The Optimist

The Poor Are Getting … Richer

It really is getting better -- even for the bottom billion.

For most of the last 200 years, the story of global incomes has been one of the rich getting richer and the poor staying poor -- or "divergence, big time," as Harvard Kennedy School professor Lant Pritchett put it in a 1997 article. Pritchett argued that in 1870, the world's richest country was probably about nine times as rich as the poorest country. By 1990, that gap had increased to a 45-fold difference. And populations grew fast in many of the stagnant economies at the wrong end of this divergence. By 1981, according to the World Bank, 1.9 billion people, or half of the population of the developing world, lived on $1.25 a day or less.

It's easy to assume, faced with images of continuing destitution in rural Africa and South Asia, that things have just kept getting worse. But they haven't. In fact, over the last two decades the pattern has reversed. The world has got a lot less poor -- and the nature of the poverty that remains has changed in important ways.

Start with the numbers: In the 1980s, the average GDP per capita growth rate in developing countries was 1.4 percent, according to data from the World Bank. By the first decade of the 21st century, however, the average had shot up to 4.4 percent -- considerably higher than growth rates in rich countries. As a result of this economic explosion, the number of countries classified as low income -- that is, with a GDP per capita of less than about $1,000 -- has fallen from 60 in 2003 to 39 today.

It's not just countries that are getting richer -- individual people are, too. In 2005, the number of people worldwide living in absolute poverty, or on $1.25 or less a day, was around 1.3 billion, according to estimates from Laurence Chandy and Geoffrey Gertz of the Brookings Institution. The same researchers suggest it was below 900 million last year. From one-half of the developing world in 1981, they estimate the proportion of people in absolute poverty today at less than one-sixth.

This isn't just a story of Chinese tigers and Indian elephants -- even Africa is getting in on the action. To be sure, the continent was late to the party, but the last 10 years have seen impressive growth in countries both oil-rich and oil-poor, landlocked and coastal. According to Xavier Sala-i-Martin and Maxim Pinkovskiy of Columbia University and the Massachusetts Institute of Technology, respectively, Africa is on track to halve the number of people living in absolute poverty between 1990 and 2017. Already, poverty rates are 30 percent lower than they were in 1995.

Of course, all these numbers need to be taken with a cellar's worth of salt. Measuring incomes within countries is hard, and meaningfully comparing them across borders -- when the same goods have different prices from country to country, and people buy different things -- is even harder. Measuring across time adds additional uncertainty. Trying to come up with regional and global estimates, especially for the last few years, requires filling in big gaps using rafts of arguable assumptions. One indication of the lacking exactitude of cross-country income data is that with a few exceptions we don't really know whether African countries south of the Sahara are richer or poorer than each other.

Caveats aside, the trends are strong enough that the broad picture of falling global poverty and rising incomes is widely accepted -- and that makes for some dramatic changes in the nature of the world's poverty problem.

For one thing, most of the world's poor people no longer live in poor countries. In 1990, more than 90 percent of them did, according to Andy Sumner of the Institute of Development Studies. By 2007, however, the number had dropped to around one-quarter. That imbalance may not stick; Brookings's Chandy and Gertz predict that as poverty rates decline in the new middle-income countries -- especially in India, China, and Indonesia -- the share of poor people living in poor countries will rebound to 45 percent by 2015. Still, the idea of poverty as largely a problem of "the bottom billion," stuck in countries with medieval average incomes and institutions to match, is due for some revision.

Secondly, the location of the average poor person is moving rapidly west. Even as Africa is becoming less poor, poverty is becoming an increasingly African problem. In 2005, Asia was home to 66 percent of the world's poorest, while sub-Saharan Africa accounted for 28 percent. The Brookings analysis suggests that by 2015, those proportions may flip, with Asia housing 34 percent and Africa 60 percent.

A related trend is that poverty is becoming more disbursed -- no longer concentrated in a few very large countries, but spread among a greater number of mid-sized nations. In 1990, China accounted for more than a third of a global total of 1.8 billion living on $1.25 a day. In 2015, Nigeria is predicted to have the most poor people of any country in the world -- but it will account for just over a sixth of the global total, 585 million.

