Bill Gates Right! Poor Nations Moving Up Fast R. Bruce PhC Econ

Economics Index and Qualifications
By Richard Bruce BA, MA, and PhC in Economics
Former Instructor St. John's University, New York City

Bill Gates Says Most Low Income Nations
Will Be Middle Income by 2035

The World's Richest Man is not Delusional

Bill Gates surprised a lot of people this January when in his annual letter for the Gates Foundation he said that By 2035, there will be almost no poor countries left in the world. I figured, correctly, that what Bill meant was that in 2035 there would be very few countries in the World Bank's low income category. Low income countries had an economic output below 1,035 dollars per person measured by the Atlas method. The Atlas method is based on regular exchange rates.

In 1998 60% of the world's population lived in low income countries. Twelve years later, in 2010, only 12% of the world's population lived in low income countries. There was an 80 percent reduction in the percentage of the world's population living in low income countries in little more than a decade.

What happened? China, India, Pakistan, Nigeria, Vietnam and other less populous nations moved out of the low income category into the middle income category. Gates is simply assuming a somewhat slower rate of progress in the future.

Why the poor may grow even faster

He is likely to be right. As China and other middle income countries rapidly advance unsophisticated industries like clothing are fleeing their rapidly rising wages. These industries frequently move to low income countries.

But the population of the low income countries is now relatively small compared to the population of China and the other nations shedding those low level industries. Bangladesh and the other low income countries that are exploiting this opportunity enjoy an advantage that even China did not have. There is almost an abundance of unsophisticated, low skill, labor intensive industries for them to take over. Countries that export clothing and other unsophisticated manufactured goods have historically grown quickly. We may reasonably hope the same will prove true for Bangladesh and other low income industrial exporters.

In the case of Bangladesh another two or three years of economic growth will carry them into the middle income category.

In addition to industry there are other sources of foreign exchange available to low income countries. Perhaps the most important is the money they receive from their citizens working in richer countries. This is another growing area of opportunity for the low income countries as there are progressively more high income countries to send their workers to. Furthermore, the workers from some countries that just recently became high income or will soon achieve that status are now returning to their countries of origin. As the richer high income countries replace those workers there will be more opportunity for workers from lower middle and low income countries.

Still another area of good fortune for low income countries in recent years has been the rising price of natural resources. Many low income countries are natural resource exporters. The rising demand for these resources in China and other rapidly developing nations has pushed up prices. This has been particularly helpful for Sub Sahara Africa where most of the remaining population living in low income countries lives.

India famously used Internet outsourcing as a key part of its rapid progress out of the low income category into the middle income category, but as even India has difficulty coming up with the talent to exploit this market, Internet outsourcing can spread to other countries. Every nation has intelligent, dedicated people who can contribute to our world wide search for scientific discovery and more advance technology. So all the poor countries can gain more foreign exchange through Internet outsourcing.

Finally as the low income countries shrink to a smaller and smaller portion of the world's population foreign aid can take the edge off of extreme poverty while the market works its magic drawing low income countries into the higher categories.

So with any luck there will only be a very small portion of the world's population living in low income countries by the year 2035. Bill Gates estimate is reasonable, perhaps even conservative. Once again let me assure you, the world's richest man is not delusional

How will the 3rd world develop? This popular web page lays out the growth path.

Here is an index to my other pages on economics, and a short review of my qualifications in this field.

Tell me what you think. Here is my contact info.

Last updated March 21, 2014