Did China Just End Extreme Poverty?

Not entirely, but it's virtually the only country to have made any progress.

by Aaron Bastani

25 May 2021

Tourists in Shanghai
Tourists in Shanghai (Pixabay/ Creative commons).

One of the central myths of liberal modernity is that things inevitably get better. “The arc of the moral universe is long,” declared Martin Luther King in 1964, paraphrasing Theodore Parker, “but it bends toward justice.” King may not actually have believed these words – after all, he was often critical of liberal sensibilities. Yet in a sense that is irrelevant. King’s rhetoric was powerful precisely because it appealed to ideals of progress that many white Americans already believed in.

Recent decades have witnessed the demise of such confidence, however, with claims of a brighter tomorrow increasingly hard to reconcile with the world around us. Inequality is rising both within and between nations, while climate change represents a civilisational threat, and younger citizens gradually realise they will not enjoy the affluence of their parents.

Yet despite all that, one comforting myth endures, namely the idea of ‘development’ as a means to end material want among the global poor. Despite its lofty ambitions, the concept was born as a last-minute addition to a speech by President Truman in 1949. This came to be known as the point four programme with Truman declaring that America “must embark on a bold new programme for making the benefits of our scientific advances and industrial progress available for the improvement and growth of underdeveloped areas”. He went on to add that while material resources “for assistance of other peoples are limited” the United States possessed “imponderable resources in technical knowledge” which were “constantly growing and are inexhaustible”. It mattered little that there was no subsequent plan to accompany such rhetoric, here was a crusade that permitted the United States to adopt a position of both moral and military leadership while fighting communism.

Half a century later 191 UN member states committed to the millennium development goals (MDGs), one of which was to halve extreme poverty, defined as living on $1.25 a day or less, by 2015 when measured against 1990.

Fifteen years later and it was a case of mission accomplished, with the UN announcing that the number of people living on that figure had fallen from 1.9 billion in 1990 to 836 million. Yet while such news was welcome, and represented undeniable progress, to view that accomplishment as the result of global efforts was misguided. After all, virtually all of the gains had taken place in a single country: China.

According to the World Bank, which defines extreme poverty as living on $1.90 a day or less, 750 million people in China fell into that category as recently as 1990. Today that figure is virtually zero, with Chinese president Xi Jinping announcing earlier this year that extreme poverty had in fact been eliminated.

The importance of such a story can’t be overstated. If it is the case that China is single-handedly responsible for reducing global poverty over the last thirty years, eliminating an endemic issue in little more than a generation, then we must think more deeply about the country’s economic model. Just as importantly, it should also serve to highlight the failure of efforts elsewhere in the global south. What is China getting so right that the Washington consensus of the IMF and World Bank got so wrong? After all, the bedrock of its progress, from state ownership to capital controls and fixed exchange rates, is broadly the opposite of what is meant to work.

Has China really ended extreme poverty?

So has China actually eliminated extreme poverty? As is often the case, that depends on what measure one chooses to adopt. While the MDGs had a standard of $1.25 a day, and the World Bank preferred $1.90, China’s recent claims rest on its own baseline of $1.69. By this measure, so Xi claims, 93 million Chinese have been lifted out of poverty since 2013. Yet employing the World Bank metric it appears that China has not yet eliminated extreme poverty, although it only persists for an increasingly small fraction of the population.

For a growing number of economists and development scholars, however, the benchmarks mentioned above are inadequate – and fail to capture the extent of deprivation in the global south. They contend instead that extreme poverty should be defined as living on around $5 a day or less.

Such a shift is troubling for the development industry, however, as it significantly undermines the story of progress since 1990. What is more, eliminating extreme poverty at $5 a day would, according to academic Jason Hickel, require global GDP to increase by 175 times (the world economy has only doubled in size since 2004). In other words, using this higher benchmark means it is essentially impossible to eradicate extreme poverty under our present economic model.

Yet even here, within a broader context of inertia and impossibility, China has made extraordinary progress. While approximately 1.1 billion people in China lived on $5.50 or less in 1990, that figure fell to 237 million in 2018. In other words, almost 900 million Chinese people have climbed above the most generous measure of extreme poverty over the last 30 years. That might not grab headlines like Xi’s recent announcement, but it is arguably more impressive.

Beyond China ‘Development’ is Failing.

China’s accomplishment is all the more remarkable when one realises that the absolute number of people living on $5.50 a day or less has remained the same globally since 1990 (although it has fallen as a percentage). Thirty years ago, 67% of the planet’s population – some 3.35 billion people – lived on that figure or less. Today that has fallen to 43% of a larger population, meaning  3.27 billion remain in the same situation. By any absolute measure, then, extreme poverty remains broadly unchanged.

Yet if China is removed from the situation then extreme poverty has in fact increased by almost one billion people – a reality at odds with the proclaimed success of the MDGs. Inequality within and between countries was permissible, we were told, provided it eventually allowed the global masses to escape poverty. Yet once you remove the star pupil from the story it is clear that not only is inequality rising but so too is extreme deprivation. When the UN announced in 2015 that the number of people living on less than $1.25 a day had fallen from 1.9 billion in 1990 to 836 million, thus achieving one of the MDGs, what went unmentioned was that nearly all of that progress came from a country whose economic model was at odds with the Washington consensus.

By any measure China’s transformation to a technological and economic superpower is remarkable. Indeed it is probably one of the greatest stories in human history. Importantly, though, it unfolded in a broader context where countries in the global north imposed a recipe for development on poorer nations – from privatisation to the free movement of capital and floating currencies – which China rejected.

On the most meaningful measure available, China is yet to eliminate extreme poverty. But it’s making far better progress than anywhere else – or indeed any other nation in human history. In doing so it conceals the undeniable failures of development elsewhere, particularly in South Asia and Africa. The myth of global progress, so central to the liberal view of history, has come to depend on a country whose economic model is entirely different to our own.

Aaron Bastani is a Novara Media contributing editor and co-founder.

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