The Best Ways to Fight Extreme Poverty

COPENHAGEN – In 1950, people in South Korea and Pakistan earned roughly the same amount of money annually. Today, the two countries are scarcely comparable. South Korean’s per capita income has grown 23-fold since then, while Pakistan has experienced only a three-fold increase.

How we can help more of the world’s poorest countries emulate South Korea’s success is one of the most important questions facing the world today. Better economic outcomes mean empowering entire populations with better health, more education, longer life, and less vulnerability to challenges like natural disasters.

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Many of the United Nations’ proposed 169 development targets for the next 15 years are, at their heart, concerned with poverty reduction. But not all targets are equally good. The Copenhagen Consensus Center, of which I am director, recently asked 60 teams of economists to evaluate the benefits and costs of these proposed targets, which will come into force to replace the Millennium Development Goals in September.

One of the least desirable targets seems laudable at first: full employment for all. Unfortunately, this is a dream, not a target. Economies need some unemployment to allow workers to change jobs, and most governments already focus on job creation. Research suggests that politicians and interest groups would use a full-employment target to support expensive, protectionist policies that generate great jobs for some but drive many into the informal economy. So it would probably end up doing less good than it would cost, and it is certainly not the way to reduce extreme poverty.

About 14.5% of the world’s population, or one billion people, live on less than $1.25 a day. So why not end extreme poverty by simply transferring enough resources to this billion people to get them to at least $1.26 a day? The world’s poorest would be able to feed and educate their children better and become healthier.

But, in addition to the financial cost, there would be huge administrative challenges, along with corruption and institutional deficiencies. When these factors are weighed against the benefits in monetary terms, each dollar spent ending extreme poverty with cash transfers would achieve about $5 worth of social value. That is not a bad return at all, but there are many better ways to help.

One possibility is to triple mobile broadband penetration in developing countries. This would provide small-scale businesspeople such as farmers and fishermen with market information, enabling them to sell their goods at the highest price – and to boost productivity, increase efficiency, and generate more jobs. Our research shows that the benefits, added up, would be worth $17 for every dollar spent – making it a very good development target.

An even better intervention addresses migration. More than 200 million people today work outside their home countries. As rich countries age, they need more workers. At the same time, people from developing countries are more productive in a developed country. Easing restrictions on migration would allow young people from developing countries to expand industrialized economies’ diminishing workforces – and generate the taxes needed to pay for care for the elderly.

Such migration would also be good for the developing countries, because migrant workers send home remittances. In total, every dollar spent on increased migration would produce more than $45 of social good – possibly more than $300. While in today’s political climate, increasing migration might be difficult to achieve, it is worth pointing out how effectively it could help the world’s poorest.

The single development target that would have the biggest impact on global prosperity would be the completion of the Doha trade round. Lowering trade barriers would mean that all countries could focus on doing what they do best, making everyone better off. Moreover, freer trade would accelerate economic growth, owing to increased innovation and knowledge exchange. Heavy reliance on trading in a global market was one of the main reasons that South Korea has developed so rapidly and essentially eradicated its poverty in the last 65 years.

Economic models indicate that a successful Doha round would make the global economy $11 trillion richer each year by 2030, with most of the benefits going to developing countries. Each person in the developing world would earn $1,000 more per year, on average. The number of people living in extreme poverty would fall by 160 million. For every dollar spent, mostly to pay off Western farmers blocking the current negotiations, the world would achieve more than $2,000 of benefits, making free trade a phenomenal investment.

Each of these proposals – full employment, cash transfers, broadband rollout, freer migration, and lower trade barriers – is covered by at least one of the UN’s 169 development targets. And herein lies the problem.

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Trying to do 169 different things at once would be foolhardy. It would mean spending too much time and resources on lower-return priorities, instead of focusing on the targets that promise the biggest impact on the world’s poorest. In fact, our research shows that there are 19 phenomenal targets that – like freer trade – should be prioritized above all of the others.

The final decision about which targets will become global policy will affect the flow of trillions of dollars over the next 15 years. In September, when world leaders gather in New York, they need to focus on the smartest ways to boost global prosperity. Doing so would help more countries take South Korea’s path and lift their populations out of poverty.