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World Development Vol. xx, No. x, pp. xxx–xxx, 2004 Ó 2004 Published by Elsevier Ltd. Printed in Great Britain 0305-750X/$ - see front matter
ROBERT HUNTER WADE * London School of Economics and Political Science, London, UK
Summary. — Over the past 20 years or so India, China, and the rest of East Asia, experienced fast economic growth and falls in the poverty rate, Latin America stagnated, the former Soviet Union, Central and Eastern Europe, and sub-Saharan Africa regressed. But what are the net trends? The neoliberal argument says that world poverty and income inequality fell over the past two decades for the ﬁrst time in more than a century and a half, thanks to the rising density of economic integration across national borders. The evidence therefore conﬁrms that globalization in the context of the world economic regime in place since the end of Bretton Woods generates more ‘‘mutual beneﬁt’’ than ‘‘conﬂicting interests.’’ This paper questions the empirical basis of the neoliberal argument. Ó 2004 Published by Elsevier Ltd. Key words — globalization, poverty, inequality, neoliberalism, political economy of statistics, World bank
ÔThe best evidence available shows . . . the current wave of globalization, which started around 1980, has actually promoted economic equality and reduced poverty’ (Dollar & Kraay, 2002; emphasis added).
Ô[G]lobalization has dramatically increased inequality between and within nations’ (Jay Mazur, US union leader, 2000).
39 1. INTRODUCTION 40 41 42 43 44 45 46 47 48 49 50
The neoliberal argument says that the distribution of income between all the world’s people has become more equal over the past two decades and the number of people living in extreme poverty has fallen, for the ﬁrst time in more than a century and a half. It says that these progressive trends are due in large part to the rising density of economic integration between countries, which has made for rising eﬃciency of resource use worldwide as countries and regions specialize in line with their
ÔEvidence suggests the 1980s and 1990s were decades of declining global inequality and reductions in the proportion of the world’s population in extreme poverty’ (Martin Wolf, The Financial Times, 2002).
ÔOver the past 20 years the number of people living on less than $1 a day has fallen by 200 million, after rising steadily for 200 years’ (James Wolfensohn, president of the World Bank, World Bank, 2002b).
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comparative advantage. Hence the combination of the ‘‘dollar-Wall Street’’ economic regime 1 in place since the breakdown of the Bretton Woods regime in the early 1970s, and the globalizing direction of change in the world economy since then, serves the great majority of the world’s people well. The core solution for lagging regions, Africa above all, is freer domestic and international trade and more open ﬁnancial markets, leading to deeper integration into the world economy. Evidence from the current long wave of globalization thus conﬁrms neoliberal economic theory––more open economies are more prosperous, economies that liberalize more experience a faster rate of progress, and people who resist further economic liberalization must be acting out of vested or ‘‘rent-seeking’’ interests. The world economy is an open system in the sense that country mobility up the income/wealth hierarchy is unconstrained by the structure. The hierarchy is in the process of being ﬂattened, the North–South, core-periphery, rich country-poor country divide is being eroded away as globalization proceeds. The
thank without implicating Sanjay Reddy, Michael Ward, Branko Milanovic, Ron Dore, David Ellerman, Martin Wolf, 2002a, Timothy Besley, and James Galbraith; and the Institute for Advanced Study, Berlin, and the Crisis States Program, DESTIN, LSE, for ﬁnancial support. Final revision accepted: 30 October 2003.
Is Globalization Reducing Poverty and Inequality?
WD 1514 29 January 2004 Disk used 2
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125 The growth rate of world GDP, measured in 126 US dollars and at current exchange rates, fell 127 sharply from around 5.5% in 1970–80 to 2.3% 128 in 1980–90 to 1.1% in 1990–2000. 4 This is bad
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same evidence also validates the rationale of the World Trade Organization (WTO), the World Bank, the International Monetary Fund (IMF) and other multilateral economic organizations as agents for creating a global ‘‘level playing’’ ﬁeld undistorted by state-imposed restrictions on markets. This line of argument is championed by the more powerful of the centers of ‘‘thinking for the world’’ that inﬂuence international policy making, including the intergovernmental organizations such as the World Bank, the IMF and the WTO, also the US and UK Treasuries, and opinion-shaping media such as The Financial Times and The Economist. The standard Left assumption, in contrast, is that the rich and powerful countries and classes have little interest in greater equity. Consistent with this view, the ‘‘anti-globalization’’ (more accurately, ‘‘anti-neoliberal’’) argument asserts that world poverty and inequality have been rising, not falling, due to forces unleashed by the same globalization (for example, union leader Jay Mazur’s quote above). 2 The line of solution is some degree of tightening of public policy limits on the operation of market forces; though the ‘‘anti-neoliberal’’ camp embraces a much wider range of solutions than the liberal camp. The debate tends to be conducted by each side as if its case was overwhelming, and only an intellectually deﬁcient or dishonest person could see merit in other’s case. For example, Martin Wolf of The Financial Times claims that the ‘‘anti-globalization’’ argument is ‘‘the big lie.’’ 3 If translated into public policy it would cause more poverty and inequality while pretending to do the opposite. This paper questions the empirical basis of the neoliberal argument. In addition, it goes beyond the questions to suggest diﬀerent conclusions about levels and trends, stated in terms not of certainties but stronger or weaker probabilities. Finally it explains why we should be concerned about probably-rising world inequality, and how we might think about the neglected subject of the political economy of statistics.
Table 1. GNP per capita for region as % of core’s GNP per capitaa Region Sub-Saharan Africa Latin America West Asia and North Africa South Asia East Asia (w/o China and Japan) China South North America Western Europe Southern Europe Australia and NZ Japan North (¼ core) 1960 5 20 9 2 6 1980 4 1999 2
1 8 1 5 124 111 52 95 79 100 1 4 100 104 60 75 134 100
Source: Arrighi, Silver, and Brewer (2003). a Based on World Bank data. GNP at current exchange rates.
18 9 12 7 2 13 3 5 101 98 60 73 145 100
124 2. THE REGIONAL COLLAGE
news, environmental considerations aside. But it still grew a little faster than world population over the past two decades; and the (populationweighted) GDP of developing countries as a group grew a little faster than that of the highincome countries. On the other hand, regional variation within the global South is large. Table 1 shows the trends of regional per capita GNP to the per capita GNP of the ‘‘core’’ regions (with incomes converted to US$ at current exchange rates as a measure of international purchasing power). During 1960–99 the per capita incomes of sub-Saharan Africa, Latin America, and West Asia and North Africa fell as a fraction of the core’s; South Asia’s remained more or less constant; East Asia’s (minus China) rose sharply; China’s also rose sharply but from a very low base. The most striking feature is not the trends but the size of the gaps, testimony to the failure of ‘‘catchup.’’ Even success-story East Asia has an average income only about 13% of the core’s. 5 It is a safe bet that most development experts in 1960 would have predicted much higher percentages by 2000. The variation can also be shown in terms of the distribution of world income by regions and income percentiles. Figure 1 shows the regional distribution of people at each income percentile for two years, 1990 and 1999. Here incomes are expressed in ‘‘purchasing power parity’’ dollars
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(PPP$).1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 3 160 161 162 163 164 165 UN Figure 1. Figure 2 shows. domestic purchasing power.3. in the top half.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. DTD = 4. and the rising share of the East Asian population in the second quintile. World income distribution. at each percentile of global income distribution: (A) 1990 and (B) 1999 (population at any particular income ¼ 100) (Source: Dikhanov & Ward. D 166 167 168 169 170 171 PR OO F . also the falling back of the Eastern and Central European populations from the second to the CO RR EC TE third quintile. 2003). of Pages 23. One sees the African collapse in the increased share of the African population in the bottom quintile. by region. the world’s population plotted against the log of PPP$ income. notionally at least. 6 in order to measure. taking account of both between-country and within-country income distribution.
The 1999 distribution has shifted forward compared D 178 179 180 181 182 183 PR OO F . of Pages 23. Figure 3 shows the movement in the bimodal shape of the overall PPP$ income-topopulation distribution during 1970–99. DTD = 4. by region: top half. CO RR EC TE and the breakdown by region. The bottom half shows the world’s income plotted against income level. and residents of the OECD countries predominate at the top. bottom half. distribution of world population against income. Finally.1 172 173 174 175 176 177 UN Figure 2. World income distribution.3. distribution of world income against income. Residents of South Asia and East Asia predominate at income levels below the median.WD 1514 29 January 2004 Disk used 4 ARTICLE IN PRESS WORLD DEVELOPMENT No. hence the share of income accruing to people at diﬀerent income levels and in diﬀerent regions. 2003). 1999 (Source: Dikhanov & Ward.
1999 (Source: Dikhanov & Ward. of Pages 23. country by country. and how small a share of the income of the richest earners would be needed to double the income of the poorest. needed to have the same purchasing power in the same year as in OO 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 F . in the UN CO RR EC 184 185 186 187 188 189 190 191 192 TE D PR to the 1970 one. 1970. 2003). and the errors probably ﬂatter the result in one direction. from 29% in 1990 to a record low of 23% in 1998. ‘‘Over the past 20 years the number of people living on less than $1 a day has fallen by 200 million. DTD = 4.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. In its ﬁrst global poverty estimation this procedure yielded a conveniently understandable US$1 per day for the base year of 1985. 11 To get the world extreme poverty headcount the Bank ﬁrst deﬁnes an international poverty line for a given base year by using purchasing power parity conversion factors (PPPs) to convert the purchasing power of an average of the oﬃcial national poverty lines of a set of low-income countries into the US dollar amount needed to have the same notional purchasing power in the United States in the same year. POVERTY 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 Figure 2 shows the two standard international poverty lines. 12 Then the Bank uses PPP conversion factors to estimate the amount of local currency. 1980. 7 But the standard poverty numbers––the ones normally used in discussions about the state of the world––come from the World Bank’s data set. How does the collage––positive world per capita growth and wide divergence of economic performance between developing regions––net out in terms of global trends in poverty and inequality? words of President James Wolfensohn.2 billion live on less than $1 a day. especially the lower of the two income humps. Figures 1–3 are based on a data set on income inequality compiled by the United Nation’s World Institute for Development Economics Research (WIDER). This is the source of the claims that.’’ 9 The opening sentence of the Bank’s World Development Indicators 2001 says.’’ the same number in 1987 and 1998. and also the line corresponding to an income of 50% of the world’s median income. reﬂecting the arrival of large numbers of South and East Asians into the middle deciles of the world income distribution. Notice too how small a share of world income goes to those on less than $1 per day. Notice that even the higher $2 per day absolute poverty line is below the conventional ‘‘minimum’’ relative poverty line of half of the median. World income distribution. ‘‘Of the world’s 6 billion people 1. 10 No ifs or buts. 193 3. I now show that the Bank’s ﬁgures contain a large margin of error.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 5 Figure 3.3. $1 per day and $2 per day. 1990. after rising steadily for 200 years’’ 8 and ‘‘the proportion of people worldwide living in absolute poverty has dropped steadily in recent decades.
