Developing countries contribute half of the world’s $62-trillion annual economic growth. Previous economic growth has led to dramatic increases in life expectancy, primary school enrolments, access to safe drinking water and sanitation, and decreases in infant mortality. If this continues, the World Bank estimates that those living on $1 a day could fall from 29% in 1990 to 10% by 2015, even with increasing population in the poorest regions. However, increasing oil prices and deteriorating environmental conditions make this difficult; yet the majority of countries are increasing their economic freedoms, which should increase future income. Currently, income gaps are widening within 53 countries, home to 80% of the world’s population. About 2.5 billion people (40% of the world) live on $2 or less per day.

Foreign direct investment, representing the largest source of external finance for developing countries, increased 29% worldwide in 2005, reaching $897 billion. Official development assistance from OECD countries reached a record $106.5 billion and is projected to reach $130 billion by 2010. WTO members agreed to eliminate all agriculture export subsidies by 2013. According to UNDP, industrial countries’ agricultural subsidies cost developing countries $72 billion per year, about 70% of all international development assistance; hence the WTO agreement could be one of the most effective ways to increase developing countries’ income.

The IMF estimates that the global economy grew 4.8% in 2005 while the population grew 1.15%, increasing per capita income by 3.65%. The annual increase in per capita income in developing countries has averaged about 2% since 1990 (however, without India and China, the average has decreased), and the effect on poverty varied widely. East and South Asia grew the fastest, while sub-Saharan Africa’s poverty doubled party due to high birth rates, corruption, armed conflicts, poor governance, environmental degradation, poor health conditions, and lack of education. The entry into force of the UN Convention against Corruption might help.

China and India, with the second and fourth largest PPP GDP in the world, are major engines reducing world poverty, yet their high-tech and low wages will make future trade-led economic growth difficult for other developing countries. Ethical market economies require a “level playing field” guaranteed by an honest judicial system and by governments that provide political stability, a chance to participate in local development decisions, business incentives to comply with social and environmental goals, fairer trade, a healthy investment climate, and access to land, capital, and information. Since capital flows to profit potential, ethical activities have to be shown to be profitable and corporations have to be held accountable.

Challenge 7 will be addressed seriously when market economy abuses and corruption by companies and governments are intensively prosecuted, when the number of people living on less than $2 per day drops by 75%, and when the development gap—by all definitions—declines in 8 out of 10 years. A strategic plan for a global partnership between the rich and poor should be created and implemented that uses the strength of free markets and rules based on global ethics to reduce the disparities that otherwise might grow enough to increase migration of the poor to richer regions, increasing conflicts. The strategy should also include massive investments into tele-education and tele-work, replacing welfare attitudes with entrepreneurial spirit, reinforced by expanded microcredit mechanisms coupled with technical assistance, while using state welfare in states with little private sector. Many people will have to become self-employed, seeking personal markets rather than non-existent jobs.

The 70,000 transnational corporations with over 690,000 foreign affiliates (almost half of which are in developing countries) should be encouraged to increase their efforts to address income gaps within and between countries. Improve mechanisms to collect fees to address income gaps, improve global public goods, improve global governance systems, and internalize current externalities. These might include international transaction and transportation fees and an environmental footprint tax in addition to carbon trading for nations.

Graph: Share of People Living on Less than $1 a Day (%)