By Jomo Kwame Sundaram
KUALA LUMPUR, Malaysia, Nov 6 2024 – Despite earlier income convergence among nations, many low-income countries (LICs) and people are falling further behind. Worse, the number of poor and hungry has been increasing again after declining for decades.
Jomo Kwame Sundaram
After the post-Second World War ‘Golden Age’ ended over half a century ago, the world has seen unequal and uneven economic growth, industrialisation, and poverty reduction. Income divergence and convergence have involved inequalities within and among countries.
While some national-level income inequalities have fallen, North-South disparities have trended unevenly, partly due to the quantitative influence of China’s and India’s large economies.
Dividing billions
Paul Collier’s original ‘Bottom Billion’ included 58 developing countries. By 2021, they had 1.4 billion people. Failing to grow sustainably, poverty in these nations has persisted.
Despite rejecting the World Bank’s LICs and the UN’s least-developed countries, Collier and his World Bank colleagues’ revival of his Bottom Billion notion offers a valuable review of recent distributional trends.
Without supporting evidence, the authors insist most developing nations were similar at independence, with little significant difference between the Bottom Billion and the “growing” Five Billion.
Per capita incomes of most Bottom Billion countries have not risen much. Although much of the world has grown since the 1960s, many of the poorest nations have fallen further behind, albeit unevenly.
Slow economic growth and rapid population increase have reduced per capita incomes. Most Bottom Billion countries have barely grown since and are now much worse off than the ‘Lucky Billion’ of 38 rich member nations of the Organization of Economic Cooperation and Development (OECD).
Poverty is increasingly concentrated in Sub-Saharan Africa. Also, overall poverty is worsening as African populations continue to grow faster as the poor have more children to improve family circumstances.
Average output per capita of OECD member countries rose by half, from under $30,000 in 1990 to almost $45,000 in 2021. Even the poorest OECD nations are at least upper-middle-income countries.
Despite some convergence, world inequality continued to grow unevenly after 2000. The average per capita income gap between developing countries and prosperous economies has not narrowed since the turn of the century.
In recent decades, sustained high-growth episodes have mainly been in East and South Asia. Average output per capita in such ‘emerging markets’ almost tripled from under $5,000 in 1990 to nearly $15,000 by 2021.
Convergence?
Angus Maddison found divergence among world regions over the last two millennia but agreed that recent Asian growth has made convergence more plausible.
Since the Industrial Revolution two centuries ago, extended periods of divergence have been interrupted by brief episodes of convergence. Between 1870 and 1990, the ratio of the highest to the lowest incomes increased tenfold.
The remaining ‘Five Billion’ are between the Bottom and Lucky Billions. Successful ‘developing market economies’ include large, populous, rapidly growing economies like India and China, as well as small petroleum-rich states.
The Lucky Billion were already well ahead in 1990 and have remained better off since. The incomes of some of the Five Billion have risen rapidly to converge with the Lucky Billion, but the Bottom Billion are not much better off.
Some studies claim these Five Billion grew fast enough for incomes to converge worldwide. Rejecting counterclaims of divergence, the authors insist on ‘unconditional convergence’, regardless of countries’ starting positions.
Other research claims unconditional worldwide convergence as poor nations catch up. Income convergence in the 1990s and 2004-14 suggests higher primary commodity prices financed growth during the latter ‘Golden Decade’, enabling brief LIC progress, including in Africa.
This last brief growth acceleration collapsed with most commodity prices a decade ago. The Bottom Billion’s average income growth rate briefly exceeded the OECD’s during 2004-14
But the episode is wrongly seen as proof of longer-term convergence. Few developing nations have narrowed the average gap in per capita incomes with rich countries. Trends can mislead if not interpreted in context.
For years, China’s average income was below the world’s mean. This previously supported claims of worldwide convergence but will change as China’s mean income overtakes the world average.
But overall convergence can coexist with some countries and people slipping further behind while the number in ‘extreme poverty’ rises. However, data limitations and methodological disagreements make consensus unlikely.
Falling further behind
World output (in constant US dollars) more than doubled from $36 trillion in 1990 to $87 trillion by 2021. While a few developing economies have made rapid progress and more have made modest advances, many have been left behind.
As growth has been higher in East Asia and India, World Bank estimates of the poor fell from 1990 until the pandemic, although the number in ‘extreme poverty’ increased.
Despite continuing growth until the 2008 global financial crisis and declining poverty before the pandemic, many developing countries’ per capita incomes continue to fall further behind.
Hunger numbers have risen in the last decade, while the number of poor has increased since the pandemic. Ongoing economic stagnation has been worse for the Bottom Billion, who have struggled to cope with higher interest rates and capital flight since 2022.
Meanwhile, hunger numbers have been rising for a decade, while the number of poor has increased since the pandemic. Worse, higher interest rates recently have worsened the ongoing economic stagnation.
IPS UN Bureau
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