For example. This is because the shape of income distribution near the poverty line is such that. the relative price changes over 1985–93 for a standard bundle of goods and services. 13 The point here is not that household surveys are less reliable than other possible sources (for example. By way of illustration. From household surveys the Bank then estimates the number of people in the country living on less than this ﬁgure. Some sources of error are well known. Recent research on China suggests that a 10% increase in the line brings a roughly 20% increase in the poverty headcount. and (iii) a change in the procedure for aggregating. The government of China declined to participate in both. Third. PPP-adjusted income ﬁgures that contain an even bigger component of guess work than for most other signiﬁcant countries. It uses national consumer price indices to keep real purchasing power constant across time. an expert on these statistics. and many do not follow a standard template. The government of India declined to participate in the 1993 exercise. the other in 1993 in 110 countries. The main sources of PPP income ﬁgures (the Penn World Tables and the International Comparison Project) are based on two large-scale international price benchmarking exercises for calculating purchasing power parity exchange rates. The price comparisons for India are extrapolations from 1985 qualiﬁed by later ad hoc price surveys. the poverty headcount is very sensitive to the precise level of the international poverty lines. the two most important countries for the overall trend.WD 1514 29 January 2004 Disk used 6 ARTICLE IN PRESS WORLD DEVELOPMENT No. and adjusts the international poverty line for each country upwards with inﬂation. 1. country by country. We do know however that the new method caused a huge change in the poverty count even for the same country in the same year using the same survey data. This gives an international extreme poverty line equivalent to US$1 per day. China and India. A recent study in India suggests that a switch from the standard 30-day reporting period to a seven-day reporting period lifts 175 million people from poverty.’’ 17 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 OO F . ad hoc price surveys in a few cities.2 billion in 1998––is not valid. The lack of reliable price comparisons for China and India––hence the lack of reliable evidence on the purchasing power of incomes across their distributions––compromises any statement about levels and trends in world poverty. 15 The change of method amounts to: (i) a change in the way the international poverty line was calculated from the oﬃcial poverty lines of a sample of low.08 per day. national income accounts). We do not know what the 1980 ﬁgure would be with the new method. Angus Deaton. First. Others are less well known. (ii) a change in the international poverty line from $PPP 1 per day to $PPP 1. The Bank introduced a new methodology in the late 1990s which makes the ﬁgures noncomparable. . the often-cited comparison between 1980 and 1998––1. of Pages 23. It sums the country totals to get the world total. The available surveys are of widely varying quality. adjusted by rules of thumb to take account of the huge price diﬀerences between urban and rural areas and between eastern and western regions. The Bank has recalculated the poverty numbers with the new method only back to 1987. 10 per day. one in 1985 in 60 countries. Rs. such as the sensitivity of the poverty headcount to the survey design. a nearly 50% drop. expressed in domestic currency. 14 Fourth. the poverty headcount is very sensitive to the reliability of household surveys of income and expenditure. regardless of direction. 16 Table 2 shows the method-induced changes by regions for 1993. . it seems impossible to make statements about changes in world poverty when the ground underneath one’s feet is changing in this way. Using the higher $1/day international line the would be even greater. in which case India’s international extreme poverty line is Rs. which resulted in. This is using the Indian oﬃcial poverty line.1 (a) Large margin of error 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 There are several reasons to expect a large margin of error. DTD = 4. 10 may have the same purchasing power in India in 1985 as US$1 in the United States in the same year. a given percentage change in the line brings a similar or larger percentage change in the number of people below it. The purchasing power parity exchange rate for China is based on guestimates from small. such as the exclusion of most of the beneﬁts that people receive from publicly provided goods and services. Second.3. comments that ‘‘Changes of this size risk swamping real changes. have UN CO RR EC TE D PR 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 the US base case. in most developing countries. simply that they do contain large amounts of error. the length of the recall period makes a big diﬀerence to the rate of reported expenditure––the shorter the recall period the higher the expenditure.and middle-income countries (and a change in the sample countries).4 billion in extreme poverty in 1980.
services and other things. while the Economic Commission for Latin America. future ‘‘updating’’ of the international poverty line will continue artiﬁcially to lower the true numbers.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. 10 in India buys the equivalent average consumption bundle as $1 in the United States. using old and new World Bank methodologya Old poverty rate (%) Subsaharan Africa Latin America Middle East/N Africa 39. The second reason is that the Bank’s new international poverty line of $1. 10. for the whole sample by an average of 13%.5 4. 10 therefore biases the number of poor downward. It lowers them in 77% of the 94 countries for which data are available. But this is misleading because the poor person. Suppose it costs Rs.) The Bank’s line refers to an ‘‘average consumption’’ bundle.08 lowers the equivalent national poverty lines in most countries compared to the earlier $PPP 1 line. using a calories-and-demography poverty line. 21 As noted.9 7 Source: Deaton (2001). 3 to buy an equivalent bundle of services (haircuts. such services being relatively very cheap in developing countries. For example. Indeed a recent study for Latin America shows that national extreme poverty rates. spending most income on food. we can be reasonably conﬁdent that switching from the Bank’s rather arbitrarily derived international extreme poverty line to one reﬂecting the purchasing power necessary to achieve elementary human capabilities would substantially raise the number of people in extreme poverty. leading the Bank to exaggerate the decline in the poverty headcount between the years covered by the old methodology and those covered by the new one. making the number of people in poverty seem lower than it really is. even a small downward shift in the poverty line removes a large number of people out of poverty. It lowers the old international poverty line for China by 14%.1 23. 18 Current methods of calculating purchasing power parity.08/day probably increases the downward bias. not to a basket of goods and services that makes sense for measuring poverty (though ‘‘$1 per day’’ does have intuitive appeal to a Western audience being asked to support aid). DTD = 4. may be more than twice as high as those based on the World Bank’s $1/ day line. 19 A 30–40% increase in a basic-needs-based international poverty line would increase the world total of people in extreme poverty by at least 30–40%. The new international poverty line of $PPP 1. for India. (b) Downward bias 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 Further sources of error bias the results downward. To take the international poverty line for India as Rs. 20 In short. giving the false impression that the cost of the basic con- 396 397 398 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 UN CO RR EC TE D PR OO F .3 1. of Pages 23. estimates the rate at 14%. There are at least three reasons. Third. because average consumption patterns (on which the international poverty line is based) are shifting toward services whose prices relative to food and shelter are lower in poor than in rich countries. and that it costs Rs. 10 only one-third of the food purchasable with $1 in the United States.3.1 New poverty rate (%) 49. by 9%.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? Table 2. can buy with Rs. the Bank’s international poverty line underestimates the income or expenditure needed for an individual (or household) to avoid periods of food-clothing-shelter consumption too low to maintain health and wellbeing. a The poverty rate is the proportion of the population living on less than $1 a day. making the trend look rosier than it is. But we can be fairly sure that if the Bank used a basic needs poverty line rather than its present artiﬁcial one the number of absolute poor would rise. (Moreover. using poverty lines based on caloriﬁc and demographic characteristics. containing 82% of their population.7 15. massages) as $1 in the United States. the World Bank estimates Brazil’s extreme poverty rate (using its international poverty line) at 5%. meaning that Rs. We have no way of knowing what proportion of food-clothing-shelter needs the Bank’s international poverty line captures. 1993 poverty rate. First. may yield a PPP exchange rate of $PPP 1 ¼ Rs. based on an average consumption bundle of food. because the national poverty lines equivalent to a global basic needs poverty line would probably rise (perhaps by 30–40%). and the bias probably increases over time. it avoids altogether the problem that basic needs include unpriced public goods such as clean water and access to basic healthcare. 30 to buy an equivalent bundle of food in India (deﬁned in terms of calories and micronutrients) as can be bought in the United States with $1.
