Poverty, population, inequality, and development: the historical perspective.

• Author: Chilosi, Alberto
• Position: Report

The rich nation is the novelty, and the development that makes entire nations rich is itself the pivotal development of modern history

(Asa Briggs, British historian, 1963)

1. Introduction and outline

   We live in a very unequal world plagued by poverty. Overall, economic progress is perceived as too slow, as the advance of "globalization" renders the inequalities and miseries of the world less tolerable than in the past. There is a widespread rejection in some quarters (radical economists, sociologists, and political scientists in particular) of the economic institutions of the modern world (identified under the garb of "capitalism" and "globalization"). (1) However, from the perspective of economic history the present state of the world appears in a different light. A rather uncontroversial fact is that never in the history of mankind have there been so many paupers as in the present times. But the basic reason for this is that never have there been so many people around. Indeed, never in the history of the world has the percentage of (absolutely) poor people been so low. Moreover, quite recently even the absolute number of the very poor has kept decreasing. Economic inequality in the world as a whole has probably never been so high, but the reason is not, as is sometimes hinted, that the lot of the poorer has worsened, but the dramatic, albeit unequally distributed, economic betterment of the many. At the same time the propensity towards economic inequality (as captured by the extraction ratio, defined below) has probably never been so low in historical times. The green revolution and technological progress have contributed to decisively overcome the Malthusian trap and to bring about an impressive demographic explosion. Indeed, never in the history of the world has economic and demographic growth been so rapid as after WWII, greatly favoured by the absence of major wars, (2) of the sort that were endemic in the past, and by the extraordinary expansion of international exchange. The price to pay has been the lingering of the world on the brink of a global nuclear catastrophe, as well as the freezing of frontiers and national aspirations (which have surged again with a vengeance after the end of the Cold War). But Malthusian traps, and different forces threatening the destabilization of relatively peaceful world coexistence (such as the inevitable diffusion of nuclear capabilities and the raise of nationalism in some quarters) are looming, with the potentiality of drawing the post-war period of overall peaceful economic and demographic growth eventually to a close.

2. Poverty

   Historically world population has been increasing at a very slow pace, amounting to near stagnation, held in check by high mortality rates, especially of child mortality. Per capita incomes have been mostly at what we would regard utter poverty levels, and whenever they have increased they have done so at a very slow pace, amounting, in the very long run, to some small fraction of one percent yearly. Following the industrial revolution things have started radically to change. But never have world population and world income increased so tumultuously as after the Second World War; indeed, the explosion both in wealth and population in this post-war period has been an historical unicum. Scientifically speaking, from the perspective of the history of mankind the anomaly to be explained is not backwardness and poverty, but development and wealth. The brakes that in the previous epochs constrained the growth of world population, and which started to slacken following the Industrial Revolution, (3) have been swept away by the progressive lengthening in life expectancy, leading to unprecedented demographic growth, which has been accompanied by unprecedented economic growth.

   Still, a large part of humanity lives in appalling poverty conditions. Indeed, there has never been such a high number of poor people in the world as in the post WWII period. If conventionally (very conventionally, indeed) we define, following the World Bank, as (absolute) poverty a daily consumption of less that two dollars, (4) their number in 2005 is estimated at 2.560 billion, more than the entire world population in 1950. (5) The number of extreme poor consuming less than one dollar a day in 2005 is reckoned to have been higher than 1.1 billion, about the same as the entire world population in 1820 (which may be conventionally taken as the year of the coming of age of the Industrial Revolution in the UK and the start of its spreading abroad); the number of the extreme poor in previous years is estimated to have been even higher, about 1.9 billion around 1980 (before the recent tumultuous growth of the economy of China). Most of them are concentrated in third world countries, but a few millions are living in (and a number of them leaving from) Eastern Europe and Central Asia (the so called transition countries). (6) See the data in the tables 1 and 2:

