Economic Empowerment
The McKinsey report talks about bringing a large part of the world’s population above the line of economic empowerment to score better on metrics such as growth, inclusion and sustainability. The line of economic empowerment is, however, different from the World Bank’s extreme poverty line.
“The concept of economic empowerment described in this research involves ensuring that everyone has the means to access the full range of basics,” McKinsey said.
The World Bank estimates the extreme poverty line to be at $2.15 per person per day. However, McKinsey quotes other studies which state that in emerging economies on purchasing power parity terms, at $12 per person per day people can meet their basic needs and start to achieve discretionary spending powers. This is also the point where the risk of falling back into poverty is reduced.
For advanced economies, adjusting for their higher cost of living, the line of economic empowerment is $47 per person per day.
On an overall basis, more than half of the population in G20 economies, or 2.6 billion people, live under the line of economic empowerment, the report said. This includes 100 million people living in extreme poverty, 2.2 billion people living under the line of economic empowerment in emerging economies and about 300 million people in advanced economies.
On a global scale, the number of such people is at 4.7 billion.
According to McKinsey, more than three-fourths of the population in India and South Africa live below this line. As of 2020, 77% of India’s population or 1.07 billion people and 75% of South Africa’s population or 4.4 million people lived under the line of economic empowerment.
In case of China, Mexico, Brazil and Indonesia, this number is at over 50%. In more advanced economies in Europe and North America, about 20-30% live below the empowerment line.
“Our analysis suggests that closing this empowerment gap in G20 economies would require a cumulative increase in spending on essentials to the tune of $21 trillion over the decade to 2030,” McKinsey said.
In case of India, the total additional spending required between 2021 and 2030 is at $5.3 trillion to bridge this gap. This accounts for 13% of the GDP during this decade. For China, the spends required are at $4.8 trillion over the same period.