INEQUALITY World poverty headcount could move in one direction while the world in equality moved in the other.20 billion in 1998. because. which then provides a rationale for tighter US control of the Bank. whoever makes it. as in the statement by the head of the US Agency for International Development. The neoliberal argument says that they have both dropped. 25 Now the Bank needed to emphasize progress. a lot of the multilateral institutions don’t have a good track record. Then came the majority report of the Meltzer Commission. The next major Bank publication. Any more precise statement about the absolute number of the world’s people living in extreme poverty and the change over time currently rests on quicksand. of Pages 23.’’ in the words of US Treasury Secretary O’Neill. On the other hand. heights. for which purpose lack of progress in development helped. 22 All these problems have to be resolved in one way or another in any estimate of world poverty. chief economist and director of the World Development Report 2000/2001). We do not know for sure how the late 1990s revision of the method and the PPP numbers alter the poverty headcount in any one year and the trend. in the sense that it may be signiﬁcantly diﬀerent from the headcount that would result from the use of PPP conversion factors based more closely on the real costs of living of the poor (deﬁned in terms of income needed to buy enough calories. 27 506 F (c) Conclusions about poverty UN We can be fairly sure that the Bank’s poverty headcount has a large margin of error in all years. He was chief author of Global. it is quite plausible that the proportion of the world’s population living in extreme poverty has fallen over the past 20 years or so.2 billion during 1987–98. 26 By this time Stiglitz and Kanbur were gone and David Dollar. 508 509 510 511 512 513 514 515 516 517 518 519 520 521 522 523 524 525 526 527 528 529 530 531 532 533 534 535 536 537 538 539 540 541 542 543 544 545 546 547 CO RR EC TE D PR 4. Growth.3. DTD = 4. micronutrients and other necessities in order not to be poor). was ascendant.1 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 468 469 470 471 472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 sumption goods required by the poor is falling. not noted champions of neoliberal economics. their results may overstate the proportion of the population in poverty. The number of poor people is politically sensitive. 24 At that time the Bank was trying to mobilize support for making the Comprehensive Development Framework the new template for all its work. Globalization.505 ization. frankly. which said the Bank was failing at its central task of poverty reduction and therefore should be sharply cut back––as shown by the fact that the number of people in absolute poverty remained constant at 1. The World Development Report 2000/2001: Attacking Poverty says that the number of people living on less than $1 a day increased by 20 million from 1. But it is likely that the Bank’s numbers substantially underestimate the true numbers of the world’s population living in extreme poverty.WD 1514 29 January 2004 Disk used 8 ARTICLE IN PRESS WORLD DEVELOPMENT No. Growth and Poverty.’’ 23 A comparison of two recent Bank publications suggests how the Bank’s statements about poverty are aﬀected by its tactics and the ideological predispositions of those in the ideas-controlling positions. The Bank’s many critics like to use the poverty numbers as one of many pointers to the conclusion that it has accomplished ‘‘precious little. When it was being written in the late 1990s the key ideas-controlling positions in the Bank were held by Joe Stiglitz and Ravi Kanbur (respectively. If it is the case (as some experts claim) that household surveys are more likely to miss the rich than the poor. and make the trend look brighter. For all the problems with Chinese and Indian income ﬁgures we know enough about trends in other variables––including life expectancy. I think it should. ‘‘Whether the US way of doing things drives some multilateral institutions. and Poverty: Building an Inclusive World Economy. for the US Congress. But the fact that the World Bank is the near-monopoly provider introduces a further complication.18 billion in 1987 to 1. and other nonincome measures––to be conﬁdent that their poverty headcounts have indeed dropped dramatically over the past 20 years. 28 But in the past several years world income distribution has OO 549 550 551 552 553 . a prominent Bank economist. By the same token we should question the Bank’s conﬁdence that the trend is downward. claimed that the number of people living in poverty decreased by 200 million in the 18 years over 1980–98. The magnitude of world population increase over the past 20 years is so large that the Bank’s poverty numbers would have to be huge underestimates for the world poverty rate not to have fallen.
1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 9 588 589 590 591 592 593 594 595 596 597 598 599 600 601 602 603 604 605 606 Proposition 1. So if incomes converted via market exchange rates do not give an accurate measure of relative purchasing power.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. alternatives sources of data on incomes (national income accounts or household surveys). No one disputes this. GDP incomes should always be adjusted by PPP exchange rates to take account of diﬀerences in purchasing power. there is no single best measure of world income inequality. alternative samples of countries and time periods. and India’s diﬀer too.3. and salaries in places like Washington DC and Geneva. importing capital goods. alternative weightings of countries (each country weighted as one unit or by population). exclusion of goods and services that are not traded. The practical reasons concern the weaknesses of the PPP numbers. and sudden changes in the oﬃcial exchange rate driven more by capital than by trade movements. DTD = 4. the PPP adjustment is made by computing the relative prices for an average bundle of goods and services in diﬀerent countries. and hence would dismiss the data in Table 1. ‘‘What is the trend of world income distribution?’’ is. The PPP adjustment thus makes world income distribution look much more equal than the distribution of market-exchange-rate incomes. India’s PPP GDP. we should reject the argument that incomes converted via PPP exchange rates should always be used in preference to incomes converted at market exchange rates. 30 This makes a big diﬀerence to the size of the gap between rich and poor. is about four times its market exchange rate UN CO RR 554 555 556 557 558 559 560 561 562 563 564 565 566 567 568 569 570 571 572 573 574 575 576 577 578 579 580 581 582 583 584 585 586 587 become a hot topic of debate in international economics and in sociology (much hotter than trends in world poverty). We may also be interested in income as a proxy for the purchasing power of residents of diﬀerent countries over goods and services produced in other countries––for example. the purchasing power of residents of developing countries over advanced country products compared to the purchasing power of residents of advanced countries over developing country products. Nevertheless. We may however. and participating in international organizations––we should use market exchange rates. Market-exchange-rate-based income comparisons do suﬀer from all the ways in which oﬃcial exchange rates do not reﬂect the ‘‘real’’ economy: from distortions in the oﬃcial rates. World income distribution has become rapidly more unequal.’’ 29 Whereas we could get better data on the poor to the extent that the poverty headcount would command general agreement. be interested in income not only as a measure of material well-being. more generally. The reason why many poor small countries are hardly represented in negotiations that concern them directly is that they cannot aﬀord the cost of hotels. for example. Estimates for countries of the former Soviet Union before the 1990s also diﬀer by a wide margin. The PPP adjustment substantially raises the relative income of poor countries. ‘‘It depends on which combination out of many plausible combinations of measures and countries we choose. If we are interested in any of the questions about the economic and geopolitical impact of one country (or region) on the rest of the world––including the cost to developing countries of repaying their debts. Plausibly constructed PPP numbers for China diﬀer by a factor of two. or ratios of the income of the richer deciles of world population to that of poorer deciles. they say. The only valid short answer to the question. when incomes are measured at market exchange rates and expressed in US dollars. As noted. neither do the PPP numbers for countries that carry heavy weight in world trends. or average income of a set of developing countries to that of a set of developed countries). Practical problems aside. alternative measures of distribution (including the Gini or some other average coeﬃcient. of Pages 23. Conﬁdence in world PPP income distribution should be correspondingly limited. The choices include: alternative measures of income (GDP per capita converted to US dollars using market exchange rates or GDP per capita adjusted for diﬀerences in purchasing power across countries). material well-being. We can be reasonably conﬁdent of the following six propositions. Disagreements about the overall inequality trend should not be surprising given the variation in regional economic performance––diﬀerent ways of measuring emphasize diﬀerent parts of the collage. oﬃces. GDP. Most economists say that exchange-rate-based income measures are irrelevant. PPP-adjustment is in principle preferable when one is interested in domestic purchasing power or. The dispute is about what the ﬁgures mean. which must be paid not in PPP dollars but in hard currency bought with their own currency at market 607 608 609 610 611 612 613 614 615 616 617 618 619 620 621 622 623 624 625 626 627 628 629 630 631 632 633 634 635 636 637 638 639 640 641 642 643 644 645 646 647 648 649 650 651 652 653 654 655 656 657 658 659 660 661 662 EC TE D PR OO F .
The polarizing trend would be much sharper with the top 1% rather than the top decile. of Pages 23. CO UN TE This is the result that the neoliberal argument celebrates. to ﬁnance civil services and schools and the like. 1990––104. The same inequality-widening trend is obtained using a somewhat diﬀerent measure of inequality––the dispersion of per capita GDPs across the world’s (equally weighted) countries. suggesting wider variation in performance among countries at each income level. Therefore.’’ 33 Proposition 4. F Proposition 3. Moreover. using per capita GDPs. Hence we do need to pay attention to what is happening to market-exchange-rate world income distribution. 716 717 718 719 720 721 722 723 724 725 726 727 728 729 730 731 732 733 734 735 736 737 738 739 740 741 742 743 744 745 746 747 748 749 750 751 752 753 754 755 756 757 758 759 760 761 762 763 764 765 766 767 Of course. which would reduce their debt repayments by 75% or more in many cases. and the like. where incomes have grown over the past 20–30 years. RR EC 663 664 665 666 667 668 669 670 671 672 673 674 675 676 677 678 679 680 681 682 683 684 685 686 687 688 689 690 691 692 693 694 695 exchange rates. resource endowments. the trend of richest to poorest decile goes like this: 1970––92. The next four propositions refer to inequality of PPP-adjusted incomes. while a large chunk of the bottom 10% is comprised of African countries where incomes have stagnated or fallen. equal country weights (China ¼ Uganda). of capital goods––other domestic uses of those resources are squeezed.3. On the other hand. Between-country world PPPincome inequality has been constant or falling since around 1980. 1999–– 104. international lenders have not been lining up to accept repayment of developing country debts in PPP dollars. the reason they cannot aﬀord to pay the foreign exchange costs of living up to many of their international commitments––hiring foreign experts to help them exercise control over their banking sectors so that they can implement their part of the anti-money-laundering regime. and especially fast over the 1990s. This backwash eﬀect is occluded in PPP calculations. exclude China and even this measure shows a widening since 1980.1 696 Proposition 2. But we would weight them equally––treat each country as a unit of observation. the dispersion of per capita GDP growth rates has also risen over time. including measures to reduce poverty. even using the most favorable combination of measures. both across and within countries. When a rising amount of real domestic resources has to go into acquiring a given quantity of imports––say. for example–– likewise reﬂects their low market-exchange-rate incomes. 1980––109. First. World PPP-income polarization 697 has increased. Between-country world PPPincome inequality has increased since at least 1980. analogous to a laboratory test observation––if we were interested in growth theory and the growth impacts of public policies. with polarization measured as 698 richest to poorest decile. this measure––the average income of each country weighted by population––is interesting only as an approximation to what we are really interested in. 1950––98. A study by the Economic Commission for Latin America using these dispersion measures concludes that there is ‘‘no doubt as to the existence of a deﬁnite trend toward distributive inequality worldwide. We would not be interested in mea- D PR OO .WD 1514 29 January 2004 Disk used 10 ARTICLE IN PRESS WORLD DEVELOPMENT No. There are just two problems. In addition. DTD = 4. arrange (unweighted) countries by the openness of their trade regime and see whether more open countries have better economic performance. Dispersion increased over the long period. as an approximation to domestic purchasing power. 31 Another study ﬁnds a jump in the ratio of 25% over 1988––93. we would not weight countries equally if we were interested simply in relative well-being. For example. We might. and Japan. for example. According to one study. also exclude India and the widening is pronounced. falling income inequality is not a general feature of the world economy. 34 Second. 699 700 701 702 703 704 705 706 707 708 709 710 711 712 713 714 715 The broad result is hardly surprising: the top 10% is comprised almost entirely of people living in the core countries of North America. These same ‘‘foreign’’ impacts feed back to domestic state capacity. we should use market exchange rates to pick up the key point that the long-run deterioration in the exchange rates of most developing countries is putting those countries under increasing internal stress. It is widening fast. with countries weighted by population. and a coefficient like the Gini for the whole distribution. which is income distribution among all the world’s people or households regardless of which country they reside in. 32 The change is made up of the top decile pulling sharply up from the median and the bottom decile falling away from the median. western Europe.
