7.0 percent in 2006,more than twice as fast as high-income countries (3.1 percent), with all developing regions growing by about 5 percent or more." While these nations have only 22 percent of global GDP they accounted for 38 percent of the increase in global output. And they are expected to increase their share of global output by about 50 percent by 2030.

The report expects the world economy to grow from last year's $35 trillion to $72 trillion by 2030. And this "is driven more than ever before by strong performance in the developing countries." Only two decades ago the poor nations provided only 14 percent of wealthy nations' manufactured imports. Today they provide 40 percent and by 2030 they are projected to provide over 65 percent.

As it was over the last 25 years it is the poor who will benefit the most. "The number of people living on less than $1 a day [in constant dollars] could be cut in half, from 1.1 billion now to 550 million in 2030." And the number living on less than $2 per day will decline by an estimated 800 million.

This will happen in spite of a growing world population, though growth levels will be much slower than today. The population growth rate, which was around 1.7 percent in the 1980s will decline to 1 percent by 2015 and to 0.7 percent in 2030.

A new middle class will be created in the developing nations. Today 400 million people in the poorer nations are consider to be in the "global middle class" with a purchasing power parity of between $4000 and $17,000 per capita. By 2030 there will be 1.2 billion.

For the next 25 years the report estimates that developing nations will increase their wealth by an average of 3.1 percent per year, above their average of 2.1 percent for the last 25 years. "That rate of increase will produce average per capita incomes [constant dollars adjusted for purchasing power parity] in the developing world of $11,000 by 2030, compared with $4,800 today, roughly the level of the Czech Republic and the Slovak Republic today."

The net result is that the income of developing countries "will continue to converge with those of wealthy countries. This would imply that countries as diverse as China, Mexico and Turkey would have average living standards roughly comparable to Spain today."

As good as this is the Bank says things could be even better. They believe their projections "are fairly impervious to all but the most severe and sustained shocks" but they also admit that "the possibility exists that the world will be even better than envisioned... thanks possibly to unanticipated technological improvements, more innovation in business processes that allow for an acceleration of globalization and widespread adoptions of good policies within countries."

Their "optimistic" scenario would lead to incomes 45 percent higher than today and a decline of absolute poverty from 20 percent of the world's population to 4 percent. So many people seem to intentionally look for bad news or invent it. It's a nice change of pace to find a report from a world body which says that the future is either bright or very bright.



At least someone is making more money
I have a question for all the economists out there.

If a country has a resource that is mined and sold,such as oil, does the income that results from that activity add to the country's GDP? Let's take Nigerian oil.

Many billions of dollars worth of oil are exported from Nigeria each year. Most of the money goes to the producers, who live overseas. Much of the remainder goes to the governing elites of Nigeria, who are essentially bandits. Virtually none of it filters down to the people, who are living in unrelieved poverty. Yet Nigeria is said to be booming. Does this oil money accrue to their GDP?

The same can be said of the conflict diamonds in Sierra Leone, Ivory Coast and Liberia. Lots of money being made by someone-- but by whom?

The same can be said of the col-tan regions of eastern Congo. Lots of money being made in the cell phone biz. That doesn't help the residents much, who are caught in the midst of a war for this valuable resource.

A more accurate measure of prosperity might be the number of jobs available in developing countries, and the average wage of those jobs. Not how much wealth is being extracted.

Africa bad example
Nigera and most africa are examples of some of the very worst governed places in the world, and even there are some exceptions around in africa like botswana and s. africa. But go around the rest of the world like most of asia, eastern europe, yes, even south america, and you notice that the world is indeed getting much richer than ever. I live in asia and most of us old hands can hardly believe the differences over the past very few years. But places that get more economically free, and more global etc. benefit real fast. Leftists just are sore that there's so much evidence that it's best; they still admire Cuba, North Korea and popularist thugocracies like Venezuela as role models, not Hong Kong, Singapore, Taiwan.

Buncha thug-o-crats
I wasn't asking whether these places were "bad". Extractive economies everywhere bypass local development and just return profits to shareholders. Saying they are bad doesn't illuminate the situation.

I was asking whether ten billion dollars worth of oil pumped out of the ground and shipped overseas, while the profits accrue to shareholders, also overseas, result in the country in question being said to have a "ten billion dollar economy".

If so, they could be considered such even though no one in the country was making ten bucks off the deal-- except for the local president-for-life.

