If the World Is Getting Richer, Why Do So Many People Feel Poor?

On almost any metric—quality of living, lifespan, health, education, income, basic needs such as food, clothing and shelter—life around the world is improving.
Reuters

In a widely-read statement in his annual foundation letter, Bill Gates took an unabashedly optimistic approach to the world this week. Not only did he tout the massive material progress evident everywhere in the world over the past decades, but he also predicted that as more countries accelerate their transformation from rural poverty to urban middle class societies, poverty as we know it will disappear within the next two decades. “By 2035, there will be almost no poor countries left in the world,” Gates wrote. “Almost all countries will be what we now call lower-middle income or richer.”

With an economy of words, Gates makes clear that he understands the issues. Yes, worldwide there is still immense poverty as defined by critically low incomes or GDP per capita, including less than $500 a year in Ethiopia, less than that in the vast and dysfunctional Democratic Republic of Congo, even less in Burundi and who knows what in North Korea. All of those countries, Gates predicts, will be substantially wealthier in twenty years.

This message is in rather stark contrast to the sense in the United States and Europe that we are mired in economic stagnation, and that as inequality grows, more people are unable to meet their basic needs. That message is likely to be a cornerstone of President Obama’s State of the Unionaddress, and it suggests that life is not getting better for many Americans, but rather worse.

So which view more accurately describes the world we live in? While it does depend on what you consider progress, it should be hard to disagree with Gates and the evidence he presents. Yet today, many people do. They believe that their quality of life is deteriorating, and they look around and see the world through that lens.

In purely dollar terms, it is true that the vast middle class in America (and Western Europe) have seen their incomes stagnate. As is frequently noted, middle-class incomes in the United States have barely budged since the 1980s. Income data, however, has some substantial limitations. While it is used to determine official poverty rates, it says nothing about the relative cost of living. As many goods and essentials have become dramatically less expensive, stagnant incomes allow for higher living standards.

In 1950, for instance, the average American family spent almost 30 percent of its income on food. Now it spends barely more than 10 percent. Apparel costs have also dramatically decreased. Add in the free goods of the Internet — ranging from Google, to GPS data that helps you avoid traffic, to shopping online and saving travel costs — and you have a rather different picture of the net effect of stagnant incomes.

Then there is what used to be called the developing world. Gates notes that the only region of the world where there is still chronic poverty en masse is sub-Saharan Africa. That is probably overstating the case, given that India alone has at least 100 million people living in slums without clean water or basic services. Yet over the past decade, more than that number has been able to move out of slums and into legitimate dwellings. Cup half empty, or half full?

Or take a different measure: nutrition. According to the World Health Organization, every part of the world has seen a steady rise in calorie consumption over the past fifty years. Industrialized nations will see an increase from 3065 calories per person per day in the mid-1970s to an estimated (and perhaps excessive) 3440 by 2015. Developing nations will go from 2152 to 2850 in the same time. Only sub-Saharan Africa lags notably, and should increase its consumption from 2079 to 2360 calories during these four decades. East Asia, which was calorically poorer than Sub-Saharan Africa in the 1950s, now consumes over 3000 calories a day per person.

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Zachary Karabell is Head of Global Strategy at Envestnet, a financial services firm, and author of The Leading Indicators: A Short History of the Numbers that Rule Our World. More

At River Twice Research, Karabell analyzes economic and political trends. He is also a senior advisor for Business for Social Responsibility. Previously, he was executive vice president, head of marketing and chief economist at Fred Alger Management, a New York-based investment firm, and president of Fred Alger and Company, as well as portfolio manager of the China-U.S. Growth Fund, which won a five-star designation from Morningstar. He was also executive vice president of Alger's Spectra Funds, which launched the $30 million Spectra Green Fund based on the idea that profit and sustainability are linked. Educated at Columbia, Oxford, and Harvard, where he received his Ph.D., he is the author of several books, including Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends on It (2009), The Last Campaign: How Harry Truman Won the 1948 Election, which won the Chicago Tribune Heartland Award, and Peace Be Upon You: The Story of Muslim, Christian, and Jewish Coexistence (2007), which examined the forgotten legacy of peace among the three faiths. In 2003, the World Economic Forum designated Karabell a "Global Leader for Tomorrow." He sits on the board of the World Policy Institute and the New America Foundation and is a member of the Council on Foreign Relations. He is a regular commentator on national news programs, such as CNBC and CNN, and has written for The Wall Street Journal, Newsweek, Time, The Washington Post, The New Republic, The Los Angeles Times, The New York Times, and Foreign Affairs.

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