"Inequality is soaring through the globalisation period -
within countries and across countries. That's expected to continue."
Noam Chomsky, 2001
May Day protesters against "neo-liberal" or "corporate
globalisation" know that Noam Chomsky is right: globalisation has
not only exacerbated inequality but worsened world poverty. But this
is one of those things "people know that just ain't so". They are
wrong in both their conclusions and their analysis.
Before looking at the evidence, we need first to ask what matters
more, inequality or poverty? The answer for the great majority of
people must be the latter. Many people would prefer more equality to
less, but few would prefer a world of uniform poverty to one of
unequal wealth, provided the latter brought a reduction in
destitution in its train. Fortunately, the evidence that the world
has been achieving a big fall in the proportion of destitute people
and a significant fall in the absolute numbers of the destitute is
strong. Indeed, with the recent acceleration in the rates of growth
of large poor countries - above all, China, and, to a lesser extent,
India - both global inequality and poverty have been
falling.
Suggestive - but heroic - work by François Bourguignon, the World
Bank's current chief economist, and his collaborator, Christian
Morrison, traces the history of inequality and extreme poverty -
defined as consumption of $1 a day at purchasing power parity, in
1985 prices - since 1820*. They show that all the increase in global
inequality, prior to 1980, was the result of the growing differences
in average incomes across country groups. That is why growth
matters. They also suggest that, as development has spread, there
has been a steady fall in the proportion of the world's population
in extreme poverty, although also a rise in the absolute number up
to 1980 (see chart).
Now turn to the period since 1980 - the age vilified for its rush
into globalisation. Both global inequality and the proportion of the
world's population and number of the world's people in extreme
poverty have fallen.
Start with poverty. The latest World Development Indicators from
the World Bank, out last month, suggest that the numbers in extreme
poverty, defined by the Bank's poverty line of $1 a day, at 1993
purchasing power parity, fell from 1.451bn in 1981 to 1.219bn in
1990 and 1.101bn in 2001. As a proportion of the population of
developing countries, the decline was from 39.5 per cent in 1981 to
27.9 per cent in 1990 and 21.3 per cent in 2001.
Surjit Bhalla, an Indian economist formerly at the World Bank,
has estimated the number on a roughly comparable basis at 1.581bn in
1980, 1.208bn in 1990 and 899m in 2000**. Mr Bhalla argues that, by
2000, the proportion of the developing country population in
absolute poverty was just 18.2 per cent, down from 46.5 per cent in
1980 and 29 per cent in 1990. This is true even when he uses the
lower estimates for consumption levels given by household
expenditure surveys, rather than the national accounts. On the
latter basis, he finds that the incidence of extreme poverty was as
low as 13.1 per cent of the developing world by 2000 (see
chart).
There are sizeable methodological differences between these
researchers, the most important being whether consumption and income
averages are taken from the national accounts or sample surveys of
household expenditure. But, as Martin Ravallion of the World Bank
remarked in The Economist on April 7, "a similar trend of long-term
reduction in poverty does emerge" from the different estimates.
Mr Bhalla and Xavier Sala-i-Martin of Columbia University, whose
conclusions on poverty are similar to Mr Bhalla's, also argue that
there has been a sizeable reduction in global inequality among
households. Indeed, the former argues that, by 2000, global
household inequality of consumption was back to levels last reached
in the 1950s and far below levels at its peak, which occurred in the
mid-1970s (see chart). Prof Sala-i-Martin's analysis goes back only
to 1970. But he also shows sizeable reductions in inequality since
then.
The cause of these reductions in poverty and global inequality
are one and the same: the fast growth of Asian countries, above all
China. The World Bank's poverty figures bring this point out
clearly. Between 1981 and 1999, the proportion of people in the east
Asia and Pacific region living on less than $1 a day fell from 56
per cent to 16 per cent. In China, it fell from 61 to 17 per cent.
In South Asia, too, the fall was rapid, from 52 to 31 per cent. But,
in sub-Saharan Africa, where growth failed, the share rose from 42
to 47 per cent.
If you care about global poverty and, for that matter, about
equality, your aim should be to raise the growth rates of poor
countries. Eliminating poverty is now a challenge, rather than the
unchangeable reality of human existence it used to be - because we
know, in principle, how to solve it. "It's the growth", stupid.
Where then does that pantomime villain, globalisation, fit in?
The answer is that successful countries have all exploited global
market opportunities, predominantly international trade and, to a
more variable extent, foreign direct investment, to accelerate their
growth. China is now the world's premier example of this strategy.
But it is following the example of other countries in its dynamic
region.
Successful globalisation has, in short, reduced both poverty and
inequality. Opening up to trade is far from a sufficient condition
for rapid growth. But, in the right conditions, it has proved an
enormous help. In the post-second-world-war era, it is impossible to
think of a consistently successful economy that has not put
international economic integration at the core of its development
strategy. The elimination of destitution, the millennial curse of
humanity, is in sight, provided we find a way to spread the benefits
of market-led development elsewhere - to sub-Saharan Africa, above
all. Now that really is a cause worth demonstrating for.
* Inequality among World Citizens, American Economic
Review, September 2002;
** Imagine There's No Country (Washington DC: Institute for
International Economics, 2002); The World Distribution of
Income (Estimated from Individual Country Distributions), May 2002,
http://www.columbia.edu/
martin.wolf@ft.com