Next let's examine your new term for another sort of government-- the "popularist thugocracy". In Venezuela the oil profits are fuelling a booming economic sector, so investors are flocking to join in the fun. And at the other level of society, poor people are getting jobs and finding their way out of poverty. The profits are fuelling badly needed social programs. And poverty has thus far been reduced from 75% to 40% of the population.

What's not to like about an economy that serves all levels of society? Are you saying that popularist thugocracies are bad because it's not just the rich who get a break, the poor people are getting something too?

It's very convenient for populists to nationalize industries, take the money then buy votes, give away handouts, stack industries and departments with your friends and cronies, etc. But it is indeed bad in the longer run for the countries because it sets up a expectancy of entitlement in the people. They think it will always be so, then in a downturn of oil say, or tech breakthru or whatever, then the populist brute, like Chavez, cannot keep it up. Then you often get the really violent revolutions. Some countries with oil avoided that, like: norway, UK north sea oil, Canada. In cases like Ven. and other thugocrcies it's an artificial economy and not sustainable. VEn. has had a lot of oil for many decades already, and they've always been badly governed. It's not up to oil companies to rule countries they operate in, they just pay huge royalties to the elites who usually mismanage their windfall, the same will happen in VEnz.

A good example of how communism makes everyone poorer
except those who run it.

It's hardly surprising
that all of roy's examples of countries that aren't doing well, are countries that are also communist.

The ogre of socialism
A country's industries and natural resources are its patrimony. So in my mind it's prefereable to nationalize those resources and save the income derived from them for the betterment of one's own people than it is to globalize them, and sell them off so the income stream then goes only to a small number of investors.

I'm not saying that nationalized industries are always well run. Look at the old Soviet Empire. Their mistake was NOT in writing a constitution that said the resources of the nation belonged to its people. Their mistake was in not knowing how to run a business.

Also we can easily find examples like Saddam, or any number of other so called socialists, who run the state for plunder, and use the proceeds to enrich their circle of friends while amassing huge, vainglorious military machines. All of this has nothing to do with retaining a nation's industries and mineral wealth for the benefit of one's own citizens.

It has been my experience that the "expectancy of entitlement" you so abhor is not really a problem beyond a certain entry level condition. When people are living at the margin and the price of bread goes up, you have riots. That is because they need bread, feel entitled to it, and get angry when it is placed out of reach.

However when one has the possibility of gainful employment, and wages that can procure an adequate existence, you generally find a lot less anger directed at the government. It has done its job well.

So strengthen your argument. Find a single instance where the following logic has applied:

"But it is indeed bad in the longer run for the countries because it sets up a expectancy of entitlement in the people. They think it will always be so, then in a downturn of oil say, or tech breakthru or whatever, then the populist brute, like Chavez, cannot keep it up. Then you often get the really violent revolutions."

When socialism really doesn't work, as in Eastern Europe, it collapses of its own weight. But if some economy suffers a market downturn it only means they are likely to elect new leaders. IMO.

That's one man's foolish opinion
Mark-- You'll want to flesh your argument out a bit better than that.

Demonstrably, during all the years Venezuela was being run by America-loving right wing dictators and plutocrats, they were running up the country's debt while the life of the average citizen was getting worse.

Now the country has an economy in which the investing class is thriving and the po folks are too. Not only that, they are paying off their old debts on schedule.

Pick that apart, wise one. But this time, use actual facts.

patrimony? nationalization?
We know you prefer 'planned economies', to 'free' economies, that's what socialists are like. So imagine if the US say, nationalized its resources like oil, and all that, then have more state organs run them, perhaps like the US postal service, you're OK with that I guess. So to strenghen my arugment I use your example of the shambles from the east block, red china before, cuba nowadays, France when a few years ago they had the idiotic idea of nationalizing their banks then had to soon change that back again. I wonder how you liked the populism policies of Juan Peron in aregentina who started out with a rich country, then promply backrupt it?

one man's?
Don't you mean...almost everyone's? Who else but you would say that communists make people richer rather than poorer. But you make it sound like the crappy govnmt in venez. all those years was somehow really 'tight' with the States. WE know tho that US companies operate in many kinds of countries like the UK, Norway, Canada, all kinds of places, some good some bad. So if we could ask what sort of place the americans would prefer, somewhere like Switzerland, or somewhere like Venez. of course they would prefer Swiss. So american oil companies in Canada are not trying to make their government up there to be like venez or Nigeria.