28 0. using the WIDER data set.67 8. China and India shape world trends in poverty and inequality. which use a variety of data sources and methods. West Asia and Latin America during the 1980s and 1990s. They ﬁnd that world inequality widened over 1980–93 using all of four common measures of inequality over the whole distribution. because what is happening to pay rates in formal-sector manufacturing reﬂects larger trends. requiring the analyst to guess the intervening years. 38 811 812 813 814 815 816 817 818 819 820 821 822 823 824 825 826 827 828 829 830 831 832 833 834 835 836 837 838 839 840 841 842 843 844 845 846 847 848 849 850 851 852 853 854 855 856 Pay data have the great advantage over income data that pay data are a much less ambiguous variable. But not as limited as may seem at ﬁrst sight. and provide only a proxy for incomes and expenditure. using both the Gini coeﬃcient and ratio (or polarization) measures. and the sources of income data. 39 RR EC TE Gini Richest decile/median Poorest decile/median Source: Milanovic (2002a). DTD = 4. Several serious studies find that world PPP-income inequality has increased over a period within the past two to three decades. have been collected systematically by the United Nations Industrial Development Organization (UNIDO) since the early 1960s. We have to be cautious about Milanovic’s results partly because household surveys have the kind of weaknesses described above (though these weaknesses do not make them worse than the alternative. of course. D PR (a) China and India With 38% of the world’s population. taking account of both between. 36 Some of his ﬁndings are shown in Table 3.683.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 11 UN Table 3. national income OO 772 773 774 775 776 Proposition 5. (The standard data set for world poverty and inequality. 1970– 99.28 % Change +6 +23 )10 CO 777 778 779 780 781 782 783 784 785 786 787 788 789 790 791 792 793 794 795 796 797 798 799 800 801 802 803 804 805 806 807 808 809 810 Studies which attempt to measure income distribution among all the world’s people show widely varying results. etc. 35 Branko Milanovic uses the most comprehensive set of data drawn only from household income and expenditure surveys (it does not mix data from these surveys with data from national income accounts). let alone a ﬁve-year interval. the World Bank’s Deininger-Squire set. if the ﬁg- 858 859 860 861 . accounts. leaving a large rise over 1988–98. They ﬁnd that the Gini coeﬃcient increased over this period from 0. of Pages 23. the time period. including income diﬀerences between countries and income diﬀerences within countries (since the pay of unskilled.98 0. 37 Proposition 6. entry-port jobs in manufacturing is closely related to the opportunity cost of time in the ‘‘informal’’ or agricultural sectors). and partly because even a 10-year interval.) The disadvantage of pay data. is that they treat only a small part of the economy of many developing countries. They have grown very fast over the past decade (India) or two (China). Yuri Dikhanov and Michael Ward combine micro-level household survey data with national income accounts. Preliminary analysis of 1998 data suggests a slight drop in inequality in 1993–98. He ﬁnds a sharp rise in world inequality over as short a time as 1988–93. manufacturing innovation. which have their own problems). Pay inequality within countries was stable or declining from the early 1960s to 1980–1982.31 1993 0.and withincountry distributions. World income distribution by households (1988 and 1993) 1988 0.668 to 0. depending on things like the precise measure of inequality. F 768 769 770 771 suring income inequality within the United States by calculating the average income for each state weighted by population if we had data for all US households.). and give many more observation points for each country than any data set on incomes.63 7. the sample of countries. suggesting that some of the increase may be noise. a diﬀerent statistical technique to the earlier authors. is very short. has few observation points for most of Africa. then sharply and continuously increased to the present. point to widening inequality. Steve Dowrick and Muhammad Akmal make an approximation to the distribution of income among all the world’s people by combining (population-weighted) between-country inequality in PPP-adjusted average incomes with within-country inequality.3. But several studies. and a longer time period. They are of limited use if our interest is only in relative wellbeing (though of more use if our interest is in the eﬀects of trade. 1980–82 is a turning point toward greater inequality in manufacturing pay worldwide.
Whatever the causes.4 1998 3.WD 1514 29 January 2004 Disk used 12 ARTICLE IN PRESS WORLD DEVELOPMENT No. China’s GNPPC and growth rate (1997–99)a UN CO 862 863 864 865 866 867 868 869 870 871 872 873 874 875 876 877 878 879 880 881 882 883 884 885 886 887 888 889 890 891 892 893 894 895 896 897 898 899 900 901 ures are taken at face value. 43 China’s surging inequality is now greater than before the Communists won the civil war in 1949.4 GNPPC/PPP (US$) GNPPC (US$) Annual growth rate of GNPPC (%) Source: World Bank.5% uplift on bids for World Bank projects. The level of average (exchange rate-converted) income fell sharply during 1997–98. led by the United States. all the countries of English settlement. recall that China’s and India’s purchasing power parity numbers are even more questionable than those for the average developing country. 1. 934 935 936 937 938 939 940 941 942 943 944 945 946 947 948 949 950 951 952 953 . First. The Bank reduced China’s per capita income partly because it believed that China’s fast growth campaign begun in 1998 had unleashed a torrent of statistical falsiﬁcation.9. 45 Within the top 1% most of the gains have been concentrated in the top 0. of Pages 23. while the corresponding growth rate over 1997– 98 was +6.1 (b) The United States and other Anglo political economies Canada excepted.3. the top 1% of families enjoyed a growth of after-tax income of almost 160% over 1979–97. Inequality has expanded hugely among the college-educated. The ratio of the average income of the richest to poorest province (Guangdong to Guizhou) rose from around 3.2. D PR OO F 1997 3. have experienced big increases in income inequality over the past 20–30 years. Second. About any stronger conclusion we have to be cautious. and inequality between regions is probably higher than in any other sizable country. 42 We have to be cautious about going from China’s fast growth to falls in world income inequality not only because China’s growth rates and income level may be overstated but also because the rise in inequality within both China and India partly oﬀsets the reduction in world income inequality that comes from their relatively fast growth of average income–– though careful calculations of the relative strength of the two contrary eﬀects have yet to be made.1 Table 4. 40 Even the Chinese government says that the World Bank has been overstating China’s average income. 902 903 904 905 906 907 908 909 910 911 912 913 914 915 916 917 918 919 920 921 922 923 924 925 926 927 928 929 930 931 TE 1999 3.4%. 44 The corresponding ﬁgure for India in the late 1990s was 4. World Development Indicators (1999–2001). because of their nonparticipation in the international price comparisons on which the PPP calculations rest.2 in 1991 (current yuan) to 4. China’s growth in the 1990s is probably overstated. DTD = 4. In addition. the era of the ‘‘robber barons’’ and the Great Gatsby. a Note that each volume gives ﬁgures for only one year.050 750 6. and is now the most unequal of the big European countries. so that the discrepancy can be seen only by compiling one’s own table. China’s average purchasing power parity income rose from 0. or 15 percentage points in only eight years. In the United States. the Chinese government armtwisted the World Bank (especially after the allegedly accidental US bombing of the Chinese embassy in Belgrade in May 1999) to lower average income below the threshold of eligibility for concessional IDA lending from the RR EC Bank––not for cheap IDA loans but for the privilege extended to companies of IDA-eligible countries to add a 7.8 in 1993. the United States.1%. This one change lowers the probability that world interpersonal distribution has become more equal. and the Bank has recently revised its numbers down.45 in 1998.3 of the world average in 1990 to 0. We can be sure that world poverty and inequality are less than they would be had China’s and India grown more slowly. and remained at 4. This is not a matter of reward to education.8 in 1998–2001.070 860 7. Income distribution in the United Kingdom grew more unequal more quickly than even in the United States during the 1980s. the fact is that the United States is now back to the same level of inequality of income as in the decades before 1929. Many analysts have recently been revising China’s growth statistics downward.550 780 6. Whereas government ﬁgures show annual real GDP growth of 7–8% in 1998 and 1999 one authority on Chinese statistics estimates that the economy may not have grown at all. while families in the middle of the distribution had a 10% increase. Table 4 shows the Bank’s estimates for China’s average GNP in US$ for 1997–99 and the corresponding growth rates. 41 Over the 1990s China’s annual growth rate is more likely to have been around 6–8% than the 8–10% of the oﬃcial statistics.
