In 2003, Francois Bourguignon, then chief economist of the World Bank, popularized “the poverty— growth— inequality triangle,” a framework describing intricate relationships between the three factors. The progress that BRICS countries have made in reducing poverty can be explained under this framework, disentangling the contributions of growth and changes in income inequality that lead to poverty alleviation.

According to our research, among BRICS members, China was the poorest in terms of the poverty rate before 2004, thereafter India has had been the poorest. Conversely, Russia has had the lowest poverty rate. South Africa and Brazil are at the middle level.

Taking into account the population scale and changes in the poverty rate, China is the most successful country in the fighting poverty. According to the Asian Development Bank, the target of reducing extreme poverty included in the United Nations Millennium Development Goals would not have been realized if China was excluded from consideration. Endorsed by 192 heads of state of UN members, MGDs call for halving the poverty rate between 1990 and 2015, during which China’s contribution to global poverty reduction reached 63.9 percent. Contrasting this with her contributions to global growth of around 30 percent, it is more than appropriate to mark China’s achievement in eliminating extreme poverty as a miracle.

The progress made by BRICS countries can be attributed to policies promoting economic development and particularly supporting the poor. According to “ Country Diagnostics: China toward More Inclusive and Sustainable Development”, a report issued by the World Bank in 2018, poverty reduction in China was unprecedented in speed or scale and this is related to government policies. On the other hand, India introduced anti-poverty measures such as providing employment in rural areas and steering fiscal policies towards inclusive growth. Brazil helps her people escape from poverty through economic development. In Russia, the government focused its reform strategies on reviving the economy, thereby reducing poverty. Finally, the Black Economic Empowerment and National Development Plan 2030 of South Africa also took socio-economic development as an essential goal.

To eradicate poverty, BRICS countries emphasized both social assistance and economic development. Governments provide various supports to improve people's welfare and, at the same time, explore channels to help them create wealth. China has implemented an all-round model. For example, poverty-stricken areas can develop local industries to stimulate economic growth and increase income. Surplus rural laborers are encouraged to migrate and work in cities. Professionals in agriculture, e-commerce and other areas have been dispatched to poor areas to offer guidance and technical support.

All social sectors, such as private enterprises, social organization and individuals, have been mobilized to participate in implementing poverty alleviation and development programs. Thus, China has hewed a poverty alleviation and development path with Chinese characteristics featuring multiple entities.

Besides, China has made precision poverty alleviation the primary policy based on information of people in need since 2013. These people and authorities in charge were clearly identified, and their responsibilities clarified. Also, different regions follow different development approaches due to diverse natural and geographical conditions that are specific to them. Although other countries also attach importance to targeted approaches for poverty reduction, such as Russia’s social assistance program, they still lack practical, concrete policies.

What role has economic growth and income distribution played in poverty reduction in BRICS countries, especially China?

Our research found that BRICS members’ poverty reduction achievements can be mostly attributed to growth, while income distribution only played a supporting role. Moreover, some of them experienced widening gaps between the rich and poor for many years, instead of improvement in income distribution. Therefore, it has become a common challenge for BRICS and the international community to curb inequality and strive for inclusive growth. Fortunately, inequality reduction which was not considered under the MDGs was listed as an important goal under the 2030 Agenda for Sustainable Development Goals (SDGs) of the United Nations which replaced MDGs in 2015 as a shared blueprint for global prosperity.

Or course, economic growth is critical for reducing poverty. However, that is no reason for ignoring income distribution as it directly relates to poverty and indirectly affects growth. By and large, the chief reason underlying the relatively less remarkable achievements in poverty reduction in Brazil, Russia and South Africa is their worsening income inequality. For example, South Africa has the highest level of inequality among BRICS, followed by Brazil, whose Gini index is between 45 and 55 percent.

In addition, inequality rose in all BRICS countries except Brazil. The Gini index for South Africa rose from 58.4 percent in 1975 to 60.2 percent in 2015; and India from 38.1 percent in 1973 to 47.2 percent in 2012. China has seen rising inequality since reform and opening up in 1978, with the Gini index increasing from 28.4 to 43.3 percent over 30 years. Although income distribution has been improving, China’s Gini index is still at a high level of41.1 percent in 2015. After the dissolution of the Soviet Union, Russia faced a dramatic rise in inequality between 1990 and 1995, but then gradually improved. The index fell from 37.4 percent to 33.3 in the next 10 years. In Brazil, the Gini index dropped from 50.3 percent in 1970 to 46.5 percent in 2017.

Income distribution in these countries hampers progress in poverty reduction.

As representatives of emerging and transition economies, problems such as income distribution and poverty in BRICS countries are usually overlooked compared to their rising economic power. This perception should be changed not just because of the poverty and inequality goals being included in the SDGs of the UN and signed by 193 heads of states including BRICS , but also because economic growth is highly influenced by poverty and inequality. For instance, many Latin American countries, including Brazil, face stagnation or the so-called middle-income trap due to their high income gaps. For examples, income disparity breeds crimes which undermine foreign investment flows into South Africa.

Thanks to reform and opening up, China’s economy has become the fastest-growing in the world which led to dramatic poverty alleviation. However, there are some socio-economic problems caused by the rising income disparity, among which the most pressing one is weakness in domestic consumption. Domestic consumption cannot rise when the rich do not increase their spending, while others lack purchasing power. In other words, excessive savings and high income inequality, as well as corresponding sluggish domestic demand, can undoubtedly drag down China’s growth amid the anti-globalization wave.

Of course, economic growth can help lift people out of poverty, providing more income and a better environment. Better income distribution can also these positive impacts. Income distribution can be improved via fiscal policies of taxation and government transfers. As a matter of fact, poverty in many regions or countries can be eliminated by improving income distribution. Taking India as an example: in 2019 the proportion of population living below the poverty line of $1.9 a day was 10.7 percent. If income can be equalized, this 10.7 percent of poor would be out of poverty. In fact, the same can be said even if higher poverty lines of $3.2 or even $5.5 are used. This is because India’s GDP per capita has exceeded $2,000, implying more than $5.5/person/day when GDP is adjusted by the so-called purchasing power parities.

Although per capita GDP does not equal per capita income or consumption, poverty standards set by the World Bank also need to be deflated based on purchasing power parity in each country. Developing countries usually have higher purchasing power due to their low price levels. Therefore, their poverty line adjusted by purchasing power parity is often lower than that expressed at official exchange rates. For example, 1 RMB1 is worth $0.14 according to the official rate, while the exchange rate determined by purchasing power parity is around 0.25.

For China, the government needs to lower inequality, in order to raise domestic demand and boost household consumption. This will help China continue her progress of poverty reduction when economic growth face a downward trend. What is more vital is to tackle the increasing wealth gap in the country that offsets the benign impacts of growth on poverty eradication and that harms growth sustainability.

In other BRICS countries, it is necessary to control consumption and increase savings to generate investment, which is essential for promoting economic development and poverty reduction. And China’s experience that government, social forces and even international cooperation lead to poverty elimination set a good example for other nations including BRICS.

The author is a former director and head of Poverty and Inequality Group at the Asian Development Bank. He is now a distinguished professor and director of the Institute of World Economy at Fudan University.

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

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