The consensus amongst economists is now one man's foolish opinion?
1) Venezuela ain't doing that well.
2) Given the run up in oil prices, Venezuela ought to be doing a lot better.
3) Oil production is collapsing because Chavez choose ideology over competence when it came to picking people to run the country.
4) Life prior to Chavez was not getting worse for most.

over the years, roy has shown that trivial things like facts count nothing next to ideological purit

Thinking in absolutes
"We know you prefer 'planned economies', to 'free' economies, that's what socialists are like. So imagine if the US say, nationalized its resources like oil, and all that, then have more state organs run them, perhaps like the US postal service, you're OK with that I guess."

This line of argument is silly. When an economy has problems, remedies have to be specifically chosen to correct those imbalances. For Chile in 1970, or Venezuela in 1999, greater national control is required to stem the hemorrhage of resources. For the Iron Curtain countries in 1989, the wholesale trashing of outmoded and unworkable systems is required, and a sharp transition to the markets approach. There is no one size fits all cure for everything. Nor even for anything.

Mainland China is an excellent example of how theory can, and should, be altered to fit reality. Those guys aren't communists. They're capitalists. And the same appears to be the case with Chavez. If he's not a capitalist, how come capitalism is working so well there?

If they can manage 7% so can we
I do not think that it is the poor countries which are doing well at 7% growth but that the rich countries are doing badly by not matching them.

Under Moore's law computing power doubles every 18 months & computing related activitirs make up aa ever growing proportion of economies, particularly richer economies. Thus we should be able to grow at, not the Moore's rate but much closer to it than we are.

I think the problem is that government regulation & business taxes is cutting into the potential for growth. A number of countries such as Ireland, Estonia, Lithuania, Hong Kong & Russia have made economic success their priority & grown around the 7% mark.

To some extent this may not be a problem. The Japan, the old EU countries & US are alreadywealthy so it is not surprising if they put wealth creation further down their list of priorities than the poor. Still I get no feeling that the sort of things government is diverting the cash into ("green" policies which have nothing to do with real environmental issues, social benefits which produce dubious benefits & spend as much on administration as benefits, fighting crime) are largely or sometimes entirely wasted.

Yes, but...
I think you are generally correct that those of us in 'developed' countries could be hitting closer to 7% growth and that various government activities hinder that growth.

However tying that in any way to Moore's law (where what he actually said was the number of transistors doubles, but it gets bastardized so many different ways) is weak at best. Computing power and productivity, while related, do not have a direct relationship. Increases in computing power only have an effect on productivity if the additional computing power is being used. In general the computing power we have available doesn't get used anywhere near to it's fullest extent especially for business work. At a wild guess I'd say we use less than 10% of the available computing power we have.

Mark's usual stuff
Give it a break, Mark. You've got nothing to back any of that up. The stock market is going through the roof, inflation is under control, debt payments are being made on time and the only potential problem down there is that people now have so much money in their pockets that there could be a resurgence of price inflation.

Everyone's happy in Vanezuela. That's why they just voted their president back in office by a landslide.

You are....
mixed up.

"The stock market is going through the roof, inflation is under control, debt payments are being made on time and the only potential problem down there is that people now have so much money in their pockets that there could be a resurgence of price inflation."

Your remarks above describe what economist know as inflation. Inflation is simply an oversupply of currency relative to actual production---or as you have said "so much money in their pockets..." After all, if increases in the money supply were in proportion to increases in production there would be no chance of general increases in prices. Of course, there will always be dis-equilibrium in industry specific markets arising from the normal forces of supply and demand.

When Mark correctly pointed out that communism does not produce wealth and prosperity you were quick to argue that things were not much different when Venezuela was under the thumb of Pinochet. What you seem to miss is that communism is just one "brand" of socialism and it is socialism of all brands--left and right--that leads to poorer populations. Pinochet just happened to be a right wing socialist; Chavez is a left wing socialist. At the end of the day, nothing will change until all socialist states are abandoned.

working well?
It's not working well, guess you only read left wing stuff that says so. And it's not even capitalism because that system is based on, or it's main points are: private property, free markets, and rule of law. All of these are being violated already and getting worse in that place.

The Global poor are rich only because new technology
As technology is improving very fast, education is unversal and very cheap so discrease in population, and increase the income of poor.

Excellent point
And the new world really does understand that education is the key to the future. You can see it in the emphais on education in most other countries.

The US is about the least attentive in this regard.

It is the mechanics...