As many countries moved stably up as down. the absolute gap between the average income of the top decile of world population and the bottom decile increased from $PPP 18. overall. (b) it has fallen substantially since 1980. El Salvador moved stably down from 2 to 3. On the other hand. foreign direct investment/GDP. by about 200 million. absolute income gaps are widening fast. But this. Brazil in zone 2. and the like. but not with the countries of North America. polarization has clearly increased.000 growing at 6% and a country with average income $30. The conclusion is that world inequality measured in plausible ways is probably rising. Brazil. No country moved more than one zone. Australia remained in zone 1.902 in 1999. implies a big rise in the absolute size of the gap. 1007 1008 1009 1010 1011 1012 1013 1014 F EC The evidence does support the liberal argument when inequality is measured with population-weighted countries’ per capita PPPadjusted incomes. not low zone. Argentina from 1 to 2). Moreover. 47 We can be sure that––a seventh proposition––absolute gaps between people and countries are widening fast and will continue to widen for at least two generations. of course.. Meanwhile. Inequality between developing countries as a group and developed countries as a group remains constant if the ratio of developing country income to developed country income remains at 5%. several studies that measure inequality over the whole distribution and use either cross-sectional household survey data or measures of combined inequality between countries and within countries show widening inequality since around 1980. not absolute incomes. having remained roughly constant from 1960 to the early 1980s. Russia and Argentina. Indeed. and ﬁnds a robustly trimodal distribution of world population against the log of GNP per capita during 1960–99.690 in 1970 to $PPP 28. 72 remained in the same income zone over the whole period sampled at ﬁve yearly intervals (e. The remaining 28 countries moved at least once from one zone to another (e. then converted to dollars at the exchange rate for that base year). and (c) that world income inequality has fallen over the same period. Bolivia in zone 3).g. DTD = 4. (d) The absolute income gap (e) Conclusions about inequality OO Ward’s ﬁgures show that. Dispersion in pay rates within manufacturing has become steadily wider since the early 1980s. Western Europe and Japan. GLOBALIZATION I have raised doubts about the liberal argument’s claim that (a) the number of people living in extreme poverty worldwide is currently about 1. For the 100 countries in the sample. having risen for many decades before then.g. semi-periphery. Greece moved stably up from 2 to 1. despite China’s and India’s fast growth. Hong Kong and Singapore in 1960 were already in the middle.) There are about as many cases of upward movement as downwards.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. as seen in rising trade/ GDP. (South Korea. 1016 1017 1018 1019 1020 1021 1022 1023 1024 1025 1026 1027 1028 1029 1030 1031 1032 1033 1034 1035 1036 TE D PR 5. it is striking that the pronounced convergence of economic policy toward ‘‘openness’’ worldwide 990 991 992 993 994 995 996 997 998 999 1000 1001 1002 1003 1004 1005 1006 Our measures of inequality refer to relative incomes. Of the 28 out of 100 countries that moved at least once between zones.000 growing at 1% continues to widen until after the 40th year! China and India are reducing the absolute gap with the faltering middle-income states such as Mexico. and periphery. Compared to the rate of potential mobility (each country moving one zone at each measurement date) the rate of actual mobility was 3%. Let us consider the other end of the argument––that the allegedly positive trends in poverty and inequality have been driven by rising integration of poorer countries into the world economy.2 billion. taking China’s income statistics at face value. 46 The three income zones might be taken as empirical correlates of the conceptual zones of core. Argentina moved stably down from 1 to 2. plus a measure of average inequality.. Clearly the proposition is not well supported at the world level if we agree that globalization has been rising while poverty and income inequality have not been falling. of Pages 23.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 13 (c) Country mobility RR 955 956 957 958 959 960 961 962 963 964 965 966 967 968 969 970 971 972 973 974 975 976 977 978 979 980 981 982 983 984 985 986 987 988 How much do countries move in the income hierarchy? One study uses real GNP per capita data (GNP deﬂated in local currency to a common base year. The absolute gap between a country with average income of $1. The conclusion is reinforced by evidence of a quite diﬀerent kind. Dikhanov and 1038 1039 1040 1041 1042 1043 1044 1045 1046 1047 1048 1049 1050 1051 1052 1053 1054 1055 1056 1057 UN CO .3. about half had ‘‘stable’’ moves in the sense that their position in 1990 and 1999 was one zone above or below their position in 1960 and 1965.
no increase in inequality. Table 5 provides an illustration. Nor does it consider that other variables correlated with trade growth may be important causes of economic performance: quality of government. the argument assumes that fast trade growth is the major cause of good economic performance.2 0. from fast economic growth to fast trade growth. both in terms of trade/GDP and in terms of the magnitude of tariﬀs and nontariﬀ barriers. o Rwanda. The structure of their economy and the low skill endowment of the population make them dependent on trade. Third. RR EC TE D PR OO F . of Pages 23.’’ it concludes.3 GNPRG 1988–99 (%) Nonglobalizers Honduras Kenya Globalizers India B’desh Source: World Bank. from ‘‘nonglobalizing’’ countries or ‘‘less globalized’’ countries. It ﬁnds that the former have had faster economic growth. On the other hand.5 6. Many of the globalizing countries initially had very low trade/GDP in 1977 and still had relatively low trade/GDP at the end of the period in 1997 (reﬂecting more than just the fact that larger economies tend to have lower ratios of trade/GDP). The second problem is that the argument fudges almost to vanishing point the distinction between trade quantities and trade policy. This is what World Bank studies claim. and Argentina. the less globalized countries. the bottom twothirds. Ranking developing countries by the amount of change. Haiti. which have had poor economic performance.04 57 133 )1. DTD = 4. 49 The globalizers then include China and India. using ‘‘change in the trade/GDP ratio’’ as the measure of globalization skews the results. wrongly. as well as countries such as Nepal. It is quite possible that ‘‘more globalized’’ countries are less open than many ‘‘less globalized’’ countries. A country with high trade/GDP and very free trade policy would still be categorized as ‘‘less globalized’’ if its increase in trade/GDP over 1977–97 put it in the bottom two-thirds of the sample.3. The conclusion does not follow.1 UN CO 1058 1059 1060 1061 1062 1063 1064 1065 1066 1067 1068 1069 1070 1071 1072 1073 1074 1075 1076 1077 1078 1079 1080 1081 1082 1083 1084 1085 1086 1087 1088 1089 1090 1091 1092 1093 1094 1095 1096 1097 1098 over the past 20 years has gone with divergence of economic performance. for example.9 3. World Development Report 2000/01. It measures globalizing by changes in the ratio of trade to GDP over 1977–97.WD 1514 29 January 2004 Disk used 14 ARTICLE IN PRESS WORLD DEVELOPMENT No. But it might still be possible to argue that globalization explains diﬀerences between countries: that more open economies or ones that open faster have a better record than less open ones or ones than open more slowly. Tables 1 and 13. including China and India as globalizers––despite relatively low trade/GDP and relatively protective trade regimes––guarantees that the globalizers. and faster reduction of poverty than the latter. It does not examine the reverse causation. that rising trade quantities–– and the developmental beneﬁts thereof––are the consequence of trade liberalization. Globalization. 48 distinguishes ‘‘newly globalizing’’ countries. weighted by population. ‘‘Thus globalization clearly can be a force for poverty reduction. Trade-dependent nonglobalizers and less-trade-dependent globalizers Exports/GDP 1990 36 26 7 6 1999 42 25 11 14 % Change 17 )0. show better performance than the nonglobalizers. Growth and Poverty. it calls the top third the more globalized countries. and implies. The best known. First. C^te d’ Ivoire. One reexamination of the Bank’s study ﬁnds that the globalizer countries do indeed have higher 1099 1100 1101 1102 1103 1104 1105 1106 1107 1108 1109 1110 1111 1112 1113 1114 1115 1116 1117 1118 1119 1120 1121 1122 1123 1124 1125 1126 1127 1128 1129 1130 1131 1132 1133 1134 1135 1136 1137 1138 1139 Table 5. Excluding countries with high but not rising levels of trade to GDP from the category of more globalized eliminates many poor countries dependent on a few natural resource commodity exports. also called ‘‘more globalized’’ countries. To call relatively closed economies ‘‘more globalized’’ or ‘‘globalizers’’ and to call countries with much higher ratios of trade/GDP and much freer trade regimes ‘‘less globalized’’ or even ‘‘nonglobalizers’’ is an audacious use of language. If they were included as globalized their poor economic performance would question the proposition that the more globalized countries do better.
