In just three decades, the world has witnessed a radical reduction in global poverty. Data from the World Bank in 2024 show the number of people living in extreme poverty has shrunk from nearly 2 billion in 1990 – 38 per cent of humanity – to around 8 per cent today, leaving 692 million people still struggling. In 2023 alone, nearly $224 billion in aid flowed primarily from Western nations – eg, the United States, the United Kingdom and Germany – channelling resources either directly or through the World Bank, the International Monetary Fund (IMF) and other institutions to fight poverty. These organisations and their major donors celebrate each incremental movement in poverty reduction, heralding their efforts as pivotal steps in taking humanity closer to the Sustainable Development Goal of ending extreme poverty by 2030.
Yet, as the World Bank and the IMF cheer their accomplishments, they are relying on fundamentally flawed metrics for measuring poverty. This is why these powerful institutions are often caught off-guard when those technically above the poverty line remain deprived of basic necessities or when minor shocks push millions back into extreme poverty. In a nutshell, we are still failing millions who have been ‘saved’ by these supposedly historic reductions in poverty.
The problem is that much of the success of the anti-poverty programmes depends on the chosen threshold for the international poverty line itself. According to the United Nations, extreme poverty is characterised by ‘severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information’. With respect to this clear-cut definition, the World Bank’s chosen benchmark of $2.15 per day is significantly low. The US Department of Agriculture states that the daily cost to at least meet the adequate calorie intake requirement in terms of fruits and vegetables ranges from $2.10 to $2.60. Obviously, if a person’s entire income is spent on food, they will lack clothing, shelter, education and other basic human needs. Once we consider the reality of inflation that affects most economies, the problem grows more acute.
We have to revisit the important question: what should be the threshold for the international poverty line? Despite the claims of the World Bank, a person earning just above $2.15 per day is poor. They experience the same level of deprivation as those the Bank classifies as poor. The inadequacy of this measure becomes clearer when considering inflation – as the ‘real’ value of $2.15 is below the original ‘dollar-a-day’ line when calculated in constant (1985) dollars. So, the current poverty line not only underestimates poverty but also exacerbates the issues associated with the already inadequate original threshold.
For policymakers and governments, ‘ending poverty’ has become synonymous with rising above this arbitrary $2.15 extreme poverty line, contributing to a false picture. This needs to be carefully rethought as a 10-cent increase from $2.15 raises the global poverty headcount, on average, by almost 70 million people! Without question, reduction in global poverty has been positive, but moving people marginally above a low poverty line, one not high enough to fulfil their basic human needs, is less impressive. Playing this statistical game in the global fight against poverty risks being something of a sleight of hand. That is not progress – it’s an accounting trick that conceals the nature and prevalence of extreme poverty, in its truest sense, and its scale.
Countries in fragile or conflict-ridden situations are not included in World Bank data at all
A series of methodological fallacies also add to the underestimation of poverty. For instance, the economists Sanjay Reddy and Rahul Lahoti in 2015 highlighted the need for clear decisions on the list of food and non-food items included in poverty calculations. Without this clarification, poverty lines can misrepresent actual deprivation, as the essential goods used to measure poverty may not accurately reflect the needs of poor people. In Poverty as Ideology (2018), the economist Andrew Martin Fischer emphasised that variations in what is considered a staple necessity in one country, yet rarely consumed in another, require greater attention. Ignoring these differences risks creating a one-size-fits-all poverty line, which doesn’t account for the reality of cultural and economic life across nations, thus making global poverty measures less reliable. In the same vein, the economist Andy Sumner points out that, to measure poverty, we need greater clarity on which national prices to use and how to capture price changes over time. Either a general price index for average consumption or a food price-inflation index, which better reflects price rises for items consumed by the poor. Present inflation metrics likely fail to reflect the real cost increases experienced by the poor.
In addition to these technical flaws, there are deeper issues with the World Bank’s data on poverty. The Bank’s poverty estimates rely on critical information from small states and low-income countries that severely lack regular data collection. Countries in fragile or conflict-ridden situations are not included in the Bank’s data at all. The World Bank’s most recent estimates are based on consumption data from just two-thirds of countries, and the figures from 29 nations, including Iraq, South Africa and Japan, are more than a decade old. The quality of household data collected from many other developing nations is often poor, due to a lack of trained personnel and social norms that complicate accurate reporting and collection. Consequently, cross-country comparisons may be flawed, as the timing and quality of these surveys can vary drastically between nations. How are we supposed to have confidence in poverty estimates based on such a foundation?
Egypt provides an example of how inaccurate and outdated data distort measures of poverty, leading to misguided policies and ineffective outcomes. A striking example is that, despite technically being above the poverty line, millions of Egyptians in the early 21st century continued to face rising living costs, pushing them into deeper economic hardship. The disconnect between metrics from leading global organisations and the actual experiences of Egyptians contributed to the dissatisfaction and grievances that led to the Arab Spring – a series of uprisings across the Arab world in the early 2010s.