The decline in global poverty is unambiguously good news for billions of people worldwide. But it will pose some problems for the world's aid agencies. As the majority of poor people shifts toward living in middle-income countries, donors are going to have to think about moving away from a model of helping poor countries to one of helping poor individuals. One option floated by Chandy and Gertz is for donors to guarantee a global minimum level of consumption. Aid agencies would pay poor families the difference between their incomes and the income level of $1.25 per person per day. The Brookings scholars estimate the financial costs of such a scheme have dropped from $96 billion in 2005 to $66 billion today -- or about half the value of official aid. With the growing reach of financial services, their idea is more feasible than it was -- though recalculating exactly who should get exactly how much income support each year would be an awesome challenge.

But these challenges should force donor agencies to recognize how the new map of poverty actually opens up opportunities for aid. Imagine that China was still home to one-third of the world's poor. The role for aid in addressing the needs of those poor people would be dwarfed by what the country could manage on its own. China has reserves of $2.85 trillion -- that's about 24 times the annual global volume of aid flows. On the other hand, it is far more plausible to believe that aid could make a difference in poverty in the Democratic Republic of the Congo -- which may rank third worldwide in terms of the total number of poor in 2015. The country's total GDP is only just above $10 billion.

And it's worth keeping in mind that poverty is about a lot more than money. Despite China's stunning economic growth over the past 20 years, progress in health improvements has slowed dramatically. From 1975 to 1985, child mortality in the country was almost halved. During a period of considerably more rapid economic growth after 1985, it took 22 years to repeat the performance.

So aid agencies will have an important role to play in improving outcomes for those merely neighboring on absolute destitution and improving the broader quality of life through the extension of health and education services, among other things. This to say nothing of countering the effects of global climate change. The end of poverty, in short, is not yet in sight. Still, we've made a pretty great start.

Issouf Sonogo/AFP

The Optimist

Fiber Cons

You don't need to be superfast to be super-competitive -- but try telling that to the governments sinking billions into fiber-optic networks.

In last week's State of the Union address, President Barack Obama highlighted government programs "rebuilding for the 21st century." Among the investments in vital public infrastructure he mentioned -- roads, bridges, rail -- he promised "high-speed wireless coverage to 98 percent of all Americans." The president was referring to mobile broadband Internet and similar services advertised as "3G" or "4G" -- low-cost ways to help make basic broadband near universally available.

Unfortunately, that's not where government financing has been going so far. The U.S. Department of Agriculture, responsible for $7.2 billion in stimulus funds put towards bringing broadband Internet to underserved and rural areas, has already blown the majority of that money on the rollout of "superfast" Internet via fiber-optic cable -- joining a global bandwagon of speed-obsessed governments sinking billions into extending a whole new communications infrastructure across their respective countries.

Superfast Internet connectivity is often defined as delivering content at 50 megabits per second or faster. That makes it about 12 times faster than the Federal Communication Commission's standard for basic broadband. There is more than one way to deliver superfast connectivity -- cable television wires can manage 50 megabits per second speeds, for example. But for really fast Internet, fiber-optic cable is technically unbeatable -- it can deliver speeds twice as fast as cable and up. Why settle for a Ferrari when a Bugatti Veyron can go twice as fast?

The Agriculture Department is hardly the first government agency, in the United States or elsewhere, to fall for fiber. Last year, the Federal Communications Commission set the goal of outfitting 100 million households with 100-megabits-per-second Internet access. The European Commission approved spending nearly $2.5 billion worth of member government subsidies -- along with $3.2 billion of its own funds -- on rolling out fiber across the continent, with the aim of having half of European households online at speeds of over 100 megabits per second by 2020. Meanwhile, Australia has really gone all out -- it is investing $23 billion in its National Broadband Network, which includes connecting almost all Australians' homes with fiber.

