developing world will be urban. But it is likely that about two‐thirds of the extreme poor will still be living in villages. For the rapid elimination of poverty, a quicker urbanization will be necessary. But it will not be sufficient. Even in 2030, 40 percent of the developing world’s population will likely be rural. Global extreme poverty cannot be cut to 3 percent unless rural poverty rates are reduced to single digits.

This is likely to happen in many developing countries, but not in those mired in conflict or fragility. By 2020, more than half of the world’s extreme poor will be in conflict‐ affected countries or relatively fragile states. With the exception of Afghanistan, all such countries will be in Sub‐Saharan Africa.

# **2015‐2040—A three‐point strategy to end extreme poverty**

The record of poverty reduction in the 1990s and 2000s validates the broad elements of the strategy proposed in the 1990 WDR. But with the reduction of global extreme poverty from more than half of the world’s population to less than a fifth, and with the profile of the global extreme poor changing rapidly, the strategy—if it is to reduce extreme poverty to less than 3 percent by 2030—has to be refined. Our contention is that the third component—social insurance—should not be just a supplement to the first two components, but a full complement. But for this to make the strategy more potent rather than less, social insurance has to be designed and implemented in ways that make the three components of the strategy mutually reinforcing. Experiments in public policy and advances in information technology during the last 25 years have provided the knowhow needed to do this well.

There are three reasons for adopting a 3‐point strategy.

1. _The need for social assistance in every country_ **.** With poverty reduction, those left in poverty are increasingly those that are hardest to reach—people living in remote areas, ethnic minorities, or other disadvantaged groups who face multiple obstacles. Even in dynamic East Asian economies and wealthier Latin America, there remain obstinate pockets of poverty seemingly resistant to the policy cocktail of labor‐ intensive growth and investments in human capital. For them, additional instruments are needed.  This was the supplement recommended in the 1990 World Development Report, but we now know how to design social assistance in ways that helps economies grow and aids investments in human capital.  Think of conditional cash transfers.

2. _The utility of social insurance in successful developers_ . The 3‐point strategy may be most needed in countries that have reduced extreme poverty to low levels. Here the challenge becomes one of how to protect these gains. Take Indonesia. By 2011 it had reduced poverty to 33 million people, about half the number in 1999. But over twice as many people (some 73 million) were vulnerable to falling back into poverty—they were living on more than $1.90 a day, but less than $3.10 a day. And many do indeed slip down into poverty due to poor weather, ill health, or unemployment; surveys show that one of every other poor person in Indonesia was not poor the year before. Social insurance becomes a necessary third component to policies that enable labor‐intensive growth and investments in human capital, but it has to be designed to complement (or at least not eviscerate) the first two. If designed in ways that discourage the use of labor—for example, if social insurance is financed by taxes on labor use—it will weaken the first component of the strategy by making economic growth less labor‐intensive even when labor is abundant.

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