World poverty could dip by half as “insiders and outsiders” increasingly divide nations

Posted on Thursday, November 19th, 2009 at 3:16 pm in

The number of people in extreme poverty will be halved over the next 25 years, but there are clouds on the horizon that ‘insiders’ and ‘outsiders’ are dividing major countries.

The projection in a new World Bank report, ‘Global Economic Prospects 2007: Managing the Next Wave of Globalization,’ attributes this to rapid growth of developing country economies rather than to western taxpayer-funded aid schemes and predicts that the race to end poverty will be faster than the previous 25 years (1980-2005) and probably the quickest in history.

According to the report, total international economic output is projected to climb to $US72-trillion by 2030 from $US35-trillion in 2005 as annual growth averages about 3 per cent, reflecting growth rates of 2.5 per cent for high-income countries and 4.2 per cent for lower-income developing countries.

Francois Bourguignon, the World Bank’s chief economist, reckons the number of people living on less than $US1 a day could be cut in half, from 1.1-billion now to 550-million in 2030. He does note that some regions, such as Africa, are at risk of trailing behind in poverty alleviation, and that within countries income inequality could widen.

‘On Target’, No.77, Martin Spring’s private newsletter on global strategy, published under the Afrodyn banner, notes that creeping social breakdown is an unpleasant fact of life in Europe. According to Spring one of the features of it, about which little, is said is the emergence of “two nations” within countries such as Britain and France.

“There is increasing divergence between the living standards of ‘insiders’ with well-paid, secure jobs and generous pensions to look forward to, and ‘outsiders’ on low pay, often lacking job security, and increasingly discriminated against in retirement provision.”

“Attempts to start addressing the problem by freeing up labour markets and bringing equality to pension provision are being met by fierce resistance from those enjoying the benefits or seeking access to them.”

He points to the recently massive demonstrations in France protesting against a proposed marginal easing of employment protection, where those in permanent employment, whether in the public or private sectors, have legally enforced job security that makes them a privileged class.

In a recent newsletter, Spring pointed out how many Europeans and North Americans were heading for retirement in the tropics because of the comfort and lower costs of living there.

The World Bank report features the challenge on how best to manage the growing integration of the international economy (globalisation) and its impact on poverty. The key outcome of the long-term projections is predicated on the emergence of a ‘global middle class’ (a complex an annual per capita income between the average in Brazil and in Italy, or somewhere between about $US4-17,000

One of its most startling predictions is that by 2030, 1.2-billion people in developing countries – some 15 per cent of the world’s population — will belong to this grouping, up from 400-million today.

That means the quantum growth of a group that will then gain access to international travel; purchase cars and other advanced consumer durables; attain international levels of education; and play a major role in shaping policies and institutions in their own countries and the world economy.

By then, the population of more than 30 developing countries will be 40 per cent or more rich and middle class. Currently, this is true for only six.

Britain too, Martin Spring believes, has seen the emergence of a privileged class: “For example, a recent study showed that members of defined benefit pension schemes, very few of which remain open to new employees, can look forward to a retirement income equivalent to 81 per cent of their final earned income. Members of defined contribution plans, which companies offer to the new employees, will receive just 38 per cent.”

He reckons that a quarter of the work force in government employment are even more privileged: “Thanks to profligate spending increases since Labour came to power, state employees now have higher pay than those doing similar work in the private sector, including the highest-paid medical professionals in the world outside the US.”

Median incomes for full-time British government employees are now 15 per cent higher in the public sector than in the private sector. State employees also have much greater job security, can usually retire at lower ages, and look forward to no-risk, generous pensions.

“The consequence of the emergence of these “two nations” can only be escalating social and political conflict, damaging to economic growth and investment returns, especially when the ‘outsiders’ — such as the elderly — start to mobilize their political potential as effectively as the ‘insiders’ already do.”

World Bank economist Hans Timmer claims that growth in the world’s developing countries would remain strong, boosted by improved policies and favourable financial conditions.

The report reassuringly forecasts a soft economic landing remains likely, but warns that a cooling US housing market could spark a sharper-than-expected downturn and even a recession, which could have a major impact on developing nations.

The report also has good news on the oil price front where the price is likely to ease to $US56 a barrel in 2007 and fall further to just below $US53 in 2008 as supplies rise and demand growth eases. But it warned that if measures to slow growth in key developing nations such as China, Argentina and India failed, inflation in those countries could pick up.

Mr Timmer said China was under more pressure than ever to revalue its currency.

‘We do think that with the current environment, the need for an appreciation of the renminbi [yuan] has become larger than it has been over the last couple of years,’ he said.

This article was made possible for the NZ Property Monitor by Timothy Terence Manning