Beyond this we cannot be conﬁdent. Falling inequality is thus not a generalized feature of the world economy even by the most favorable measure. But this is not to say that their improved performance is largely due to their more intensive external integration. and more and more of their rapidly growing imports consisted of capital goods and intermediate goods. higher levels of trade openness are associated with more inequality. rent-free markets. whatever we conclude about 1220 1221 1222 1223 1224 1225 1226 1227 1228 1229 1230 1231 1232 1233 1234 1235 1236 1237 1238 1239 1240 1241 1242 1243 1244 1245 1246 1247 1248 UN CO RR EC . On income distribution. the better to enhance competition in eﬃcient. One combination of inequality measures does yield the conclusion that income inequality has been falling––PPPincome per capita weighted by population. Certainly many countries––including China and India––have beneﬁted from their more intensive engagement in international trade and investment over the past one or two decades. DTD = 4. in principle. In short. and the dynamics of capitalism. that the proportion of the world’s population living in extreme poverty has probably fallen over the past two decades or so. several studies suggest that world income inequality has been rising during the past two to three decades. They began to open their own markets after building up industrial capacity and fast growth behind high barriers. though not classiﬁed as such. For all the Bank study’s qualiﬁcations (such as ‘‘We label the top third Ômore globalized’ without in any sense implying that they adopted pro-trade policies. it concludes that trade liberalization has been the driving force of the increase in developing countries’ trade. On this shaky basis the Bank rests its case that developing countries must push hard toward nearfree trade as a core ingredient of their devel- TE opment strategy. 50 Finally. and probably make the trend look rosier than it really is. As they became richer they tended to liberalize their trade––providing the basis for the misunderstanding that trade liberalization drove their growth. throughout their period of so-called openness they have maintained protection and other market restrictions that would earn them a bad report card from the World Bank and IMF were they not growing fast. And a recent crosscountry study of the relationship between openness and income distribution strikes another blow. 54 1196 1197 1198 1199 1200 1201 1202 1203 1204 1205 1206 1207 1208 1209 1210 1211 1212 1213 1214 1215 1216 1217 1218 D PR 6. but it is highly relevant to state capacity. trade does not capture important kinds of ‘‘openness. Even when the Bank or other development agencies articulate the softer principle––trade liberalization is the necessary direction of change but countries may do it at diﬀerent speeds––all the attention remains focused on the liberalization part. Imagine an economy with no foreign trade but high levels of inward and outward migration and a well-developed diaspora network.000 per capita in PPP terms. The trend is sharpest when incomes are measured at market-exchange-rate incomes. But take out China and even this measure shows widening inequality. measured by an averaging coeﬃcient such as the Gini. 53 They all experienced relatively fast growth behind protective barriers. of Pages 23. brought about in distinctly nonglobalized conditions and unlikely to have been achieved in an open economy and democratic polity. having been rising for decades before then. and important.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 15 1140 1141 1142 1143 1144 1145 1146 1147 1148 1149 1150 1151 1152 1153 1154 1155 1156 1157 1158 1159 1160 1161 1162 1163 1164 1165 1166 1167 1168 1169 1170 1171 1172 1173 1174 1175 1176 1177 1178 1179 1180 1181 1182 1183 1184 1185 1186 1187 1188 1189 1190 1191 1192 1193 1194 1195 quality of government indicators than the nonglobalizer countries. CONCLUSION OO F It is plausible. 52 Their experience––and that of Japan. It ﬁnds that among the subset of countries with low and middle levels of average income (below $5. on average. South Korea and Taiwan earlier––shows that countries do not have to adopt liberal trade policies in order to reap large beneﬁts from trade. ‘‘The result of this trade liberalization in the developing world has been a large increase in both imports and exports. China began its fast growth with a high degree of equality of assets and income. while among higher-income countries more openness goes with less inequality. are probably biased downward.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. This is less relevant to relative well-being than PPP-adjusted incomes. In a real sense this would be an open or globalized economy. and a study of manufacturing pay dispersions buttresses the same conclusion from another angle.’’ including people ﬂows and ideas ﬂows. a signiﬁcant part of their growth came from replacing imports of consumption goods with domestic production. poverty and income distribution does not survive scrutiny at either end.3. Finally. because the World Bank’s poverty numbers are subject to a large margin of error. none on how to make protective regimes more eﬀective. that of Chile and the Czech Republic).’’ it says. 51 In addition. interstate power. the Bank’s argument about the benign eﬀects of globalization on growth. The rise in trade may have been due to other policies or even to pure chance’’).
They must make a clear distinction between statements about (i) levels of trade. and (c) the assumption that increases in trade/GDP drive improved economic performance. increases in world inequality above moderate levels may cut world aggregate demand and thereby world economic growth. 57 The link to higher crime comes through the inability of unskilled men in high inequality societies to play traditional male economic and social roles. for example––and the core economic policy package of the World Bank and the other multilateral economic organizations is glossed. the level of trade/GDP being determined mainly by country size). inequality above a moderate level creates a kind of society that even crusty conservatives hate to live in. 1302 and thereby raises eﬃciency. unsafe and unpleasant. Rising inequality between countries impacts directly the national political economy in the poorer states. But on the face of it. Scandinavian. whose treatment dominates the overall results. of Pages 23. and feel 1303 1304 1305 1306 1307 1308 1309 1310 1311 1312 1313 1314 1315 1316 1317 1318 1319 1320 1321 1322 1323 1324 1325 1326 1327 1328 1329 1330 1331 1332 1333 1334 1335 1336 1337 1338 1339 1340 1341 1342 1343 1344 1345 1346 1347 1348 1349 1350 1351 1352 1353 1354 1355 1356 1357 1358 CO RR EC TE D PR OO F . and (v) the content of trade–– whether a narrow range of commodity exports in return for a broad range of consumption imports. and (iv) higher crime. as rich people who earlier compared themselves to others in their neighborhood now compare themselves to others in the United States or Western Europe. the more globalized the world becomes. As Margaret UN 1249 1250 1251 1252 1253 1254 1255 1256 1257 1258 1259 1260 1261 1262 1263 1264 1265 1266 1267 1268 1269 1270 1271 1272 1273 1274 1275 1276 1277 1278 1279 1280 1281 1282 1283 1284 1285 1286 1287 1288 1289 1290 1291 1292 1293 1294 1295 1296 1297 1298 income inequality. They are classed as ‘‘globalizers. with Africa’s poverty as a special case in need of international attention.’’ their relatively good economic performance is attributed mainly to their ‘‘openness. because the single best predictor of trade/GDP is country size (population and area). (a) Should we worry about rising inequality? Thatcher put it. If the number of people in extreme poverty is not falling and if global inequality is widening. or a diverse range of exports (some of them replaced imports) in return for a diverse range of imports (some of them producer goods to assist further import replacement). analysts have to separate out the eﬀect of country size on trade/GDP levels from other factors determining trade/GDP. the more that the reasons why we should be concerned about within-country inequalities also apply between countries. At the least.3.1 1300 The neoliberal argument says that inequality 1301 provides incentives for eﬀort and risk-taking. In short. with low average levels of trust and social capital. If globalization within the current framework actually increases inequality within and between countries. DTD = 4. The problems come together in the case of China and India. as some evidence suggests. (iii) restrictiveness or openness of trade policy. including a plausible contribution to family income. making a vicious circle of rising world inequality and slower world growth. because it constrains the growth of mass demand. Aside from the moral case against it. the studies that claim globalization as the driver are weakened by (a) the use of changes in the trade/ GDP ratio or FDI/GDP ratio as the index of globalization or openness. we cannot conclude that globalization in the context of the dollar-Wall Street regime is moving the world in the right direction. (iv) changes in restrictiveness of policy. (iii) higher unemployment.’’ and the deviation between their economic policies––substantial trade protection and capital controls. inequality at the national level should certainly be a target of public policy. irrespective of level (though using the level on its own is also problematic. The balance of probability is that––like global warming––the world is moving in the wrong direction. it is likely to be swamped by social costs. Higher income inequality within countries goes with: (i) higher poverty (using World Bank data and the number of people below the Bank’s international poverty line). such as in the United States over the past 20 years.WD 1514 29 January 2004 Disk used 16 ARTICLE IN PRESS WORLD DEVELOPMENT No. The counterargument is that this productive incentive eﬀect applies only at moderate. But higher crime and violence is only the tip of a distribution of social relationships skewed toward the aggressive end of the spectrum. (b) the assumption that trade liberalization drives increases in trade/GDP. even if just for the sake of the prosperous. (ii) changes in levels. At higher levels. 56 (ii) slower economic growth. because we cannot do much to lessen international inequality directly. levels of inequality. especially in large countries such as China. absolute income gaps are widening and will continue to do so for decades. The liberal argument is even less concerned about widening inequality between countries than it is about inequality within countries. including trade policies.’’ 55 We should worry about rising inequality only if it somehow makes the poor worse oﬀ than otherwise. ‘‘It is our job to glory in inequality and see that talents and abilities are given vent and expression for the beneﬁt of us all. The failure of the predicted eﬀects aside.
This requires international public policy well beyond the boundaries of neoliberalism. at the same time as the lived experience in much of the rest of the world is from another planet. Sustained preferences for the South may be necessary if the world is to move to a singlehumped and more narrowly dispersed distribution over the next century. debt repayment and the like has to be oﬀset by cuts in budgets for health. 59 The eﬀects of inequality within and between countries depend on prevailing norms. and quite possibly rising rather than falling. and in providing ﬁnance at times when other ﬁnance is not available. since the fastest way for a poor person to get richer is to move from a poor country to a rich country. The need for deliberate international redistribution is underlined by the evidence that world poverty may be higher in absolute numbers than is generally thought. Alternative views come only from a few ‘‘urban guerrillas’’ in pockets of academia and the UN system. Rising inequality in market-exchange-rate terms––helped by a high US dollar. rapidly widening between-country inequality in current exchange rate terms feeds back into stress in public services.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. Likewise. of Pages 23. most atavistic issue in Western politics. This evidence suggests that the income and prosperity gap between a small proportion of the world’s population living mainly in the North and a large proportion living entirely in the South is a structural divide. and trade in services–– allows the United States to ﬁnance the military sinews of its postimperial empire more cheaply. 58 Rising inequality may generate conﬂict between states. and that world income inequality is probably rising too. because some of the eﬀects of widening inequality may contaminate their lives and those of their children. Migration is a function of inequality. as the increasing foreign exchange cost of imports. It has moved from major to minor source of foreign ﬁnance for most developing countries outside of Africa. and industrial policy. not just a matter of a lag in the South’s catch-up. The World Bank is one of the key actors. They may squeeze their own populations in order to sustain a comparable living standard. Widening inequality may raise the incentive on the educated people of poor countries to migrate to the rich countries. Where power hierarchy and income inequality are thought to be the natural condition of man the negative eﬀects can be expected to be lighter than where prevailing norms aﬃrm equality. DTD = 4. But the route to greater equity goes not only through the dismantling of market rules rigged in favor of the rich––also consistent with the neoliberal argument––but through more political (nonmarket) inﬂuence on resource allocation in order to counter the tendency of free markets to concentrate incomes and power. concerned to maximize redistribution upward and contain protests by repression. 1414 1415 1416 1417 1418 1419 1420 1421 1422 1423 1424 1425 1426 1427 1428 1429 1430 1431 1432 1433 1434 1435 1436 1437 1438 1439 1440 1441 1442 1443 1444 RR TE D (b) The political economy of statistics PR OO F Concerns about global warming gave rise to a coordinated worldwide project to get better climatological data. line up in favor of greater equity in the world at large. Yet migration/refugees/asylum is the single most emotional. and––because the marketexchange-rate income gap is so big––make it cheap for rich states to intervene to support one side or the other in civil strife. EC In the end. investment. Inequality above moderate levels may. a low (long-run) oil price. to an ‘‘establishment’’ elite. ceding the ground to the World Bank. the interests of the rich and powerful should. 60 Other regional development banks and aid agencies have largely given up on statistics and research. and raise the incentive of unskilled people to seek illegal entry. enfeebling whatever norms of citizenship have emerged and preventing the transition from an ‘‘oligarchic’’ elite. But it remains an important global organization because it wields a disproportionate inﬂuence in setting the development agenda.3. objectively. Its statistics and development research are crucial to its legitimacy. education. the same is needed to get better data on poverty and inequality. and the WTO agreements on intellectual property rights. Norms of equality and democracy are being energetically internationalized by the Atlantic states. Polls show that more than two-thirds of respondents agree that there should be fewer ‘‘foreigners’’ living in their countries. predispose the elites to become more corrupt as they compare themselves to elites in rich countries.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 17 1359 1360 1361 1362 1363 1364 1365 1366 1367 1368 1369 1370 1371 1372 1373 1374 1375 1376 1377 1378 1379 1380 1381 1382 1383 1384 1385 1386 1387 1388 1389 1390 1391 1392 1393 1394 1395 1396 1397 1398 1399 1400 1401 1402 1403 1404 1405 1406 1407 1408 1409 1410 1411 1412 1413 deprived and perhaps angry. This ﬁts the neoliberal argument. for example. concerned to protect its position by being seen to operate fairly. in oﬀering an imprimatur of ‘‘sound ﬁnance’’ that crowds in other resources. 61 Keynes’ dictum on practical men and long-dead economists suggests that such intel- 1446 1447 1448 1449 1450 1451 1452 1453 1454 1455 1456 1457 1458 1459 1460 1461 1462 1463 1464 1465 1466 1467 UN CO .