In India, despite its rapid poverty reduction, many citizens continue to lose a battle against malnutrition, inadequate healthcare, housing and education. Food subsidies and cash transfers, targeted using the $2.15 poverty threshold, exclude millions of Indians who remain deprived of basic necessities. This exclusion has contributed to very high levels of hunger, as reflected in India’s 2024 Global Hunger Index score of 27.3. India also holds the highest rate of child wasting in the world – 18.7 per cent – showing common, severe undernutrition. The government’s own data show that more than 50 per cent of children under five suffer from chronic malnutrition, contradicting the narrative of rapid poverty reduction. Worryingly, this issue extends beyond India; globally, the number of undernourished people has surged from 572 million in 2017 to approximately 735 million today.
Nearly half of humanity remains trapped in extreme poverty
The truth is that large populations live just above the $2.15 line. International organisations and donors tend to overlook these vulnerable groups, who lack access to basic human needs but escape the World Bank classification of ‘poor’. In Bangladesh, for example, while the country has made significant strides in reducing poverty, recurrent flooding and climate shocks have pushed millions back into poverty. Since many of these individuals are not captured by present orthodox metrics, disaster relief and recovery programmes receive insufficient funding.
It is urgent that we revise the global poverty threshold to a more realistic figure. Without this reform, we are unable to see a clear picture of actual poverty levels. By setting the global poverty line at $7 per day – closer to the World Bank’s upper-middle-income threshold, and one that more accurately reflects the cost of meeting basic human needs – we can launch a narrative of real poverty reduction. Under this revised measure, global poverty would have dropped from 69.5 per cent of the world’s population in 1990 to 46.3 per cent by 2022. Though not nearly at the world-historic levels put forth using the present orthodoxy, these reductions still represent significant progress, also revealing that nearly half of humanity remains trapped in extreme poverty. This stark reality underscores the need for a fundamental reassessment of current anti-poverty policies and a move toward more strategies based on real-world information.
Today, even under the misguided parameter of $2.15 per day, 1.1 billion people across 110 countries still remain multidimensionally poor. This number is significantly high, as almost four of 10 multidimensionally poor individuals (39 per cent) are not captured by monetary poverty. Certainly, such low levels of poverty reduction, even after decades of poverty alleviation policies, are simply not remotely as successful as billed. A key factor for the underperformance lies in the World Bank’s principles shaping anti-poverty policies, particularly the neoliberal emphasis on free-market solutions. Free markets can be highly efficient in resource allocation, but they have undoubtedly often contributed to widening economic inequalities, pushing vulnerable populations deeper into poverty.
Let’s take the case for free trade. A well-accepted proposition in modern economics by David Ricardo is that free trade will be beneficial for all, as countries specialise in what they do best. Perhaps, the inevitable creation of ‘losers’ as part of the same process is rarely highlighted. With the opening up of trade barriers, certain industries face stiff competition from their foreign counterparts, leading to the contraction of less efficient domestic firms and the reallocation of their resources into another industry. However, capital as well as labour tend to be sticky and don’t move easily. When faced with increased competition, despite taking a hit to their profits, the firms stay put and continue their production line. This may partly be because of the transaction costs of shifting to a new product: such as the need to retrain workers, buying new machines, etc. So, we know in fact that there is no improvement in efficiency through trade, rather everyone associated with the industry starts to lose their earnings.
In areas with lax labour laws, workers are more vulnerable to layoffs. Displaced workers, now without a stable income and forced to dip into their savings, often need to relocate in search of new employment opportunities. The resulting job and population losses reduce consumer spending, which in turn causes a decline in demand for goods and services. As demand drops, other businesses in the area suffer, causing a ripple effect. The reduced spending leads to a shrinking tax base, making it harder for local governments to fund schools, public lighting and other essential services. As the locality becomes less attractive, it struggles to draw new businesses.
The economic benefits and job creation promised to offset job losses can take years to materialise
India saw such economic downturns following the liberalisation of its economy – marked by reduced government restrictions on trade and industry. A 20 per cent decline in poverty, from 35 per cent in 1991 to 15 per cent in 2012, followed. Until 2012, cheaper imports supported domestic firms and boosted Indian exports; however, the advantages of trade liberalisation then led to a slowdown in poverty reduction. The manufacturing districts experienced significant tariff cuts, resulting in heightened foreign competition and job losses, which threw people into poverty. In contrast, districts focused on cereal production were largely unaffected by tariff changes and hence saw no significant change in rates of poverty reduction. So contrary to a neoliberal orthodoxy, the anticipated benefits of free trade did not unfold as expected.
Further evidence, not just pertaining to the case of India, indicates that neoliberal policies have frequently slowed poverty reduction efforts. During the African Structural Adjustment Programs of the 1980s and ’90s, many African economies faced severe balance-of-payments deficits, meaning they were spending more on imports, debt repayments and capital outflows than they were earning through exports, foreign investment and remittances. The Africans were compelled to seek loans from the IMF and the World Bank. The Bank granted the loans but with several conditions, namely, trade liberalisation with minimal government intervention, privatisation of state-owned enterprises, etc. The adoption of these policies led to a decline in Africa’s per-capita gross domestic product by an annual average of 1.6 per cent from 1981 to 1994.
