Adriene: Welcome to Crash Course Economics. I'm Adriene Hill.
Jacob: And I'm Jacob Clifford. Today, we're talking about poverty and extreme poverty—problems that are not easy to talk about and not easy to fix.
Adriene: But just because the problem is difficult doesn't mean we shouldn't try to understand it. So let's get into it.
Jacob: Back in the 1990s, the United Nations created eight Millennium Development Goals, with a deadline of 2015. The goals included things like reducing child mortality, promoting gender equality, and combating major diseases. But the first on the list was to eradicate extreme poverty and hunger. Poverty means different things in different countries because there are different standards of living around the world. In the U.S., a person is officially living in poverty if they make less than $11,770 a year, around $32 a day. This is called the "poverty line" or "poverty threshold." However, we're going to focus on extreme poverty, which the U.N. defines as "a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education, and information." The U.N. classifies "extreme" or "absolute poverty" as living on less than $1.25 a day. The goals set by the U.N. aimed to reduce the number of people living in extreme poverty by half. Well, it's 2015, the results are in, and the U.N. reports that 836 million people still live in extreme poverty. But that's down from 1.9 billion, so success or at least a lot of progress. The World Bank predicts that by 2030, the number of people living in extreme poverty could drop to less than 400 million. Of course, that assumes everything will keep improving as it has. But there’s an asterisk here—climate change is a threat to these improvements in global poverty.
Adriene: So we're moving in the right direction, but we're talking about extreme poverty. Most people who’ve been lifted out of extreme poverty are still poor—really poor. Being poor comes with serious problems, from disease to lack of water. Income inequality is rampant, and one in seven people still live without electricity. So why is extreme poverty falling? The answer to this is really complicated. A bunch of factors, like better access to education, humanitarian aid, and the policies of international organizations like the U.N., have made a difference. But the greatest contributor is globalization and trade. The world's economies and cultures have become more interconnected, and free trade has driven the growth of many developing economies.
Let's go to the Thought Bubble. World trade has been growing since the end of World War II. Free trade agreements and technological advances in transportation and communication mean goods and services move around the world more easily than ever. We’re talking everything—from shoes and bananas to innovations and ideas. Take mobile phones. Mobile phones are useful for many things, including reducing poverty. According to economist Jeffrey Sachs, mobile phones are the "single most transformative technology" when it comes to the developing world. Phones provide access to banking and payment systems, better access to education, and information. In some places, mobile phones help farmers get information and achieve the best prices for what they produce. Installing cell phone towers is also a lot cheaper than running thousands of kilometers of telephone lines. Economists call this "leapfrogging," the idea that countries can skip straight to more efficient and cost-effective technologies that weren’t available in the past. International trade has also created new opportunities for people to sell their products and labor in a global marketplace.
There are some significant downsides to globalized trade. The statistician Hans Rosling made this point: "The one to two billion poorest in the world, who don't have food for the day, suffer from the worst disease: globalization deficiency. The way globalization is occurring could be much better, but the worst thing is not being part of it."
Jacob: Thanks, Thought Bubble. So globalization is the result of companies trying to outmaneuver their competitors. While you search for the cheapest place to buy shoes, companies search for the cheapest place to make those shoes. They find the cheapest sources of leather, dye, rubber, and of course, labor. The end result is that labor-intensive products like shoes are often produced in countries with the lowest wages and the weakest regulations. This process creates winners and losers. The winners include corporations and their stockholders, who earn more profit, but also consumers who get products at a cheaper price. The losers are high-wage workers who used to make those shoes— their jobs moved overseas. But what about the low-wage foreign workers? Are they winning or losing? Many workers are placed in hazardous working conditions, but it's also true that many workers in developing countries are at least earning more money. These jobs pay above-average wages. People want these jobs, and although the pay would be unacceptable in developed countries, they’re often the best alternative. The multiplier effect means that more money is being spent on local businesses, so these jobs create jobs. According to economist Paul Krugman, "The Bangladeshi apparel industry is going to consist of what we would consider sweatshops, or it wouldn't exist at all. And Bangladesh, in particular, really needs its apparel industry; it's pretty much the only thing keeping its economy afloat."
Adriene: But not everyone agrees. Opponents of globalization call the outsourcing of jobs "exploitation and oppression," a form of economic colonialism that prioritizes profits over people. Some advocate for protectionist policies like higher tariffs and limitations on outsourcing, while others focus on the foreign workers themselves by demanding they receive higher wages and more protections. The root of many arguments against globalization is that companies don't have to follow the same rules they do in developed countries. Some developing countries have no minimum wage laws and don’t have regulations that provide safe working conditions or protect the environment. Although nearly every country bans child labor, those laws are not always enforced. However, in the absence of regulation, it is still possible that workers won’t be horribly mistreated.
First, public awareness is growing, along with pressure from the international community to take steps to protect workers. For example, the U.S. produces an annual publication called "The List of Goods Produced by Child Labor or Forced Labor." If a company is buying products from that list, they’re likely to face scrutiny from officials and the media. Awareness is the first step to improvement. The second step comes from those who support globalization. The pro-globalization argument holds that as developing economies grow, there are more opportunities for workers, which leads to more competition for labor and higher wages.
Jacob: Perhaps the strongest argument against globalization is its lack of sustainability. Many experts don’t believe the planet can sustain a growing global economy. Deforestation, pollution, and climate change aren’t going to fix themselves, especially if increases in living standards lead people to demand more consumer goods like cars, meat, and smartphones. Globalization has helped millions of people escape extreme poverty, but the challenge of the future is to uplift the poor while keeping the planet livable.
Adriene: One of the best ways to help those in extreme poverty is to enable them to participate in the economy. This applies to developing countries in the global marketplace, but also to individuals at the local level. A perfect example is microcredit. In 2006, a Bangladeshi professor named Muhammad Yunus won the Nobel Peace Prize for implementing a simple idea. He provided small loans, on average around $100, to low-income individuals in rural areas. The borrowers, who are mostly female, often used the money to fund plans that could raise their income. For example, they started small businesses.
Microcredit has been a success and has since spread to developing countries worldwide. Private lenders, governments, and nonprofit organizations have borrowed billions of dollars to aid the world’s most disadvantaged. By itself, microcredit isn’t going to solve the problem of extreme poverty, but it supports the idea that enabling people to participate in the economy can significantly improve their lives. Yunus explains, "In my experience, poor people are the world's greatest entrepreneurs. Every day, they must innovate to survive. They remain poor because they do not have the opportunities to turn their creativity into sustainable income." Microcredit, when it works, allows people to improve their lives by participating in the economy on their terms.
However, we can’t forget that many people who participate in the global economy aren't doing so on their own terms. Many who have emerged from extreme poverty in the last 25 years have jobs, wages, and working conditions that would be unthinkable in the developed world. Economists say that’s acceptable; it’s progress, but it’s a kind of progress that can be hard to stomach.
Thanks for watching. We'll see you next week.