I welcome Andy Sumner’s lucid article on the fact that most of the world’s poor now live in middle-income countries and what that means for development.
I agree with Sumner that this brings microeconomic issues, inequality in particular, to the forefront of development. Most of the poor live in countries such as India, China, Nigeria, Indonesia, and Philippines that have now reached middle-income status and possess the resources that would permit them, at least in principle, to combat poverty with greater urgency.
With his choice of title, Sumner picks up a fight with Paul Collier who coined the term ‘Bottom billion’ to mean the entire population in fragile low-income countries. I gave long been an admirer of Collier’s work on the particular problems of fragile, conflict-affected, and undemocratic countries struggling to emerge as viable nations. Yet I must agree with Sumner, that while the Collier version of the ‘bottom billion’ has a lot to say about the intractable macroeconomic and governance issues in places like Chad, Haiti, Myanmar, Cambodia, North Korea, Yemen, or Burundi, a broader vision of development, poverty alleviation, and the role of international assistance is required.
In some sense this is old news to the development community. The MDGs and the national Poverty Reduction Strategy Papers (PRSPs) emphasized delivery of basic services for the poor, in particular health and education. What Sumner is arguing is that, now that most poor live in middle-income countries, inequality needs to be confronted.
High levels of inequality and lack of effective social protection mechanisms are key drivers of poverty. The poor live in risky environments where unexpected shocks occur frequently. The Moving out of Poverty study (Worldbank) identified high levels of churning of the poor in all study countries: every year, a lot of poor people were able to escape poverty but a roughly equal number of people descended into poverty. Shocks and lack of social protection were the most important reasons people became poor. My own work in Pakistan (also in Journal of Development Studies) also found that most of the poor and near-poor struggled to cope with frequent and costly shocks.
Health shocks are among the most common and most costly together with droughts and floods. Economic shocks related to prices and employments are also quite common and pose difficult coping challenges of their own (a good example from Philippines is described here).
Coping is difficult and costly, regardless of the source of shock. Formal social protection and micro finance cover a mere fraction of the people in need. Informal solidarity networks cover far more people but tend to be of limited value to some of the poorest and when covariate shocks such as flood, drought, and economic recession strike all their members.
Inequality means that the poor lack the resources needed to cope with shocks—resources in the form of jobs, assets, finance, and social protection that might help bolster and smooth incomes and replenish informal solidarity. Inequality also reduces the impact of economic growth on poverty and makes the politics of development and poverty reduction more elitist.Collier is right to identify the problems of poor, conflict-ridden countries as the toughest challenge facing the development community. But just because the remaining countries have more resources and better governance does not mean they will automatically combat poverty with urgency.
The opportunities to escape poverty, and stay out of poverty, depend on inequality and other local factors, among the vulnerability and how it is managed. That is (also) a middle income country issue and one which donors and development professionals need to be concerned with.