What is poverty? And what, if anything, can business do to ensure that there is less of it?
The traditional approach has been to focus on ensuring minimum subsistence. In this regard, there has been substantial progress. According to the World Bank, the percentage of those who live in extreme poverty—defined as $2.15 (in 2017 dollars, adjusted for purchasing power) per capita per day—has declined from 38 percent of the global population in 1990, to 8.4 percent by 2019. COVID caused an uptick, to 9.3 percent in 2020.
In rich countries, such extreme poverty is rare; even so, there are tens of millions of people reckoned poor, based on national norms, in the US and Europe. And the statistics don’t capture the daily stresses of those living under or near the poverty line. Reducing poverty and improving livelihoods is at the heart of the concept of living wages, which reflect the amount of money needed to ensure a minimum standard of living in a given community.
In our new report, my colleagues Sven Smit, Anu Madgavkar, Mekala Krishnan and I along with others at the McKinsey Global Institute have been exploring a similar idea: “the empowerment line.” This measures if people have the means to meet essential needs: food, housing, energy, clean water sanitation, health care, education, and a modest sense of security. With a global floor of $12 PPP, the threshold of consumption varies across countries based on differences in norms and costs of living.
Looking at minimum needs this way yields a sobering picture. In 2020, about 730 million people globally lived in extreme poverty—but 4.7 billion were below the empowerment line by our estimates. In the United States, the empowerment line covers more than twice as many people as the official poverty rate. Around the world, achieving the empowerment line would impart people a sense of security, the ability to make discretionary choices, and fulfill more of their potential.
Economic empowerment for all is a goal of some urgency. But at the same time, the world is confronting the challenge of limiting climate change. Fulfilling these goals simultaneously will be both difficult and expensive. To get to net-zero emissions by 2030, according to MGI estimates, will cost an additional $41 trillion, while getting everyone above the empowerment line means boosting delivering 40 percent more spending power, on average, to those living below it now, or about $37 trillion. Together, that adds up to the equivalent of 8 percent of global GDP on a combined basis every year through 2030.
Businesses will be vital in addressing both goals, for two reasons.
First, economic growth is the single biggest determinant of how far we can get. Growth and innovation can generate better jobs and higher incomes as well as more affordable goods and services; private sector investment is also critical to reducing the cost of low-emissions technologies. By accelerating global economic growth to 3.4 percent per year—higher than the baseline of 2.7 percent—the world could bring some 2 billion people above the empowerment line, and 600 million more would no longer be living in extreme poverty by 2030. For that to happen, productivity has to improve faster than it has been, particularly in advanced economies. That requires business to step up, by investing in technology and upskilling workers.
Second, business is well-positioned to accelerate efforts to limit climate change. In 2020, only about 10 percent of the $1.4 trillion invested globally in low-emissions technologies was fully private. But another $10 trillion of “in the money” opportunities—meaning cost-competitive compared to traditional alternatives—could come on stream by 2030 if businesses innovate at an accelerated pace. All told, faster growth and innovation—core business priorities— could close half the combined empowerment and net-zero investment gap, even if there is no change to existing policies.
Economic growth and business-led innovation on this scale certainly cannot be assumed. It requires vision and commitment on the part of both private and public sector stakeholders. But with the UN General Assembly and Climate Week both about underway, it is critical to recognize that environmental progress will be limited without economic growth to fund it—and that people are struggling to meet their needs are less likely to support the climate transition.
There is no perfect way to define poverty. But what can be said is that to be poor is to be anxious about both the present and future: any slip can be devastating. The actions taken (or not) in this decade to deliver more secure and productive lives and livelihoods will determine what kind of world—and planet—the next generation will inherit.
Business has to be part of the effort to build a better one.