The premise for giving so much cash to the global trench-digging industry is governments' belief that superfast broadband will bring substantial social and productivity benefits. Unfortunately the evidence for these benefits is awfully thin. All else equal, faster is surely better, when it comes to the Internet at least. But faster technologies don't always triumph; think of passenger hovercraft, maglev trains, and suspersonic airliners. These technologies didn't fail because they weren't superior, but because the demand wasn't there or was insufficient to justify the cost. And that is the concern with fiber -- the costs of rollout look particularly high, while the benefits in terms of new applications look limited indeed.

Compare the cost of fiber to the two previous iterations of Internet connection technology. The first was dial-up, which cost less than $200 per home. The next was a digital subscriber line (DSL), with a total cost per subscriber of about $150. The fiber upgrade is different from these in that it requires building an entirely new network rather than retrofitting existing ones -- a difference that is reflected in fiber's price tag. Verizon's costs for rolling out a fiber-to-the-home network in the United States are in the region of $2,750 per home connected.

Given widespread availability of basic broadband (averaging 88 percent coverage in the 34 member countries of the OECD), to believe that the investment in fiber is worthwhile, you have to think there will be considerable benefits from superfast applications that basic broadband cannot deliver. Yet, today, there are virtually no services that can only be delivered over fiber-based broadband.

Some commentators have argued that fiber will enable "smart grids" that allow electricity consumption to be smoothed, reducing peak demand and in turn the need for new power plants. But in Italy, 30 million smart meters were installed between 2001 and 2005 delivering just such benefits; they needed kilobit-, not megabit-, per-second speeds to operate, and were connected using existing copper or mobile networks, not fiber ones.

Those touting health-care applications point to remote consultation: doctors in their offices diagnosing and prescribing treatments for patients who remain in the comfort of their own homes. Advocates note the positive results of trials of tele-homecare for the elderly and U.S. military veterans. But those trials, too, did not require fiber-grade speeds -- it was possible to get the medical benefits in question using basic broadband or even dial-up. As for education, it may be that certain university lectures will be dependent on very high resolution video requiring superfast home connections, but the vast majority of educational material can be -- and in many cases already is -- delivered perfectly well without it.

Fiber advocates also argue that the technology will enable more people to telecommute to their jobs, with associated benefits for traffic congestion and the environment. Data from a U.S. survey sponsored by a fiber industry lobby group suggests households early to adopt fiber do telecommute more -- one extra day per month. But while fiber may make this easier, it is neither necessary nor sufficient. Some Scandinavian countries already had 17 percent of the population telecommuting in 2000, well before superfast broadband made its debut. Conversely, in South Korea, which has led global fiber rollout for some time, less than 1 percent of the workforce telecommutes. 

What South Korea's lead in fiber may help explain, however, is the fact that around 1 million of the country's citizens (by the government's estimate) are addicted to online gaming. Indeed, where fiber rollout has occurred to date, the evidence is of few new speed-dependent applications, but more intensive Internet use for gaming and watching television. This is the most plausible benefit of fiber over basic broadband going forward -- but it is an odd justification for public subsidy. And even here, the benefits of fiber are marginal to most consumers. It is true that fiber can provide on-demand high-definition television, but so can the sort of cable services to which 96 percent of households in the United States can already subscribe, at an estimated cost of just $100 per home.

If fiber isn't all it's cracked up to be, that might explain why few people with access to it seem willing to pay for it. In six out of nine European countries where fiber to the home is available, the price that providers can charge for fiber broadband is the same or even less than that for digital subscriber line or cable broadband services. Even so, in Europe as of July 2009, less than 16 percent of homes wired for fiber were connected to it. In Britain in particular, a service offering up to 50 megabits per second available to around half of the country's households since the end of 2008 had only 74,000 subscribers at the end of June 2010. Adoption of new services is rarely immediate, of course, but these figures suggest it could be a very long time before consumers are as enamored of fiber as their governments appear to be.

The future may hold a bevy of powerful applications that require superfast broadband. These applications may indeed carry significant social benefits. If so, the case for subsidising fiber rollout will become more compelling. But the "killer application" for superfast may not appear at all. And when there is no apparent need to hasten into investments in a technology with uncertain demand, the best answer is to wait -- after all, a seat on the fiber bandwagon is awfully expensive.