Has extreme poverty really plunged since the 1980s? New analysis suggests not

Data from the World Bank suggests that extreme poverty has declined dramatically over the past four decades, from 47% of the world’s population in 1981 to around 10% today.

This narrative is based on the World Bank’s method of calculating the share of people who live on less than US$3 per day in 2021 prices. This is adjusted for general price differences between countries (what’s known as purchasing power parity, or PPP).

But a growing body of literature argues that the World Bank’s PPP-based method has a major empirical limitation. The problem is that it does not account for the cost of meeting basic needs in any given context. Having more than US$3 PPP does not guarantee that a person can afford the specific goods and services that are necessary for survival in a particular location.

In recent years, scholars have developed what they argue is a more accurate method for measuring extreme poverty. This is done by comparing people’s incomes to the prices of essential goods (specifically food, shelter, clothing and fuel) in each country.

This approach is known as the “basic needs poverty line” (BNPL), and it more closely reflects what the original concept of extreme poverty was intended to measure. There is robust data from household consumption surveys and consumer prices covering the period from 1980-2011.

The BNPL data indicates that the story of global poverty over the past few decades is more complex – and troubling – than the World Bank narrative suggests.

This data indicates that between 1980 and 2011, the global extreme poverty rate declined by only six percentage points, from 23% to 17%. During the same period, the number of people in extreme poverty actually increased, from 1.01 billion to 1.20 billion.

What’s more, the alleviation of poverty has not been steady. In the 1980s and 1990s, an additional one billion people were thrown into extreme poverty. This occurred during the period when market reforms were implemented across most of the global south (developing countries in Africa, Asia and Latin America), often under pressure from western-controlled financial institutions. There was improvement throughout the 2000s, but progress has ultimately been slow and shallow.