Is Globalisation Causing World Poverty? Martin Wolf, Chief Economics Commentator, Financial Times

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Is Globalisation Causing World Poverty?Martin
Wolf, Chief Economics Commentator, Financial Times

• Leverhulme Globalisation Lecture
• Nottingham University, February 25, 2002

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Is globalisation causing world poverty?

• The charge sheet
• The current state of world inequality and poverty
• How the world became this way
• Inequality and poverty in the 1980s and 1990s
• 5. Globalisation - winners and losers
• 6. Conclusion

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1. The charge sheet

• Globalization has dramatically increased
  inequality between and within nations Jay Mazur,
  Labors New Internationalism, Foreign Affairs,
  January/February 2000.
• So far, the current wave of globalization, which
  started around 1980, has actually promoted
  economic equality and reduced poverty. David
  Dollar and Aart Kraay, Foreign Affairs,
  January/February 2002
• Who is right?

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2. Current state of world inequality and poverty

• This is indeed a remarkably unequal world
• The rich countries with less than a sixth of
  world population generate 55 per cent of world
  real income
• Low income countries, with 41 per cent of world
  population, generate 11 per cent of world incomes
• The average real incomes of the top sixth are 14
  times bigger than those of the 41 per cent in the
  poorest countries
• Average incomes in the US (the richest country)
  are 75 times greater than those of Sierra Leone
  (the poorest)

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2. How the worlds population is divided
The worlds population in 2000 was 6,055m, of
which only 903m lived in high-income countries
and 4,505m lived in low-income and lower-middle
income countries.
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2. How the worlds income is divided
But the high-income countries generated 55 per
cent of the total world income, at purchasing
power parity, of 45 trillion
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2. What this means for world average incomes
The globalised world is, as a result, deeply
divided in its living standards
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2. Income inequality among countries is starker
Sierra Leones real income per head today is
roughly where the worlds was in 1500. It is at
the subsistence minimum and ravaged by civil war.
The US is the most productive country today.
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2. 1.2bn people on less than a dollar a day
The extremely poor are defined as those on less
than a dollar a day, at purchasing power parity.
There were 1.2bn in 1998, concentrated in south
and east Asia and in Africa.
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2. Highest incidence in Africa and South Asia
Almost half the population of Sub-Saharan Africa
is destitute. The incidence of extreme poverty is
almost as high as this in South Asia, though
falling.
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3. How the world became this way

• The path to world inequality has been a long one
• Todays unequal world did not arrive in 1980. It
  has been emerging progressively over 200 years
• The big divergence today is between countries
  that have sustained growth in incomes per head
  over long periods and those that have grown more
  slowly and unevenly
• Relative economic growth has been the principal
  determinant of long-term changes in global
  inequality and poverty

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3. How the world became this way

• The rise in global inequality was fastest in the
  19th century. It seems to have ended in the 1980s
  and 1990s, though absolute income gaps keep
  growing
• Numbers in poverty also peaked in the 1980s, but
  the proportion of the worlds population in
  extreme poverty has been falling for 200 years
• The worlds poorest are those left behind by
  growth

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3. Small differences add up over time.
There has been growth almost everywhere, but
rates of growth have differed substantially over
the last 180 years. This is not surprising.
Opportunities are never exploited evenly. Some
get there first.
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3. And create chasms in cumulative growth
Over 180 years, small differences in growth in
output per head - that is, in productivity growth
- become huge chasms in living standards.
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3. Similar starting points, different endings
What steady growth has done for US GDP per head
over 180 years.
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3. How relative growth rates have changed
Slopes indicate growth rates. Note Japans
remarkable catch up in the 1950-73 period and
Chinas in the latest period. US growth has been
fairly steady.
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3. Yawning chasm between richest and poorest
While the frontier countries have grown richer,
some countries have remained at a subsistence
minimum. So ratios of income per head have become
steadily wider.
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3. This has created global household inequality
Global household inequality increased fastest in
the 19th century and peaked in 1970. The big
reason for the declining inequality was fast
growth in east Asia and, more recently, in India.
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3. Numbers of people on less than a dollar a day

