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Otaviano Canuto

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Less Poor but More Unequal

Posted: 04/25/2012 6:16 pm

First, the good news: The world has become considerably less poor. Today, 43 percent of people are considered to be living in poverty -- that is, living on less than $2 per day -- compared to 30 years ago when almost three-fourths of the developing world was doing so. Even more heartening is that extreme poverty -- that is, living on less than $1.25 per day to meet the most basic human needs -- has declined even more. In fact, the share of those living in this state has fallen by more than half, from 52 percent in 1981 to 22 percent in 2008.

Now, the bad news: Despite the substantial declines in global poverty, 2.5 billion people are still living in poverty (below the $2/day line), and 1.3 billion still are living in extreme poverty (below the $1.25/day line). What's more, despite a reduction in international income inequality between countries, significant income disparities among citizens seems to remain unchanged on a global level, due in part to increased income disparities within newly emerging economies. But as long as poverty is falling around the world, should we even worry about income inequality?

Indeed, we should. Even if incomes are growing for everyone, persistent inequality should concern policy makers when perceptions of "unfairness" lead to political instability, when income inequality limits the potential for future growth and poverty reduction, and when inequality harms people's opportunities and welfare.

Recent developments show that the effects of income inequality manifest themselves in many countries around the world, developed and developing alike. For instance, inequality has become a concern for high income countries that have seen increases in income disparities, including countries known to be relatively egalitarian, like Sweden, Finland and Denmark. It is also a concern in the UK and the US, where "occupy" movements have coalesced in protest of income and wealth disparities between the top "1" percent and the remaining "99." And over the past year in the Arab world, the social unrest that swept the region serves, in part, as a reflection of deep injustices that result from little opportunity and hope for the youth.

As evidenced by these events, wealth inequality is seen by many as one of the most serious challenges facing the post crisis world. Debates over inequality -- and the role governments should play -- has polarized political and economic debates. How much should inequality matter or weigh in policy making? Are there tradeoffs between equity and efficiency (or growth), and if so, how should policymakers address them? How much is "too much" inequality for a society?

The issue of inequality has returned to the center of the development agenda and is seen by many as the most serious challenge facing both developing and developed nations. In response, I encourage you to take a look at the first issue of Inequality in Focus, a new series published by the World Bank's Poverty and Equity unit. The series aims to inform the public policy debate on equity, inequality of opportunity, and socioeconomic mobility -- key issues in tackling the problem of inequality and ensuring more inclusive development for all.

Follow @WBPoverty on Twitter for the latest on the World Bank's efforts to help countries reduce poverty.

 
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