December 10, 2019

It’s the Economy: Is It Crazy to Think We Can Eradicate Poverty?

It sounds like the sort of airy, ambitious goal that is greeted by standing ovations but is ultimately unlikely to ever materialize. Development experts don’t see it that way, though. The end of extreme poverty might very well be within reach. “It’s not by any means pie-in-the-sky,” says Scott Morris, who formerly managed the Obama administration’s relations with development institutions. When I asked Jeffrey Sachs, the development economist, if the target seemed feasible, he said, “I absolutely believe so.” And Nancy Birdsall, president of the Center for Global Development, the powerful Washington policy group, told me, “In many ways, it’s a very modest goal.”

In part, this is because the bar is set very low. The World Bank aims to raise just about everyone on Earth above the $1.25-a-day income threshold. In Zambia, an average person living in such dire poverty might be able to afford, on a given day, two or three plates of cornmeal porridge, a tomato, a mango, a spoonful each of oil and sugar, a bit of chicken or fish, maybe a handful of nuts. But he would have just pocket change to spend on transportation, housing, education and everything else. The 1.2 billion people living in such extreme poverty, according to researchers at the Massachusetts Institute of Technology, might own land, but they are not very likely to own durable goods or productive assets — things like bicycles — that might help them raise themselves out of poverty. In such families, about half or three-quarters of income goes toward food.

Fortunately, this deadly and cyclical form of poverty is already on its way toward obsolescence, and much faster than many development economists expected. The first Millennium Development Goal — to halve the proportion of the world population living in dire poverty by 2015 — was met five years early, as the rate fell to an estimated 21 percent in 2010, from 43 percent in 1990. Some economists had feared that the recession would arrest or even reverse the trend, given how interconnected the global economy is, but the improvement continued, unabated. Annual growth dipped for developing economies in 2009 but has since rebounded to about 5.3 percent a year, a figure dragged down by weaker peripheral European economies.

For much of the improvement, the world can thank one country: China, which alone accounts for about half of the decline in the extreme poverty rate worldwide. It has also driven significant gains across the region. In the early 1980s, East Asia had the highest extreme-poverty rate in the world, with more than three in four people living on less than $1.25 a day. By 2010, just one in eight were. But other middle-income countries, like Brazil, Nigeria and India, have experienced significant growth, too — in no small part because tens of millions of the very poor have moved from rural areas to cities, where they become richer, healthier and more productive for their economies.

Since 1980, the proportion of the developing world living in urban areas has grown to about 50 percent, from 30 percent, and according to the World Bank, that migration of hundreds of millions has been instrumental in pulling down poverty rates — and will be for a broader set of countries going forward. Cities bolster access to health services and public resources; infant-mortality rates, for instance, are 40 percent lower in urban Cambodia than in rural Cambodia. And workers themselves become more productive, often by making the switch from labor-intensive work like farming to capital-intensive work like manufacturing. Urban poverty is hardly attractive — slums are cramped, unplanned, unhygienic places — but it is, in many cases, less deadly. (Except when it’s not. A recent factory collapse in Bangladesh killed dozens of workers — a reminder of the sometimes-catastrophic human costs associated with rapid, unchecked urbanization and industrialization.)

Annie Lowrey is an economics reporter for The Times.

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Immigrants Find it Cheaper to Send Money Home

The first time Carmen Gonzalez sent money back to her family in Mexico, in 1991, Western Union charged her a $12 fee to wire $100. She earned that $12 working for six hours in a clothing factory in midtown Manhattan, which paid her $2 an hour.

These days Ms. Gonzalez pays $5, which she earns in less than an hour, so she sends a bit more. The family is benefiting from a financial transformation propelled by new technology and increased competition that has driven down the average cost of sending money to Mexico by nearly 80 percent since 1999.

The drop in fees saved Mexican immigrants about $12 billion over the decade that ended in 2010 — five times the amount of official United States aid to Mexico during that time, according to data from the World Bank and recent Mexican government figures. The cost of sending money to other countries has also declined sharply, though not by quite as much.

The benefits are far-reaching, development experts say, providing a powerful means to chip away at poverty in other countries and expanding the hard-won earnings of immigrants in the United States.

The lower costs may be one reason that remittances have held steady even as fewer immigrants from Mexico have come to the United States and the recession has cut into incomes. Overall remittances to Mexico declined during the global recession but picked up again after 2009.

Some experts say more money could flow to countries like Mexico if Congress approves an immigration overhaul granting a path to citizenship to millions of illegal immigrants, because studies have shown that legalization can lead to increased wages. Others argue that with legalization, many immigrants will invest more heavily in the United States, sending less of their income back to relatives.

The total remittance transfers sent across the globe from the United States in recent years are almost $50 billion annually, according to the Bureau of Economic Analysis, or roughly the equivalent of the government’s foreign aid budget. (Estimates by the World Bank suggest that the figure is significantly higher, close to $100 billion per year, according to Dilip Ratha, an economist who leads the World Bank’s remittances program.)

“Remittances may well be the best single way to foment development,” said Nancy Birdsall, the president of the Center for Global Development, a nonprofit research group in Washington. “It turns out that even a modest reduction in the cost of making remittance transfers adds up to a substantial amount compared to official aid.”

Estefana Bautista, who left two children in her native Mexico when she immigrated to Texas in 2005, said she pays $5 less to send them money now than when she first arrived, which she called “a big help.” “I send those 5 dollars to Mexico,” Ms. Bautista said. “My kids know that they’re getting a little more money every two weeks.”

Growing competition among transfer companies has been the driving force behind the steady decline in costs. A decade ago, Western Union and Money Gram dominated the market. Now they contend with dozens of international competitors like Xoom and Ria.

Western Union’s share of the global remittance market has dropped to about 15 percent from around 75 percent in the late 1990s, while Money Gram’s market share has declined to 5 percent from 22 percent in that time, according to the companies and government figures.

“What we’re really seeing is competition not just based on price, but also on service quality,” said W. Alexander Holmes, the chief financial officer of MoneyGram. “It’s a very interesting time in the market.”

Worldwide, costs for sending remittances to any country have come down from around 15 percent per $300 transaction in the late 1990s to below 10 percent today, Mr. Ratha said. For money sent to Mexico, costs have declined from 9.5 percent per $300 to just over 2 percent today.

In addition to fees covering the processing, remittance companies make money from converting currencies. Remittance experts say these exchange rate fees have not come down nearly as much in recent years. In a meeting in 2011, finance ministers from the Group of 20 countries committed to reducing remittance costs over all from around 10 percent to 5 percent per transaction by 2014.

This month, a bipartisan group in the Senate introduced proposals to allow immigrants here illegally to gain legal status and eventually become citizens.

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