By 1990, with the exception of the Philippines—where at 30 percent, extreme poverty rates at $1.90‐a‐day were essentially unchanged in the fifteen years before the East Asian crisis—the larger countries in the region had all engineered impressive reductions in poverty. China and Vietnam were latecomers to economic reform and poverty reduction, but they were making quick progress. Between 1981 and 1990, China’s extreme poverty rate at $1.90 a day had come down from 88 to 67 percent, Vietnam’s from 71 to 61 percent. At the time, though, these stories had not been told.

In any case, until the 1980s, poverty reduction was almost exclusively an East Asian phenomenon. In South Asia, only Sri Lanka had made a dent in poverty, halving extreme poverty from 19.3 to 9 percent. In India and Pakistan, the ranks of the poor had swelled by millions; in conflict‐ridden Bangladesh and Nepal the stories were even more dismal. In Latin America, the only poor country that had made any progress was tiny Costa Rica, which had reduced extreme poverty at $1.90‐a‐day by half. Brazil, where more than 15 percent of the population lived on less than this, was the biggest disappointment. In Sub‐ Saharan Africa, extreme poverty rates had gone up in most countries between 1981 and 1990. In the Middle East and North Africa, led by the Arab Republic of Egypt and Morocco, poverty rates were cut from 8 to 6 percent. It would be fair to say that before 1990, only East Asia had made progress in reducing poverty at a pace that is remotely consistent with what is needed to get to 3 percent by 2030.

# **WDR 1990—The two‐and‐a‐half‐point strategy**

While the high‐performing East Asian economies—Korea, Taiwan, Malaysia, Thailand, and Indonesia—were becoming expert in getting rid of poverty, development experts were debating how best to do it. There were two competing views: the indirect route to reducing poverty, and a more direct one.<sup>7</sup> The direct approach requires redistribution within a country unless the funds come from donors. The indirect or growth‐oriented route can also involve policies that help the poor, but the emphasis is on increasing their capacity to earn with the assets they already have. The distinction is one of creating income versus providing consumption.

The popular view has swung back and forth. In the 1950s and 1960s the indirect approach was in fashion. In the 1970s, as the ranks of the poor swelled, proponents of the direct approach began to be heard. But by the 1980s, because of the success with the indirect approach in East Asia and the lack of success in the rest of the world, the indirect approach was in fashion once again.

Perhaps the clearest and most practicable treatment of poverty is the 1990 World Development Report _Poverty_ . WDR 1990 provided a systematic account of the experience of countries that had engineered big reductions in poverty during 1965‐ 1987 and, based on their experience, proposed a strategy for reducing poverty. It reflected the consensus of the times, and emphasized the indirect route. Countries that

> 7 Bhagwati (1988) provides a summary:  “With the amelioration of poverty as the target, the policy instruments designed to achieve that target can be divided into two main classes: (i) the indirect route, i.e., the use of resources to accelerate growth and thereby impact on the incomes and hence the living standards of the poor; and (ii) the direct route, i.e., the public provision of minimum‐needs‐oriented education, housing, nutritional supplements and health, and transfers to finance private expenditures on these and other components of the living standards of the poor.” Bhagwati makes it clear that effective antipoverty policy would likely involve a mix of these two approaches.

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