In America we enjoy rapid growth in our small business sector. As a small company gains traction it goes through a period of expansion from very low volumes up to competitive scale, and the larger market is easily able to absorb its output. When lots of small operations in an economy experience this transition from "barely existing" to a sustainable presence in the market their accumulated numbers can add substantially to the GDP. Even here, small companies are our growth engines.

In a growing global market such small companies may thrive without challenging any large competitor. Their innovative products may not even be noticed by the big boys at first. On the other hand, the major players cannot grow without taking share points away from each other.

Emerging economies are the nimble small players in the global arena and their companies are the innovative entries into each industry where they find a niche. Just like our successful small companies here in America the successful small economies of the developing world are able to compete with certain "unfair advantages" that put them into business and allow them to grow.

A higher proportion of our corporations are mature and they simply cannot double every year (like a small company does when it really gets going) because they already enjoy too much of the total demand for their output.

Someone with less than 0.1% of the market does not have that problem. It is simply the mechanics.

Very mixed up
It's not me who's the mixed up one if you're trying to convince me that putting more income into people's pockets results in making them poorer. The money gets earned by the sale of oil. If it goes into the pockets of zillionaire investors, it inflates, or deflates, just as readily as it does in the pockets of people hoping to buy a television set.

In fact that money in the pockets of zillionaires doesn't do as much work (as it does in the pockets of consumers) when it is invested in some stock. The influx of large sums of cash into the market just inflates stock prices, producing a bubble.

You'll recall we had an adjustment back in 2002, where between seven and eight TRILLION dollars of investor value vanished in a puff of smoke. It was just a correction for there being too much money in the system, relative to the amount of actual value.

Whereas the same money in the pockets of aspiring middle class people will buy a lot of TV sets-- spurring demand that such things be produced and stimulating employment.

Secondly, what on earth are you talking about, when you say Pinochet was a right wing socialist? When you rob a word of all meaning, language is dead.

That's what we're hearing
"It's not working well, guess you only read left wing stuff that says so."

But I'm reading stock market reports, that say the economy is booming. Those are not left wing guys. Look it up yourself, if you don't have the time to click on my refs.

And Venezuela does in fact have the rule of law, private property and markets. The big problem is that your mind is so full of crap it can't handle data. Try to learn more about the world you live in.

You could read this, from the Center for Economic and Policy Research. During the years Venezuela was globalizing according to the model you swear is the only good one, per capita income declined by 35 percent (1970-1998). It was a terrible performance-- and they were doing everything they were supposed to be doing.

Since Chavez took office, that decline has levelled out. And this year per capita incomes are actually beginning to advance.

I am absolutely certain you won't bother to read this evidence:

Or you can check this out:

"[T]he 59-year-old Caracas stock exchange was the site of frenzied trading this week. Its main index climbed to a record high of 46,741, topping off a 129.2 percent rise this year that has made it one of the best performing markets in the world. On Friday, the index climbed 8 percent for its biggest daily gain in four years.

“For all of Chávez’s faults, his government has been extremely pragmatic in economic terms,” said José Guerra, a former chief of economic research at Venezuela’s central bank. “State-supported capitalism isn’t just surviving under Chávez,” he said. “It is thriving.”

But who knows what's going on there better? The former chief of economic research at their central bank? Or Deitmar?

Room to grow
When a country is fully developed, the rate of growth slows. It has stopped growing. The US has been in the 3-4% range, now it's dropping below 2%.

Countries that are undeveloped tend to explode when the conditrions of growth are being met. Thus China could easily go beyond 10% if they didn't think that was going too fast. They like to keep growth around 8%. Venezuela is now, I believe, at 10.7%.

Ireland and Eastern Europe are great examples of the restraints to growth having been removed.

re: hearing aids
Gee thanks for giving me as sources their central bank guy, probably his uncle, and then from the NY Times, what a laugh. But then again, i'm sure you're one of those guys who says that the NYTimes in not a liberal biased rag, right? But I wonder how rates on that list of economic freedom, out of 157 countries guess where venez is? yes, 152, with zimbabwe and a few worse. But then again you will say that's a right wing sorce right, and that it's all lies, and it's couldn't be true that top of t.e list are countries i usually talk about like Hong Kong, Ireland, singapore etc. The US is number 12.

The best index of economic freedom
You're a tough one to convince, Mr D. Here's what Bloomberg has to say about the Venezuelan stock market index.

