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June 18, 2004

Globalisation Reduces World Poverty

Posted by Michael Mosbacher

Globalisation - the increased integration of the world economy - stands accused of worsening the condition of the poor in developing countries. Multinational corporations frequently appear as villains in this scenario. However the United Nations Human Development Report tells a rather different story. It shows that although much of the world still lives in horrific poverty, the situation is improving.

Between 1975 and 1998, average real incomes in developing countries almost doubled – from $1,300 to $2,500. Between 1990 and 1998, the number of under-nourished people fell by approximately 40 million, and infant mortality declined by more than 10 per cent. Despite a rising world population, the number of people living on less than $1 per day fell by 120 million between 1993 and 1998, and by 200 million since 1980. This represents the first absolute decline ever in the number of those living in extreme poverty.

These improvements have not, however, occurred uniformly. To give just one indicator, in 1960, average incomes in East Asia were one-tenth of those in the OECD countries. By 1998, they had risen to nearly one-fifth of the OECD level, even though OECD-country incomes had themselves increased massively. In Sub-Saharan Africa, on the other hand, incomes in 1960 were slightly higher than in East Asia – at one-ninth of the OECD level. By 1998 they were just one-eighteenth of OECD average income.

Research for the World Bank shows that the most significant factor explaining such differentials is the degree to which countries have been integrated into the global economy. East Asian countries, by and large, have successfully integrated into the global economy. Sub-Saharan African countries, by and large, have not.

It is the countries that have integrated into the world economy (the globalisers) that have grown richer. Anti-globalisation protesters respond that GDP is not everything, and that globalisation has actually reduced living standards and increased poverty and inequality. But the World Bank study shows that 'the only countries in which we have seen large-scale poverty reduction in the 1990s are ones that have become more open to foreign trade and investment'. This increased wealth has led to a fall in child labour and an increase in school enrolment. In the globalising countries, life expectancy, infant mortality, and under-five mortality have all improved rapidly. These figures are fast approaching those prevalent in the West as recently as the 1960s.

The period of rapid globalisation since 1980 has been marked by the first reduction in global income inequality in more than 200 years. Research shows that, within countries, there is no systematic relationship between increased integration into the world economy and rising inequality. In some of the globalisers, such as Malaysia and the Philippines, inequality of income has fallen. In others, such as Costa Rica and Vietnam, it has been stable. In yet others, especially China, inequality has risen. The Chinese example, however, shows that rising inequality is not necessarily a bad thing. The Chinese people used to be very equal in their poverty. Now they are somewhat less equal – and somewhat less poor. The decision to open up and globalise China’s economy has undoubtedly benefited its people as a whole.

The new opponents of globalisation are, at bottom, the old foes of economic freedom, wearing new hats and carrying updated protest signs. They do not offer new insights. Instead they reheat long-discredited arguments, including those which portray multinational corporations in a negative light, ignoring their contributions to economic advancement and human progress in the developing world. Still, they have been remarkably successful at gaining media attention, and at putting the leaders of the wealthier countries and of major business enterprises on the defensive. But when we examine the data above, and ask – what is really making people in the developing world richer, healthier, and more free? – we have to ask: are the wrong people doing the apologising?

For more on this see Marketing The Revolution.

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The facts are not as newsworthy as a riot. But they remain the facts.
Globalisation drives economic growth, which drives out poverty.

Posted by: paul d s at August 16, 2004 06:43 PM
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