The promise of neoliberal economic methods is that an overall increase in economic output, or an ‘expansion of the pie’ will benefit everyone, but the opposite happened in African economies. Even in cases where total output expands, there are several challenges. As the gross national product rises, there’s supposed to be more wealth to be shared, and in principle even those displaced by trade could benefit. But that requires redistributive taxation, which depends on political will and efficacy. Over time, the higher output and wages may naturally boost demand, creating new jobs that absorb displaced workers. However, the flaw of this neoliberal theory lies in the timing: the economic benefits and job creation promised to offset job losses can take years to materialise, a time lag that those who have lost their livelihoods cannot afford. The Trade Adjustment Assistance in the US and other programmes provide some support to workers in these situations, but they are insufficient, and such initiatives are largely entirely absent in most developing countries.
Economists have begun to see the smoke and mirrors involved in claims of poverty reduction. The historic counterexample bedevilling neoliberal poverty reduction claims is the case of China. India, Nigeria and Bangladesh all embraced neoliberal policies and have experienced significant poverty reduction. However, they all reduced poverty more slowly than China, which adopted non-neoliberal methods. Some people claim China to be a variant of neoliberalism, while others see it more as an alternative to neoliberalism. In my view, even though China embraced market-oriented reforms in the 1970s, its approach is not neoliberal due to its evident state control, protectionism and limited political liberalisation.
Huaxi village, Jiangsu province, 2010. Photo by Carlos Barria/Reuters
According to the data from the World Bank itself, in the past 40 years, China alone has lifted close to 800 million people out of extreme poverty. Nothing like that has occurred before in history. China’s share of global poverty in 1990 constituted 41 per cent, as compared with 2020 when its share was less than 1 per cent. This historic feat in poverty reduction was possible only due to the rapid expansion of the manufacturing sector. Growth in manufacturing provided jobs to millions of workers with low to moderate skills in the early stages of growth. At every level, the state played an integral role in the industrial expansion, overriding regulations for favoured companies, offering land below the market prices and loans at subsidised rates, sometimes in return for an equity stake. China even blocked competition from outside firms, as evidenced by its average industrial tariff rate of 40-55 per cent during the past decades. China also implemented social safety nets, for example expanded health coverage, social insurance schemes and targeted poverty-alleviation programmes. None of these are neoliberal policies, but they led to an increase in China’s annual per-capita income, from $76 in 1961 to around $12,500 in 2023.
The 2008 crisis made many neoliberal countries reconsider the risks of an unfettered free market
On the other hand, India – a neoliberal economy with a similar demographic structure to China (in terms of population size and rural-urban divide) – offers an instructive point of comparison and contrast. In 1961, India had an annual per-capita income of $86, and today has one of the highest number of people living in extreme poverty. Some economies that leaned more towards neoliberal policies, Japan for example, have developed extensive social welfare programmes. During the 1990s, Japan implemented labour market reforms that promoted greater flexibility in hiring by allowing more part-time, temporary and contract workers. Although this policy boosted productivity and reduced cost for firms, it also led to increased job insecurity and a growing population of workers without stable employment. To mitigate these negative outcomes, the government expanded its unemployment insurance and social welfare programmes, ensuring that displaced workers had access to financial support during periods of unemployment. Japan thus reduced the social costs of market-driven reforms. During the 1970s and ’80s, Korea and Taiwan also adopted social welfare programmes, recognising the need for government involvement in social protection. These changes helped in successful poverty reduction. So recent history suggests a balance between market forces and government intervention remains essential.
The need for such a balance became even more evident after the 2008 financial crisis – a byproduct of financial deregulation, particularly of derivatives, in the US. The crisis triggered the collapse of Iceland’s three largest banks, whose liabilities exceeded the country’s annual economic output. As credit availability dwindled, global demand plummeted, affecting businesses worldwide and pushing millions into poverty. This crisis made many neoliberal countries reconsider the risks of an unfettered free market, leading to a resurgence of state intervention in social protection, trade and industrial policy. A recent example is India’s Production Linked Incentive scheme, introduced in 2020, which offers subsidies to foreign firms manufacturing in India based on their incremental sales relative to a baseline period. The initiative aims to create low-skilled manufacturing jobs, particularly for the poor, by leveraging state support to drive industrial expansion.
Although the role of the state in economic management has expanded in response to financial crises, it remains far from a fundamental shift away from market-driven paradigms. Many neoliberal countries continue to celebrate incremental progress and emphasise market-driven solutions, concealing the real challenges by overstating, sometimes radically, their successes using World Bank data. However, any discussion of poverty reduction today must grapple with the undeniable reality of China’s success in global poverty reduction. China has lifted hundreds of millions out of poverty through deliberate state-led strategies, an achievement that far surpasses even the most optimistic claims of the free-market model. If global policymakers are serious about poverty eradication, they can no longer afford to ignore this contrast. The question is not whether state intervention works, but why so many continue to resist learning from the most effective example in modern history.
