There's really good news on inequality and poverty

Many people on the left seem to believe that the global economy has the same problems as the economies of the United States and Europe. For example, US presidential hopeful Bernie Sanders recently tweeted: "The global economy has simply failed when so many have so little and so few have so much."

His facts are a bit out-of-date. During the past two decades, the global economy has been great for the world's poor. Across most of the developing world, the have-nots have a lot more than before.

The clearest evidence comes from two big facts: 1) the decline in world poverty, and 2) the fall in global inequality. These are recent developments - the second is even more recent than the first. But they give us strong reason to believe that the global economy isn't broken at all and, in fact, has never been healthier.

Nor is this just a story about China. Yes, that country has led the charge, with an industrialisation bigger and faster than any in history that has lifted hundreds of millions out of poverty. But poverty rates have been falling in all regions of the world: In South Asia, poverty has declined at an accelerating rate, and is down to a third of what it was in 1981. In Latin America, a quarter of the population was desperately poor in the early 1980s - now it's just a little more than 5 per cent. Even sub-Saharan Africa, a development laggard, has seen a substantial drop.

India, the world's other super-giant country, hasn't performed as impressively as China, but its growth since 1980 has nonetheless been steady and impressive. India's real per capita gross domestic product has more than quadrupled in the past 35 years: During that time, India's poverty rate has fallen steadily, showing that the gains haven't just gone to the top layer of society. Some pooh-pooh India for failing to match China's stellar performance, but this is a little like dismissing an NBA (National Basketball Association) star for not being as good as Michael Jordan.

During this time, of course, population has been growing in many poor countries, so falling poverty rates don't always translate into fewer people living at a subsistence level everywhere. But the drop in rates has been so fast that the total numbers of desperately poor people are now falling as well.

Until recently, economic growth in poor countries wasn't enough to close the gap with rich ones. But in the last few decades, developingworld growth has accelerated while that of rich countries has slowed. As a result, global inequality is falling.

The most important and dramatic illustration of this comes from City University of New York economist Branko Milanovic. His "elephant graph", created along with the World Bank's Christopher Lakner, shows how income has grown for the world's poor, middle-class and rich since the late 1980s.

This graph looks at people instead of countries. It shows that except for the very poorest people in the world - whose countries are probably torn by wars, atrocities and corrupt dictatorships - the people in the bottom and middle of the global income distribution have all experienced tremendous gains in recent decades. The rich have also gained, though the near-rich - corresponding to the middle classes in countries like the US, Japan and Europe - have stagnated or lost out.

If you strip out top performer China, the pattern is only a little less dramatic. The message is clear. After decades of losing relative ground in the early and mid-20th century, the poor are finally catching up across the globe. Why is this happening? And why now?

The clearest answer is that China, India, South-east Asia and other poor, populous countries have finally started making the shift from agrarian economies to industrialised ones. That is the process that pulled Europe, Japan and the US out of poverty in the Industrial Revolution, but for a long time other countries were unable to follow.

At first, they were held down by imperial conquest, then war, and finally by political problems during the difficult transition to a post-colonial world. Now that they've resolved their biggest political issues - no more Great Leap Forward, Cultural Revolution, Licence Raj and other misguided social and economic experiments - they are completing the journey towards First World status. Trade and globalisation also probably played a big role.

The rest of the developing world, including much of Latin America, Africa and the Middle East, has economies based on natural resource extraction - oil, minerals and other commodities. It is generally accepted that it's much harder for resource-based economies to industrialise - this is known as the resource curse.

But the problem of the resource curse shouldn't blind us to the real, enormous progress that has come with the industrialisation of China, India and other poor countries. Thanks to the work of economists like Dr Milanovic and the researchers at the World Bank, we know the global economy isn't broken - it's doing exactly what we want it to do, which is to move great masses of human beings from the edge of starvation to a reasonably comfortable modern life.


A version of this article appeared in the print edition of The Sunday Times on June 26, 2016, with the headline 'There's really good news on inequality and poverty'. Print Edition | Subscribe