Is the world really becoming worse for the majority of mankind? We argue that it is not.
Some much-needed perspective from the Economist, as stock markets continue to plunge downwards, populist economics dominates the Republican and Democratic primaries, and experts remind us that the human race is destroying the planet. In the midst of this, the Economist looks at three pieces of data:
the underlying social conditions in poor countries; poverty alleviation over the past decade; and the incidence of wars and political violence. By those measures the world seems to be in rather better shape than most people realise.
This article is a great reminder of what we have gained over the past 20 years…. and what we stand to lose if we walk away from the forces that have helped us get there: free trade, deepening of capital markets, immigration, pro-entrepreneur tax and legal regimes, and technological innovation.
First things first: the world has grown faster for longer over the past five years.
Last year the global economy entered its fifth year of over 4% annual growth—the longest period of such strong expansion since the early 1970s. Despite financial turmoil and soaring oil and commodity prices, world growth barely dipped in 2007 and trade grew at 9%, even though trade talks fell apart.
This growth has also helped alleviate poverty. The World Bank (yes, the voice of the poor!) even says so:
A World Bank study of 19 poor countries concluded that every 1% increase in national income per head translates into a 1.3 point fall in extreme poverty.
What have the results been? A massive reduction in dire poverty, by nearly any measure you wish to apply in nearly every region of the world (with Africa the notable and unfortunate exception).
In China 25 years ago, over 600m people—two-thirds of the population—were living in extreme poverty (on $1 a day or less). Now, the number on $1 a day is below 180m. In the world as a whole, a stunning 135m people escaped dire poverty between 1999 and 2004. This is more than the population of Japan or Russia—and more people, more quickly than at any other time in history.
How about this?
In 2007 Unicef, the United Nations child-welfare body, said that for the first time in modern history fewer than 10m children were dying each year before the age of five. That is still an awful lot but it represents a fall of a quarter since 1990. Life expectancy has increased a bit in low- and middle-income countries. The long march to literacy is nearing an end: three-quarters of people aged 15-25 were literate in 1975; now the rate is nearly nine-tenths.
Wait, but I thought all this global growth was leaving behind the poor, increasing inequality between the “haves” and “have-nots?”
The evidence that the rich have done best is certainly compelling. Inequality has risen in both rich and poor countries. It is thus a sharp break from the pattern established between 1950 and 1990, when there was a general decline in inequality, notably in East Asia, where the tigers managed to combine fast growth with relatively equal incomes.
But it is not so clear that globalisation—in the sense of opening up to trade and foreign investment—is to blame. Ukraine and Poland both opened themselves in the 1990s. Yet inequality rose in Poland and fell in Ukraine. Globalisation, it seems, sometimes increases inequality, sometimes reduces it.
I’ve reproduced below a chart that you should feel free to bust out at your next cocktail party. Basically, it shows that in developing countries, technological progress is almost entirely responsible for any increase in inequality between rich and poor (in developed countries, technological progress and globalization share equal responsibility).
The Economist, as usual, puts the argument better:
A more plausible culprit for rising inequality seems to be technological progress (see chart below). This is associated with inequality in poor countries because in emerging markets the people best able to take advantage of new technology are those who already have an education and who are usually among the richest in society. The more technological progress, therefore, the better the well-off do.
But to limit technology to reduce inequality would be a cure worse than the disease. Technology in its broadest sense—the flow of new ideas—is the only way of getting growth rates up to 5-10% a year, the rate which enables poor countries to catch up with the West. Without it, growth would be dependent on labour and capital inputs, and growth would be just a few percent. To reduce technological progress—even supposing one could do it—would be to condemn poor countries to stay poor.
In fact, since the mid-1990s, the incomes of the poorest fifth have risen everywhere except, marginally, in Latin America, where they have been affected by the after-shocks of debt crises. In Asia, the real incomes of the poorest fifth rose 4% a year; in Africa, by 2% a year, faster than the rise for other income groups.
The result is that the number of very poor people in the world is falling fast—even though many critics continue to believe that the poor have not really benefited from growth. In 1990 those on $1 a day accounted for more than a quarter of the population of developing countries. By 2015, on current rates, the proportion of very poor people should have shrunk to 10%. Moreover, these monetary measures probably understate the real gains from things such as lower child mortality, safer water, literacy and other social achievements. A rich man appreciates his extra cash but this does not compare with what a poor family gains from seeing an infant survive childhood or learn to write.
The general reduction in the numbers of the very poor weakens the perceived link between globalisation and inequality. Across the world, if not within nations, globalisation can be claimed to be making people more equal, not less. This is mainly because China and India, with their 2.5 billion people, are growing fast and narrowing the gap with rich countries.
Last but not least, as much as the wars in Iraq and Afghanistan, as well as the on-going War on Terror, seem to dominate the news, the Economist reminds us that the world, is a whole, is seeing less strife than ever before.
The number of conflicts (both international and civil) fell from over 50 at the start of the 1990s to just over 30 in 2005 (definitions are obviously fluid; these are the ones used by scholars at the universities of Uppsala and British Columbia for a project called the “Human Security Report”). On their definitions, the number of international wars peaked during the 1970s and has been falling slowly since. The number of civil wars continued to rise until about 1990 and then fell precipitately. In total, the death toll in battle fell from over 200,000 a year in the mid-1980s to below 20,000 in the mid-2000s.
In short, there’s a lot going wrong with the world: possible recession, a seemingly endless Iraq war, seized up capital markets that risk undermining the very basis of the capitalist system (the granting and receiving of credit). But let’s not forget how far we’ve come — and how we get here.
Posted by econophile 
Posted by econophile 
Posted by econophile 
