Poverty, Inequality, and Development

In spite of the global economic turbulence of recent years, many countries in the global south are experiencing rapid growth. Cities are booming, infrastructure projects are expanding, and luxury goods are becoming commonplace. However, economic growth within a country does not necessarily bring shared benefits to all citizens. One of the greatest development challenges of the 21^st century is the stubborn and often extensive poverty of middle income countries.

In many cases, within minutes of bustling city centers lie expansive slums where the benefits of development can hardly be seen. Shining new cities stand in stark contrast to crumbling and overflowing residences of those who know little of the benefits economic growth has brought to their country.

For example, in Paraguay, despite an impressive 13 percent growth rate and the emerging opulence of the capital Asunción, the benefits of growth are visible only in select areas of the country. Minutes outside the capital lay sprawling slums where the economic boom has left many behind. The country, long one of the poorest and most unequal in South America, has a poverty rate over 30 percent.

In Panama, the shiny new skyscrapers of Panama City overlook the city of Colón, where decaying buildings, makeshift infrastructure, and high crime are the norm. In spite of an average growth rate of 9 percent over the past five years, just an hour away, few are seeing the benefits.

Such disparities are more the rule than the exception, unfortunately. According to Ronn Pineo, senior research fellow at the Council on Hemispheric Affairs, the data on poverty and inequality are similar in other Latin American countries experiencing high growth rates, including Peru, Ecuador, and Brazil.

Even in rich countries, where there exist sufficient resources to meet the basic social and economic rights of all citizens, inequality is a major challenge. In the United States, for example, inequality is a major contributor to the highest rate of infant mortality in the developed world. Mothers living in poverty have a much higher probability of losing their child on the day of birth than their more prosperous neighbors.

Inequality has a negative impact not only on those who get left behind by growth, but also on society as a whole. As previously discussed in our two part series on inequality, large income disparities compromise government accountability by concentrating political power in the hands of a few wealthy citizens, undermining institutions necessary for enduring economic growth. For example, policies with universal benefits, such as education and health care access for all, may be of little interest to elites; however, these kinds of broad-based investments in human capital are essential for sustained, long-term growth.

Development is not merely about economic growth within a country. It is, fundamentally, about improving opportunities for the people who live there, especially for the poorest. However, in many places, growth is not currently benefiting those who need it most, but is instead concentrating wealth and power in the hands of those with access to opportunities and resources. The pressing challenge for middle-income countries now is to translate their impressive growth rates into widely shared benefits, and to ensure that the promise of development reduces poverty and expands opportunities for all citizens.