I hope he's not too left wing for you. You never know, Bloomberg might be in on the plot too.

Whereas when it comes to right wingnuts, your standard of proof is that whatever they say is right. Don't you realize that when some ninny decides there's an "index of economic freedom" he's just putting numbers out there arbitrarily? His numbers are all subjective. I'm suprised he didn't put "US numbah one. Venezuela numbah ten!"

If investors didn't see Venezuela as being a safe place to put their money, the Bloomberg chart would be going in the other direction-- straight into the can.

As usual, roy can't tell the difference between propaganda and reality
If you believe that election was honest, you probably believe that Bush stole the last two elections.

is socialism--no matter where it comes from. The Nazi's and Italian Fascist were right wing socialist--they hated the commies.

Essentially, socialism is the predominance of government force in all matters of life--economics, politics and social--as opposed to free association, contract, absolute property rights and free markets. Socialism is tyranny. Pinochet was a socialist and used government force and violence.

I get the feeling that you seem to think that socialism is some wonderful system that is all warm and fuzzy. In that you are gravely mistaken.

Moore's Law is a marker for hi-technology
Countries which are at the cutting edge of technology would obviously be restrained by that edge & it could be argued that America as the per capita richest large country is their. My opinion is that even the US is nowhere near that limit. It would, for example, be possible to conceive of a US which, starting from the current base, had heavily industrialised space by now. That would obviously have produced a considerably higher growth rate.

If you look at long term growth you will see that around 1780 Britain's growth was the world's fastest at 2% wheres by the 1980s it was one of the world's slowest at 2%. Today world average growth is 5% (& there are a lot of really badly run countries to bring that average down). This suggests there is a long run underlying increase in growth, obviously not exclusively caused by computers though that is a good marker, & that the richer countries, being further along the curve, should expect if anything faster growth. That faster growth may be slowed by lower wage demands from the poorer countries, about which little can or should be done, but I think the far greater restraint on richer countries growth has been regulation, of which I would single out "environmental" regulation since it seems to have little to do with real problems & the best single answer to pollution is the high technology it limits. High technology, by definition, achieves more with fewer inputs & therfore leaves less waste per unit - this is inevitably why China is only years from passing the US in CO2 output but decades from passing it in output.

I also accept Smell's point that we are using only a fraction of the capacity Moore's Law supplies but even if the 10% was right that would, assuming when the law was started we were using 100% of a tiny capacity usage has been growing by about 43% every 18 months. Still just about as far ahead of our economic growth rate.

Soft on socialo-fascistic tyranny
"I get the feeling that you seem to think that socialism is some wonderful system that is all warm and fuzzy."

I'm for a flexible approach to finding solutions, if that's what you mean. But I'm sure it's also useful to hear from the super-rigid approach.

re index
So Bloomberg and you disagree and think that the first ones on the list do NOT have more economic freedom? Do you think they are lying about places like ireland and luxembourg and hong kong? But it's very different when individual companies one one exchange in one counry can have a spike because of unusual circumstances like windfall oil prices. It's not the overal economy, and the lowest citizens are for sure better off in those countries on the top of the list, and what Norway and Canada etc do re oil is better than what venez does.

The self centered personality
Surely you don't believe all "socialists" everywhere are like the people you've happened to meet and have come to know. This kind of person would seriously influence your criteria for who is socialist. Personally, I don't think I know a single person who would use that word to describe himself. So if the people you refer to call themselves socialists, they're a slice of life I haven't met... thankfully.

You've been unfortunate enough to have fallen in with a crowd of people who all seem to be mean and pinched. They seem resentful, mean spirited, antisocial and small minded to me, and I think you'd be wise to avoid them. A better word for them would be "antisocialist".

Everyone I know is fairly well socialized-- otherwise I wouldn't know them, or keep up the relationship. We tolerate one another's petty dysfunctions. But we're never boorish or greedy.

Every hippie knows, if someone is hanging around all the time and inviting himself to share your stuff, you have to have a talk with him. Tell him to respect your boundaries or don't come back. And only tell him that once-- then the next time it happens, change the locks.

I spent a few of my youthful years in the communes, and am very familiar with the procedures for weeding out freeloaders. To me, you've met a dysfunctional bunch of bums, and should not let these people know where you live.

"Artist" should not be a license to lose the human niceties and become totally self centered. You can't save them. Don't let them use you up.

hanging out with...
It's becaue socialists are more interested in controling people than in freedom.

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