From poverty to empowerment: Raising the bar for sustainable and inclusive growth

We are entering a decisive decade when it comes to the two most pressing global problems of our time: poverty and climate change. During a McKinsey Live webinar, senior partners Tracy Francis and Sven Smit recapped new research from the McKinsey Global Institute (MGI) that explores how the world can raise minimum living standards while simultaneously getting on a net-zero trajectory.

In recent decades, economic growth has fueled a tremendous reduction in the most extreme forms of poverty. Building on the work of leading development economists, the research argues that it’s time to aim for a higher bar. The “empowerment line” ($12 of consumption per person per day in PPP terms) is the point at which people can meet all of their essential needs, start to save and invest in themselves, and exercise more choice. About 4.7 billion people (61 percent of the world’s population) live below this empowerment line today. Closing that gap will require boosting their consumption by $37 trillion over in the coming decade.

At the same time, protecting the planet from the worst effects of climate change will require transforming land use and energy systems with low-emissions technologies. Getting on a trajectory to net zero by 2050, as many companies and countries have committed to do, will require $41 trillion of investment and spending in the decade ahead, over and above current levels.

Together, the global empowerment gap and the net-zero investment gap are equivalent to about 8 percent of global GDP each year, with the magnitude varying widely among regions and countries. Most of the empowerment gap is in the developing world, particularly in Africa and India, for example.

While some climate activists have argued that the world needs to shift to a slow- or no-growth model, MGI’s research takes the opposite view by embracing growth. Economic empowerment does not come about solely through government spending. In fact, the lion’s share of the gap can be filled if productivity-driven growth creates better-paying jobs and employers train people to take them on. Economic growth also gives governments more fiscal flexibility and creates the financing capacity needed to fund the net-zero transition. Growth does imply higher emissions, but this means it’s all the more important to double down on technological advances and innovation that can bring down the cost of low-emissions alternatives so they can be scaled faster.

Businesses cannot fully close the gaps on their own, of course. Public-private collaboration will remain essential. But market forces and business-led innovation have the potential to close about 65 percent of the empowerment gap and 40 percent of the net-zero gap—which would add to historic progress in and of itself.

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For more on this topic, read the MGI report From poverty to empowerment: Raising the bar for sustainable and inclusive growth; watch a replay of the MGI virtual event also titled “From poverty to empowerment: Raising the bar for sustainable and inclusive growth”; and view the McKinsey Chart of the Day “From poverty to empowerment.”