There’s good news to be found in the global economy, if you know where to look

Brighter days ahead?
Brighter days ahead?
Image: AP Photo/Mark Schiefelbein
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It sure doesn’t look good. Trump. Brexit. Racial killings in the US, and the murder of police officers in apparent retribution. Another horrific outrage in France. Chinese maritime aggression. Syria.

In fact it looks downright bleak.

But don’t lose sight of the fact that some things have gotten better than they once were. For instance:

The number of people living in extreme poverty—defined as those surviving each day on $1.90 in purchasing-power adjusted US dollars—has dropped sharply over the last half century, according to data compiled by Oxford economic researcher Max Roser.

From a peak of more than 2.2 billion in 1970, the number of people living in extreme poverty has fallen to about 710 million, meaning more than 1.5 billion people have emerged from these dire conditions.

This is a significant achievement achievement for the world. But China deserves the credit. In 1981, roughly 880 million Chinese lived on less than $1.90 a day, according to World Bank statistics. By 2010, that was down to roughly 150 million, a decline of nearly 730 million people, thanks to China’s breakneck economic growth.

That’s very good news, right?

Yes, it is. But not for everybody.

We now know that China’s rise—which roughly started with Deng Xiaoping’s reforms of the late 1970s, and gathered steam with China’s entry into the World Trade Organization in 2001—had major effects on the rest of the world. Influential recent research from economists David Autor, David Dorn, and Gordon Hanson found that China’s entry into the global manufacturing economy did significant and lasting damage to the US cities most exposed to the sectors in direct competition with the People’s Republic.

They found the US lost 1 million manufacturing jobs because of China between 1991 and 2011. The loss of those jobs has contributed to stagnation and instability for large chunks of the American workforce, and particularly for lower-middle-class workers, who tend to be less educated than the most affluent workers in the US.

And as former World Bank economics Branko Milanovic argues in his recent book Global Inequality: A New Approach for the Age of Globalization, this is not just a US phenomenon. Since the 1980s, incomes have surged for some of the world’s poorest people—largely in China and other Asian nations. But at the same time, the lower-middle classes in the world’s richer countries have seen their incomes largely stagnate. Milanovic lays out that story with the increasingly well-known “elephant graph.”

This bottom axis of this chart shows the entire distribution of income globally. So the poorest shepherd on earth would be almost all the way to the left and the richest plutocrat in the world would be all the way on the right. Because there are so many poor people in the world, almost everyone in wealthy nations such as the US will be found in the richer half of the global income distribution.

The vertical axis shows growth in income—adjusted for inflation—experienced over the two decades between 1988 and 2008.

So you can see that the global poor and middle class—mostly slightly better off people in emerging market countries—saw large increases in income. But the people who are at the bottom half of the richer part of the distribution—poor, working and lower-middle class people in rich countries like the US and in Europe—have seen almost no growth in something approaching 20 years. (Meanwhile, the plutocrats at the far right of the distribution have seen gains of more than 50%.)

So is the decline of global poverty good news or bad news? It quite literally depends on where you find yourself.

If you’re a steelworker in northeast China, it’s been a very good thing indeed. But if you’re a steelworker on the south side of Chicago, not so much.