1,400
Poverty has dropped by 200 million over past 20
years, despite the worlds population increase of
1.6bn.
1,200
1,000
800
1820
1840
1860
1880
1900
1920
1940
1960
1980
2000
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3. But declining proportions of people in poverty
Extreme poverty has been in decline as a share of
world population since 1850. It has fallen
fastest in the last half century. It fell from 31
per cent of the worlds population in 1980 to 20
per cent in 1998.
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4. Poverty and inequality in the 1980s and 1990s

• The record of the 1980s and 1990s on inequality
  and poverty has been quite encouraging
• At the world level, household inequality has
  declined, as growing between-country equality has
  more than offset growing within-country
  inequality
• The number of absolute poor has fallen a little,
  while the proportion of the poor in world
  population has fallen substantially
• There have been particularly big declines in
  numbers in poverty in East Asia

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4. Declining inequality among rich countries
Inequality has risen within rich countries, but
fallen among them

Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank

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4. Plus oscillations in the developing world
Inequality has risen slightly within developing
countries since 1985 and first fallen then risen
among them
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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4. Create modest declines for the world
If one adds the two together, one finds that
worldwide household inequality has been falling,
not rising in the last two decades. Falling
inequality between countries (largely because of
growth by China and India) has offset modest
increases in inequality inside them.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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4. And proportion of the absolute poor has fallen
Since 1987, the number of people on one dollar a
day has oscillated, but the proportion in the
worlds population has fallen
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4. The regional incidence of poverty, 1987-1998
The decline in poverty has been fastest where
growth was fastest - in east Asia
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5. Globalisation, the winners and losers

• Globalisation affects these trends largely
  through its impact on country growth
• The worlds markets for goods and services are
  now more integrated than ever before. The same is
  not so true for capital and, above all, labour
• Countries have varied dramatically in their
  ability to take advantage of these opportunities
• Developing countries with combined populations of
  2.4bn have done well. This group includes China
  and India.
• Globalisers have liberalised more and their trade
  has also grown more than non-globalisers

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5. Globalisation - winners and losers

• Fast growth in globalising developing countries
  has benefited the poor in those countries and
  also reduced global inequality
• Trade has, as always, been the handmaiden of
  growth. But rapid growth requires much more than
  economic integration.

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5. The world is now more integrated than ever
Measured by trade and foreign assets, the world
economy is now more integrated than ever. Falling
costs of transport and communications and
liberalisation have been the driving force.
Movement of people is far less than in the late
19th century.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. The winners and losers
Source World Bank
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5. The winners and losers in trade policy
The winners have liberalised trade by more than
the losers.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. The winners and losers in trade
The winners have also increased their trade in
relation to GDP, while the losers have seen their
trade shrink.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. The winners and losers in trade again
The difference in trade performance is stark at
the aggregate level.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. Trade does not harm the poor
And rises in trade ratios have not increased
inequality. So if trade raises growth, it also
normally helps the poor.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. Winners in trade are also winners in growth
These globalisers have indeed grown faster and
faster.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. But losers in trade are losers in growth
The non-globalisers have performed poorly
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. And fast growth benefits the poor
The poor tend to share in economic growth, which
is why the poorest people live in the poorest
countries
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. This is true everywhere
Where growth has been very fast, so has been the
pace of poverty reduction
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. Better off people keep children from work
And richer people keep children from work.
Source David Dollar, Globalization Who wins,
who loses and what the world can do about it,
July 17, 2001, World Bank
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5. Trade as the handmaiden of growth

• As far as we can tell, there are no anti-global
  victories to report for the postwar Third World.
  We infer that this is because freer trade
  stimulates growth in Third World economies
  today. Peter Lindert and John Williamson
• This conclusion is consistent with the weight of
  evidence. But multi-collinearity between trade
  and other policies makes it difficult to
  demonstrate the causal connection
• Contrast North and South Korea or West and East
  Germany

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6. Conclusion

• Globalisation is not guilty of causing growing
  poverty and inequality worldwide
• Overall, there has been declining inequality and
  poverty in the age of globalisation. This breaks
  a trend that goes back almost two centuries
• But far too many countries have become less
  globalised and grown poorly.
• This is the only sense in which globalisation
  causes inequality some seize opportunities and
  others do not
• The challenge is to help the failures do better