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Guest Opinion: World Inequality and Globalization

World Inequality and Globalization
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 have claimed: “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.”

Well that’s a challenge if I ever saw one. More importantly it’s a blatant falsehood. But if one is going to trash globalization the best way to do this is by manufacturing phony claims like this one.

First we should look at the the idea that “inequality, by any definition, has increased.” 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.

(See… http://papers.nber.org/papers/W8904)

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.” By all seven methods inequality was reduced. 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 decided to see what the trend was in wealth inequality as well. But you can’t simply look at income since $1 in Lusaka buys a lot more goods than a $1 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.” In other words world income had become more equal.

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. Professor Sala-i-Martin was a bit perplexed to find that official poverty organizations have been adjusting the number. “For some reason, another poverty line mysteriously appeared in the literature that doubled the original figure to two dollars per day. The United Nations some times uses four dollars per day.”

This leads to an artificial inflation of the numbers of people in absolute poverty. “Of course, if one is allowed to raise the poverty line arbitrarily, then one is bound to find all persons in the world are poor.’ 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 poor of the world in general. 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. They saw increased prosperity 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 less equal.

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 are seeing growth rates averaging 5% per annum. This means they are rapidly catching up with the wealthy nations of the world which are growing at only 2% per year. And those Third World nations that are practicing 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 who listen to the anti-globalizers are wallowing in poverty and misery with little hope of getting out.

* - Jim Peron is the author of nine books and the owner of Aristotle's Bookshop in Auckland. His articles have appeared in newspaper ranging from the Wall Street Journal to the Johanessburg Star.


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