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  • Adriene: Welcome to Crash Course Economics, I'm Adriene Hill.

  • Jacob: And I'm Jacob Clifford, and today we're talking about poverty and extreme poverty,

  • which are not easy problems to talk about, and not easy problems 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.

  • [Theme Music]

  • Jacob: Back in the 1990's the United Nations created 8 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. Now, poverty means

  • different things in different countries because there's 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", but we're gonna focus on extreme poverty, which

  • according to the U.N. is "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. defines "extreme" or "absolute poverty" as living on less than $1.25 a day. The goals

  • set by the U.N. was 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. And 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. And 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 the 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. And we're talking everything.

  • From shoes and bananas, to innovations and ideas.

  • Take mobile phones. Mobile phones are pretty much good for everything, including reducing

  • poverty. According to economist Jeffrey Sachs, mobile phones are the "single most transformative

  • technology" when it comes to the developing world. Phones give people access to banking

  • and payment systems. Better access to education and information. In some places mobile phones

  • help farmers get information and get the best price for the stuff they're producing. 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. But 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? Well, a lot of workers

  • are thrown into hazardous working conditions, but it's also true that many workers in developing

  • countries are at least making 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. And the multiplier

  • effect means that more money is being spent on local businesses, so these jobs create

  • jobs. According to the 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 really needs its apparel industry; it's pretty much the only thing keeping its economy afloat."

  • Adriene: But not everyone agrees. Opponents of globalization called outsourcing of jobs

  • "exploitation and oppression", a form of economic colonialism that put profits before people.

  • A few call for protectionist policies like higher tariffs and limitations on outsourcing.

  • But 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. They don't have regulations that provide safe working conditions, or protect

  • the environment. And although nearly every country bans child labor, those laws are not always enforced.

  • But in the absence of regulation, it's still possible 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 get blasted by officials and the media.

  • So awareness is the first step to improvement. The second step comes from those that support

  • globalization. The pro-globalization set argued 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 think the planet can sustain a growing global economy. Deforestation, pollution,

  • and climate change aren't gonna fix themselves. Especially if increases in living standards

  • lead people to demand more consumer goods like cars, and meat, and smartphones.

  • Globalization has helped millions of people get out of extreme poverty, but the challenge

  • of the future is to lift up the poor while at the same time 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 gave small loans, on average

  • around $100, to low-income people 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 was a success and has since spread to developing countries throughout the world.

  • Private lenders, governments, and nonprofit organizations have jumped onboard to loan

  • billions of dollars to 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 make their lives better.

  • Yunus explains "In my experience, poor people are the world's greatest entrepreneurs. Every

  • day, they must innovate in order 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 own terms. But we can't forget, a lot of people who participate in

  • the global economy aren't doing it on their own terms. Many of the people who 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 okay, it's progress, but it's progress that's awfully hard to stomach.

  • Thanks for watching, we'll see you next week.

  • Jacob: Crash Course Economics was made with the help of all these nice people. You can

  • support Crash Course at Patreon, where you can help keep Crash Course free for everyone

  • forever, and get great rewards. Thanks for watching, and DFTBA.

Adriene: Welcome to Crash Course Economics, I'm Adriene Hill.

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