   Table 1. Number of people living with less than 2$ a day (millions) Region 1981 2005 East Asia & Pacific 1,278 728 of which China 972 473 Europe & Central Asia (a) 35 41 Latin America & Caribbean 89 94 Middle East & North Africa 46 51 South Asia 799 1.09 Sub-Saharan Africa 291 555 Total 2,538 2,560 Excluding China 1,566 2.142 Source: Word Bank (2009), table 2.8, P.70. a) 66 in 1999. 2.1 Poverty and transition

   It is notable that the number of the poor in transition countries as a whole has reached a peak in 1999, just a visible sign of the hardship engendered by the transition process during the nineties, but since then it has started to decrease. The same applies to the percentage of the poor in the population. (7) The dynamics of the poverty rates is just a manifestation of the overall costs of transition, as borne out by the dynamics of national income and, in the case of the former USSR, of vital statistics (see tables 5, 7 and 9 below). The psychological hardship of the new poor in transition countries could have been made worse "by the drop from earlier achieved levels and expectations, and the loss of security" (Nuti, 2009). But in comparison to the countries where poverty was more permanent and more widespread the new poor in transition countries could benefit of the household goods accumulated in the past and of a better chance to be helped by better off friends and relatives.

   2.2 The world poor as a percentage

   But on the whole the share of the poor in the human population has never been so low. According to the historical estimates reported in Bourguignon and Morrison (2002, pp. 731-732), and taking into account the number of conventional poor people in 2005, estimated by the World Bank (2009), as well as the estimate of the size of world population in 2005, reported in table 3, the share of world population living in poverty diminishes from 94,4% in 1820 to 39% in 2005, that of those living in extreme poverty from 83,9 in 1820 down to 21% in 2005. In the end, taking into account the fact that in the period the share of the poor has greatly diminished, the fundamental explanation of why there are so many poor people in the world is that there are so many people around. Indeed, human population has increased steadily and dramatically in the last two centuries, and in particular in the last few decades. Some relevant data are reported in table 3. (8) To grasp the extent of the dramatic acceleration of population growth in recent times one may notice that the increase in population in the ten years between 1995 and 2005 (796 million) is more or less the same as that in the 10,000 years or so from the start of the agricultural revolution till the dawn of the industrial revolution (for which we may conventionally take the year 1750). Looking at the first lines of the table, comparing them with the last ones, one is forced to come to terms with the fact that the momentous historical events of our distant past, recollected and magnified in history books, involved such comparatively insignificant numbers of people.

   2.3 The evaluation of poverty

   Of course the above depends crucially on the definition of the poor. Here we use the World Bank definition, whereby the poor are defined in terms of absolute purchasing power, establishing "a realistic lower bound for the minimum ... level of consumption to meet basic human needs" (World Bank, 2008, p. 2). This may not well correspond to a subjective, socially and environmentally conditioned, definition of poverty, in the sense of deprivation (see on this point, in particular, Kenny, 2006). (9)

   Subjective deprivation may be a function of achieved living standards, and increasing expectations, while relative poverty depends on distribution. Subjective poverty depends on habits and aspirations, where the latter increase with the diffusion, facilitated by the means of mass communication, of the consumption models of the better off. Notwithstanding all these complex qualitative aspects of poverty, without a common quantitative measure one could hardly make intertemporal comparisons. Of course, in making them one should ideally go into detail as to the specific relevant circumstances of the various cases (possibly extending the narrative to the whole range of Sen's capabilities). Here we may be content to note that the trends in average incomes are corroborated by comparable trends in vital statistics such as in particular life expectancy (see tables 7 and 9 below), which refer to important qualitative aspects of living standards.

   How are the poverty benchmarks of the World Bank at 1$ a day and 2$ a day determined? Basically the first refers to the average national poverty level of a set of the poorest countries of the world, and the second to the average national poverty level of the developing countries as a whole. Recently the World Bank has revalued the dimension of world poverty, following a new expanded data base of household income and expenditure surveys, and a new...