World Inequality and Globalisation
By Jim Peron
World inequality is increasing. That's one of the major claims of Greens, Reds and assorted anti-globalization "activists". Take Grassroots International as just one example. They claim: "Inequality, by any definition, has increased."
Not only that but: "The rich have become much richer as the ranks of the very poor have swelled dramatically and their living conditions have deteriorated."
In their campaign to trash global free trade they manufacture false stories. Xavier Sala-i-Martin, is one of the most cited economists in the world today. And his investigation of "The Disturbing "Rise" of Global Income Inequality" shows that inequality has lessened not increased.
Professor Sala-i-Martin used seven major indexes which measure inequality. Applying them across the globe for the period 1980 to 1998 - which is when the last wave of globalization took place - he finds that: "All indexes show a reduction in global income inequality between 1980 and 1998." Yet the anti-globalizers say that by "any definition" it has increased. Obviously they were wrong.
But what about the claim that "the very poor have swelled dramatically and their living conditions have deteriorated"? That too is a falsehood. The good Professor notes that "There are between 300 and 500 million less poor people in 1998 than there were in the 70s."
Prof. Sala-i-Martin is not alone. The United Nations Development Programme also decided to see what the trend was in wealth inequality. But you can't simply look at income since $1 in Lusaka buys a lot more than it does in London. So they compared the purchasing power of the richest 20% of the world population to the 20% of the population with the least money. They covered the period from 1970 to 1998 and found "the ratio fell, from 15 to 1 to 13 to 1."
They also found that instead of worsening, living conditions for the world's poor have improved substantially. "Many more people can enjoy a decent standard of living, with average incomes in developing countries having almost doubled in real terms between 1975 and 1998..."
A standard for "absolute poverty" was established at $1 per day (using 1985 dollars) by the World Bank. Using the $1 per day and $2 per day numbers Sala-i-Martin still found a decrease in the number of those suffering absolute poverty. "The $1/day poverty rate has fallen from 20% to 5% over the last twenty five years. The $2/day rate has fallen from 44% to 18%."
This good news could be misleading since a smaller percentage of poor people in a larger population can still translate into more poor people in total. And since the world population has increased substantially a percentage decline in poverty could well hide a rise in the total number of poor. But in this case the good news remains true. "We see that, using the one-dollar-a-day definition, the overall number of poor declined by over 400 million people: from close to 700 million citizens in the peak year of 1974, to less than 300 million in 1998. Using the two-dollar definition the number of poor declined by about 500 million: from 1.48 billion to 980 million in 1998."
Now lets go back to the anti-globalization crusaders we discussed in the first paragraph. They are claiming that poverty and inequality have increased as a result of globalization. Yet it is precisely during the period of greatest globalization that poverty and inequality have diminished.
Previous waves of globalization didn't help the world's poor. In fact poverty and inequality continued to increase until the most recent globalization wave. What changed? From the late 1800s to World War I free trade and globalization was restricted to mainly Western nations. But the poor nations weren't part of that trade. After the War trade protectionism ruled and poverty and inequality, as to be expected, increased. Trade nationalism made world wealth even more unequal.
Only in the recent wave of globalization have the poor nations of the world participated. Beginning around 1980 many Third World nations started lowering tariffs and deregulating. Today we have two Third Worlds. The first joined the globalization revolution and is seeing growth rates averaging 5% per annum. They are rapidly catching up with the wealthy nations which are growing at only 2% per year. Third World nations that practice economic nationalism are uniformly regressing.
The anti-globalizers have everything almost perfectly backwards. World-wide poverty is decreasing not increasing. Inequality is waning not rising. And those poor nations which join the globalization revolution are the very one's now prospering. Those nations which listen to the anti-globalizers are wallowing in poverty and misery with little hope of getting out.
Jim Peron is the Executive Director of the Institute for Liberal Values, the editor of the book The Liberal Tide, and the author of the forthcoming book 'The Road Not Taken: Resolving the Crisis on the Roads.'
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Institute for Liberal Values, Friday September 10th 2010. |
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