Wandering Thoughts

October 4, 2009

Meanwhile on the back of a very small envelope…

Filed under: Ramblings and Musings — terence @ 1:42 pm

Duncan Green links to an interesting attempt by the World Bank’s Martin Ravallion to answer the question, can the world’s poorest countries eliminate extreme poverty by redistribution? The short answer is that for wealthier developing countries (like Brazil), they actually could. However, for the World’s poorest countries there simply isn’t the money to redistribute.

This got me thinking about the global distribution of wealth and so I jotted a few numbers down on the back of a very small envelope (or, in other words, these are very rough scribbles, they could be wrong and I haven’t double checked them…)

In 2005 global income per capita was $8,730 (US purchasing power parity dollars.) Or, in other words, if the globe’s income was distributed equally everyone would have had earnt $8,730 in 2005. (Purchasing Power Parity takes into account the fact that US$1 goes further in developing countries so everyone would have earnt $8,730 and the cost of living would have been the same as it was in the US in 2005).

The Globe’s income isn’t distributed equally however, and, in fact, in 2005 nearly half the World’s population lived off less than $912/year (US PPP) or $2.50 a day. Approximately 80% of the World lived below the US poverty line of $13/day.

Had the World’s income been distributed equally, the percentage living off less than $2.50/day would have been 0. The percentage living off less than $13/day would have been 0 too. In fact everyone would have been living of $24/day: 1.85 times the US poverty line.

In other words, poverty – as measured by a US poverty line – would have been well and truly eliminated globally. Instead, in the real world 8 out of every 10 people live below that line.

In table form…

world incomeOf course, this doesn’t mean that we should strive to equalise global income as a tool to eliminate poverty. Let’s consider that proposition using Eric Olin Wright’s 3 criteria for utopian thinking.

As far as desirability goes, using a simple utilitarian calculus the equalised globe would certainly be desirable. The welfare of the vast majority of the World’s population would be dramatically improved.

The trouble is, such an equalisation would not be (to use Wright’s terms) either viable or, realistically, achievable.

In terms of viability, such radical equalisation of wealth would eliminate the incentives that play a role in generating wealth in the first place. And equality of this degree could only be maintained by the sort of police state that used to keep George Orwell awake at night.

And, in terms of achievablity , the sad truth is that, while redistribution of the nature described above would improve the welfare of most of the world’s population it would dramatically decrease the welfare of one particular group: the already very powerful, who would no doubt resist tooth and claw. Meaning that even if such a world could feasibly exist, getting there would be next to impossible.

Still, it’s worth noting that the staggering phenomenon that is global poverty doesn’t in exist the current day and age because the planet as a whole is too poor. Rather it exists because we are too unequal.


Global Figures.

Ravallion 2008 [PDF]

Chen and Ravallion 2008 [PDF]

[Update: the above, of course, hinges on mean global income per capital being the same as GNI – I need to check this!]

1 Comment »

  1. Hey Terence,

    I enjoyed your post, even if you can’t snap your fingers and prove your points to the Nth degree.

    Consider also, indications that the world’s richest populations and individuals would not be any less happy, if pulled back to an average of 8730 USD. (You may be familiar with Diener and Diener’s or Seligman’s views on the subject -with too many links to choose from.)

    Of course the subject gets very utopian and overly-ambitious etc, but so were dreams of abolishing slavery and developing relatively peaceful democracies -neither of which have been realised to a totalitarian degree).

    For my two cents, your back-of-envelope scratchings broach material and ideas which are vitally important; albeit relatively un-supported by the systems that be.

    Comment by Tom — October 11, 2009 @ 1:02 pm

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