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Monday, July 22, 2002


The jury is still out on this topic - a topic which is not to be confused with that of whether, even after taking account of the winners and losers, we are collectivy better of thanks to globalisation (see below). Xavier Sala i Martin has just come out with a new set of arguments explaining what those of us who had been watching India and China recently already suspected: taken across the world popluation as a whole inequality is declining (at least on some measures). This is because, although within country inequality seems to be growing (though not everywhere and not all the time), and though between country inequality is growing if we count each individual country as one unit, if we take account of population size in fact per capita inequality is reducing since some very populous countries (namely China and India) are closing the gap with the richest group, and quickly. So the real problem is to discover why the countries who are not closing the gap down are failing to do so, a lot of human suffering could be avoided if more attention was paid to this topic and less to the sterile ideological debate about globalisation, which is, after all a reality - if it wasn't, you wouldn't be reading this in a frontierless, decentralised internet.

Mr Sala-i-Martin explains. Imagine that five-sixths of the world's population live in poor and stagnant economies, and one-sixth in rich fast-growing ones. In across-country terms, this gives you “divergence, big time”. Now imagine that one poor but very populous economy starts to grow very quickly. At the same time, inequality within this country worsens somewhat.Despite its size, this country is only one data-point in the across-country comparisons: its rapid growth is not enough to make any difference to divergence. So you have rising within-country inequality and rising across-country inequality. Yet one-sixth of the world's population, by assumption, is seeing its incomes rise rapidly towards those of the rich. Inequality measured across all the people of the world, therefore, may very well be falling.

For those more interested in relieving poverty than in narrowing the gaps between rich and poor, the results from the estimated distribution are equally pleasing: the proportion of people living on less than a dollar a day fell from 20% in 1970 to 5% in 1998; the proportion living on less than two dollars a day fell from 44% to 8%. The headcount of poverty worldwide has fallen by some 400m.The only bad news is that, after the respite provided recently by surging globalisation, inequality may well resume its long-term historical trend and start rising again in due course. The reason is that China and India will no longer be poor—and if the world's poorest countries, mainly in Africa, continue to stagnate, the global dispersion of incomes will widen. Whether the main problem here is African poverty or global inequality (caused by China and India leaving poverty behind) is one for the UN's economists to think about.
Source: The Economist LINK

So back to the begining. Are we better off as a result of globalisation? It depends whether your criteria is collective wellbeing, or reducing inequality: remember we could all be poor and equal, but would that be better?

You can download a version of the Sala i Martin paper in PDF format HERE

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