Without this it would lose the support of the G7 states. or quit. Wolf (2000). above). and the ﬁgures make the oﬃcials.) To say otherwise is equally to deny that the Bank is aﬀected by the same pressures as the Fund. between increasing returns and decreasing returns or. ‘‘Oﬃcials make the ﬁgures. it must secure their support and defend itself against criticism. 62 It seeks to advance its broad market opening agenda not through coercion but mainly by establishing a sense that the agenda is right and ﬁtting. Certainly the simple endogenous model does not ﬁt the Bank. 1562 3. but the point also applies to variables used to make overall evaluations of the performance of multilateral economic organizations. with some good governance. The ‘‘exogenous’’ model says that the statistics are produced by professionals exercising their best judgment in the face of diﬃculties that have no optimal solutions. Mazur (2000). Above all. we have to go back to a distinction that has all but dropped out of development studies. but at least we are now ready to ask the right questions. especially by their membership in ‘‘epistemic communities’’ of professionals inside and outside the Bank. and fractions of developing country elites. but not wholly insulated.3. at the level of the whole. the increasing returns of the Matthew eﬀect––‘‘To him who hath shall be given’’––continues to dominate decreasing returns in the third wave of globalization. The trend is. 1514 1515 1516 1517 1518 1519 1520 1521 1522 1523 1524 1525 1526 1527 1528 1529 1530 1531 1532 1533 1534 1535 1536 1537 1538 1539 1540 1541 1542 1543 1544 1545 1546 1547 1548 1549 1550 1551 1552 1553 1554 1555 1556 1557 RR 1560 1. but nor does the other. DTD = 4. between positive and negative feedback mechanisms. about which a former Fund oﬃcial said. ﬁnancial opening. And it would help if the Bank’s ﬁgures on poverty and inequality made clearer than they do the possible biases and the likely margins of error.’’ 63 But little is known about the balance between autonomy and compliance in the two organizations. which provide a check. The central question is why. the senior managers expect them to help advance the tactical goals of the organization just like other staﬀ. CO (Charles Goodhart was thinking of monetary policy. Wall Street. and public policy responses. UNCTAD. the world growth rate may be closer to trendless. of course. only takes us to the starting point of an enquiry into the causes of the probable poverty and inequality trends.1 UN 1468 1469 1470 1471 1472 1473 1474 1475 1476 1477 1478 1479 1480 1481 1482 1483 1484 1485 1486 1487 1488 1489 1490 1491 1492 1493 1494 1495 1496 1497 1498 1499 1500 1501 1502 1503 1504 1505 1506 1507 1508 1509 1510 1511 1512 1513 lectual monopolization can have a hugely negative impact. privatization. The ‘‘endogenous’’ model says that the statistics are produced by staﬀ who act as agents of the senior managers (the principals). ‘‘The managing director makes the big decisions. more generally.WD 1514 29 January 2004 Disk used 18 ARTICLE IN PRESS WORLD DEVELOPMENT No. deregulation. who are managerially insulated from the overall tactical goals of the organization. it is exposed to arm-twisting by the G7 member states and international nongovernmental organizations (NGOs). and the staﬀ then puts together the numbers to justify them. which states that an indicator’s measurement will be distorted if it is used as a target. the opposite bias might be introduced). 65 their likely consequences. All this. To say otherwise is to deny that the Bank is subject to the Chinese proverb. The units of the Bank that produce the statistics are partly insulated from the resulting pressures.’’ or to Goodhart’s law. and these are more subject to Goodhart’s law. civil society and environmental protection thrown in. are produced only by the Bank. highly sensitive to the dollar’s strong depreciation in the 1970s and appreciation in the 1990s. International Monetary Fund (2003). however. say. The Bank should appoint an independent auditor to verify its main development statistics or cede the work to an independent agency. When this is allowed for. of Pages 23. Think of two models of a statistical organization that is part of a larger organization working on politically sensitive themes. and the statistics staﬀ therefore have to massage the data beyond the limits of professional integrity. Gowan (1999). Others. or the latitude of their statisticians to adjust the country numbers provided by colleagues elsewhere in the organization which they believe to be ﬁddled (as in the China case. EC TE NOTES D PR OO F 4. perhaps under UN auspices (but if done by. including the poverty numbers. 1561 2. The Bank is committed to an Oﬃcial View of how countries should seek poverty reduction. 64 Some of the Bank’s statistics are also provided by independent sources. rooted in the neoliberal agenda of trade opening. 1563 1564 1565 1566 1567 .
See Deaton (2003). which suﬀers from the same limitations as the $1/ 1598 day line. China. See also Ravallion (2003). as seen in the Human Resource department’s use of him as a ‘‘metric’’ for judging the stature of other economists. See Deaton (2002). 23. The Bank also calculates a poverty headcount with 1597 $2/day. The WIDER data set marries consumption from household surveys with consumption from national income accounts. 1608 1609 1610 1611 1612 1613 1614 1615 1616 1617 1618 1619 1620 1621 1622 1623 1624 1625 1626 1627 1628 1629 1630 1631 1632 1633 1634 1635 1636 1637 1638 1639 1640 1641 1642 1643 1644 1645 1646 1647 1648 1649 1650 1651 21. of Pages 23. p. 1599 13. In more concrete terms the number of hours of work it took for an entry-level adult male employee of McDonalds to earn the equivalent of one BigMac around 2000 ranged from: Holland/Australia/NZ/UK/ US.68 h. The 25–40% ﬁgure is Reddy and Pogge’s estimate. India. 7. See also World 1589 Bank (2002c). Mexico.53 h. former Australian Statistician. Chief economist Nick Stern gave one manager ‘‘special responsibility’’ for making sure the Bank’s poverty numbers were all ‘‘coherent’’ (Stern to research managers. Colombia. 2002. 1607 17. 1590 1591 1592 1593 1594 1595 11. Consequently the number of poor has declined by 200 million since 1980’’ (Dollar & Kraay. also Giddens. Reddy and Pogge (2003a). who claims that 1585 8. Philippines/Thailand. 25. according to the ECLA line. described by some as a leading social theorist of his generation (2002. 2001a). 51).66 h. 6. Meltzer later described the drop in the proportion of the world’s population in poverty from 28% in 1987 to 24% in 1998 as a ‘‘modest’’ decline. 21% (ECLA. It uses Stiglitz’s ﬁring and Kanbur’s resignation to illuminate the US role in the Bank’s generation of knowledge. and Reddy and Pogge (2003b). 125). and Ian Castles. The $1 a day is 1588 measured in purchasing power parity. 18. and for ‘‘all-food’’ and ‘‘bread-and-cereals’’ indices.’’ but rather an assertion of central control. 18%. Non-World Bank champions of the idea that globalization improves global income distribution include Martin Wolf of The Financial Times (Wolf. The new results were published in World Devel1606 opment Report 2000/2001 (World Bank. Hong Kong. Deaton (2001. 22. 2002).2. email. 28.26–0. Meltzer Commission (2000). 1. World Bank (2001b. 26. 1605 16. 2001b). 24. Reported in Deaton (2001). 1587 10. 3). 11%. Wolf. p.43–1. 2000.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No.32–2. 23%. p. This eﬀect is ampliﬁed by the widespread removal of price controls on ‘‘necessities’’ and the lowering of tariﬀs on luxuries. 1596 12. DTD = 4. 2001). 8 h. 0. In this paper I do not consider the additional problems that arise when estimating the impact of economic growth on poverty.96 h. 30). 0. 2.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 19 OO 1568 1569 1570 1571 1572 1573 1574 1575 1576 1577 1578 1579 1580 1581 1582 1583 1584 5.46 h. 2003a). 19. When reporters started contacting the Bank to ask why it was saying diﬀerent things about the poverty numbers––speciﬁcally why two papers on the Development Research Complex’s web site gave diﬀerent pictures of the trends––the response was not. 8%. and makes an allowance for (nonpublic sector) nonpriced goods and services. we let 100 ﬂowers bloom. source of the epigraph. Chile. the better to hammer the Bank (Meltzer. ‘‘We are a research complex. Dollar was ascendant not in terms of bureaucratic position but in terms of epistemic inﬂuence. See Reddy and Pogge (2003a). Also ‘‘[Since 1980] the most rapid growth has occurred in poor locations. I take this example from Pogge and Reddy (2003). Bolivia’s extreme poverty rate according to the World Bank line was 11%. Wolfensohn (2001). CO RR EC TE D PR F . I am indebted to Sanjay Reddy for discussions about the Bank’s poverty numbers (Reddy & Pogge. 2001a. 4%. 27. 1600 14. World Bank (2002a) and World Bank (2002b. 2001. World Bank (2002c). Malaysia/South Korea. 1586 9. 24%. 3. p. UN 1601 1602 1603 1604 15. p. Also. April 4.3. 2002b. 20. Gopinath (2002). See Wade (2002a). p. 128). 72). Purchasing power parity is a method of adjusting relative incomes in diﬀerent countries to take account of the fact that market exchange rates do not accurately reﬂect purchasing power––as in the common observation that poor Americans feel rich in India and rich Indians feel poor in the United States. the range reﬂecting calculations based on PPP conversion factors for 1985 and 1993.
‘‘The idea of using market exchange rates to calculate international inequality is unbelievably stupid. Wolf commented.WD 1514 29 January 2004 Disk used 20 ARTICLE IN PRESS WORLD DEVELOPMENT No. In addition to the studies referenced elsewhere I draw on: Firebaugh (1999). 39. which concluded unambiguously that using market exchange rates was wrong. not the earnings of people in work in the formal sector. Theil.’’ (Wolf.) Rawski estimates the growth rate since 2000 has been about half the oﬃcial rate. taking account of even just the obviously big and roughly measurable environmental 1684 31. ‘‘The work of Galbraith and his collaborators at Texas is essentially worthless for the purposes currently being discussed.8). 1699 1700 1701 1702 1703 1704 1705 1706 1707 1708 1709 1710 1711 1712 1713 1714 1715 1716 1717 1718 1719 1720 1721 1722 1723 1724 1725 1726 1727 1728 1729 1730 1731 1732 1733 1734 1735 1736 1737 1738 1739 1740 1741 1742 1743 37. including India and China. as the text explains. 41. ‘‘Here you argue that if we exclude China and India. This misconstrues my argument. UNDP (1999).edu. 34. tougher than those on ‘‘low-income’’ countries. DTD = 4. 1998: 64. p. 2000). F 1652 1653 1654 1655 ‘‘most studies suggest that the past 25 years have seen a reversal in the trend towards widening global inequalities which had been proceeding for two centuries’’ (Castles. Kanbur (2002). We are interested in people’s command over resources. His ﬁndings have been rejected in Milanovic (2002c) and Nye and Reddy (2003). 35.9 (1. Sala-i-Martin (2002) ﬁnds a drop in both extreme poverty and inequality.8). But why would one want to exclude two countries that contained about 60% of the world’s poorest people two decades ago and still contain almost 40% of the world’s population today? To fail to give these giants their due weight in a discussion of global poverty alleviation or UN CO RR EC TE D PR 36. Dowrick and Akmal (2001). Chinese government ﬁgures show total real GDP growth of 25% during 1997– 2000. Dikhanov and Ward (2003). the World Bank continues to use market exchange rates.2 (1. See Kynge (2002) and Rawski (2002). A reviewer comments. there is no obvious trend in inequality. The latter is transparently irrelevant in most of the poor countries of the world. In an earlier debate with Martin Wolf I wrongly said that the result depends on both China and India. See further Waldron (2002). to calculate the per capita incomes that it then uses to rank countries by their degree of development. Jones (1997). This is another example of the politics of statistics. The trend for the Theil coeﬃcient is similar (personal communication.1 OO 1656 1657 1658 1659 1660 1661 1662 1663 1664 1665 1666 1667 1668 1669 1670 1671 1672 1673 1674 1675 1676 1677 1678 1679 1680 1681 1682 1683 29. 1686 1687 1688 1689 1690 1691 1692 1693 1694 1695 1696 1697 1698 33. 2002a). 38. June 9. Also. Pritchett (1997).utexas. Dikhanov and Ward (2003). Member countries’ voting shares in the Bank are based largely on their Fund quotas. Businesses making exporting and FDI decisions (auto makers. 2003). for example) pay more attention to relative incomes at market exchange rates than to PPP incomes. whereas energy consumption ﬁgures show a drop of 13% (not all of which is likely to be due to replacement of ineﬃcient coal-ﬁred furnaces.’’ But. 1993: 65. In addition. the dispersion of growth rates as the standard deviation. http:// utip. income distribution would be Hamlet without the princ. The dispersion of per capita GDP/PPP is measured as the average logarithmic deviation.3. and it is amazing that it still makes an appearance here.gov. which in turn are based largely on relative GDP at market exchange rates. Galbraith (2002). and hence as a criterion for its lending decisions. This is the answer to a reviewer’s remark. See the work of James Galbraith and collaborators in the University of Texas Inequality Project. .9). and the variance of log income. So the Bank’s practice does imply that it thinks that relative per capita incomes calculated through market exchange rates are meaningful proxies for well-being (and the practice has the beneﬁt of holding down the voting share of developing countries). of Pages 23. 1685 32. adjusted by the ‘‘Atlas’’ methodology.’’ 40. World Bank sources who request anonymity. Milanovic’s (2002a) preliminary analysis of 1998 data and an associated reworking of 1988 and 1993 data has produced the following Gini coeﬃcients (and standard deviations): 1988: 61. Quah (1997). 30. 85). As another example from Rawski’s analysis. incomes converted at market exchange rates do give meaningful measures of international purchasing power. Moreover. ECLA (2002. During negotiations for China’s joining the WTO Chinese economists argued against the insistence of the United States and other rich countries that its average income be expressed in terms of purchasing power party––and hence that China should be under the same obligations as ‘‘middle-income’’ countries. 2001). Korzeniewicz and Moran (1997. They ﬁnd that world inequality increased over 1980–93 using Gini. Milanovic (2002b).2 (1. 42. coeﬃcient of variation. The UN had a commission of enquiry on this.
(2003). G. & Brewer. Wade (2003b. 1763 47. Letter to The Economist. B. A. Evidence for rising inequality in India over the past two decades is set out in Jha (2000). emphasis added). the growth of a new Hong Kong within China (one whose average income is exaggerated because nonpermanent residents are not included in its population). 64. Globalization and the quality of 1810 government. (2001). T. Chicago. Besley (2002).. The World Bank Research Observer. For these points I thank Andrew Fischer.’’ and that consumption by the poor did not rise as fast as average consumption (Deaton. T. DTD = 4. NBER TE 60.htm. But these ﬁgures take Shanghai as the richest province. 1809 Besley. 1764 48. Some sources give ratios of 7:1 in the early 1990s to 11:1 in the late 1990s. (2002). 125–147. A. March. and Loayza (1998) and Freeman (1996).org/external/pubs/ft/fandd/2002/06/deaton. Gopinath (1999). R. Development Studies Institute. accelerating steadily from 2. Fajnzylber. 1775 1776 F OO 54.WD 1514 29 January 2004 Disk used ARTICLE IN PRESS No. 1746 1747 1748 1749 1750 1751 1752 1753 1754 1755 1756 1757 1758 1759 1760 43.9% in the 1970s to 5% through the 1990s’’ (World Bank. of Pages 23. Deaton agrees that inequality in India has been increasing ‘‘in recent years. Babones (2002). Deaton. 2003c). RR 1767 50. 52. 1806 Babones. Krugman (2002). Wade (2003a ). (2001). Milanovic (2002b). by 5%. and more speciﬁcally. Measuring poverty in a growing world (or measuring growth in a poor world). 1745 India’s. 65. p. (2003). 62. & Burgess. Lee and Bankston (1999). Hsieh and Pugh (1993). Economics Department. 2001).3. S. In 97th annual meeting of the American 1808 Sociological Association. A. the Ômore globalized’ developing countries started to growth rapidly. 1765 49. but their boss ignored their objections. 1770 1771 1772 1773 1774 CO 51. Industrial 1803 convergence.imf. 63. Counting the world’s poor: problems and possible solutions. 57. 3–22. World Bank (2002c).. See Hommann and Brandon (1995). corruption. Halving world poverty. Journal of Economic Perspectives. Besley uses indicators such as press 1768 freedom. 2002c. PhD candidate. 1761 45. 3–31. 1802 Arrighi.1 IS GLOBALIZATION REDUCING POVERTY AND INEQUALITY? 21 1744 costs lowers China’s oﬃcial GDP by roughly 8%. LSE. Milanovic ﬁnds that in countries below the average income of about $PPP 5. 16(2). For a good example of a heterodox book from a corner of the UN system. 39(2). Available: http://www. civil 1769 rights. Wade (2003d). 36. Kapur (2002). see UNDP (2003).000. 1777 1778 1779 1780 1781 1782 1783 1784 1785 1786 1787 1788 1789 1790 1791 1792 1793 1794 1795 1796 1797 1798 1799 1800 56. democratic accountability. Rodrik (1999). With Shanghai province ¼ city as the numerator the ratio reﬂects not only regional disparity but also rural-urban disparity. 1807 1960–1999. Cf. For discussion of causes see Wade (2002b. PR 1812 1813 1814 1815 1816 1817 1818 1819 1820 1821 1822 . 44. ‘‘As they reformed and integrated with the world market. 55. 53. D 58. Deaton. in press). (2002). Silver. Key experts in the relevant statistical unit thought that colleagues had ﬁddled the China income numbers reported in Table 4. Quoted in George (1997). Castles. Deaton. Lederman. 1762 46. Is world poverty falling? Finance and Development. 17(3). Demeny (2003). In this Section 1 draw on the arguments of Rodrik 1766 (1999. May 26. I. higher levels of openness (imports plus exports/GDP) are associated with lower income shares of the bottom 80% of the population. Studies in Comparative Interna1805 tional Development. 34. Dikhanov and Ward (2003). UN EC 1801 REFERENCES Besley. 59. Besley and Burgess (2003). globalization and the persistence of the 1804 North–South divide. 1811 London School of Economics. 38(1). Manuscript. (2002). 61. (2003). B. The structure of the world-economy.. 2002). The WTO lobbied to prevent its publication.
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