MARSHALL LOEB
Narrowing the gulf between rich and poor
Commentary: Globalization promotes economic equality
By Marshall Loeb, CBS.MarketWatch.com
Last Update: 12:03 AM ET Jan. 14, 2002
NEW YORK (CBS.MW) - The protesters will be out in force once again when more than 1,500 of the world's top business people, politicians, academics and journalists gather at the annual meeting of the World Economic Forum in New York at the end of January.
They will be the same odd amalgam of left-leaning ideologues, trade protectionists and even some violent anarchists, all of whom have created havoc lately at international conferences from Seattle to Genoa to Quebec City. What unites them is a passionate aversion to globalization, and to the rapid spread of freedom in international trade and economic policy.
Globalization, they charge, is widening the gulf between the world's haves and have-nots, and helping the rich but often hurting the poor.
But these knee-jerk accusations are nonsense, argue some impressive economists in the January-February issue of Foreign Affairs, the bimonthly published by the influential Council on Foreign Relations.
In one essay, David Dollar and Art Kraay of the World Bank, declare that "the current wave of globalization, which started around 1980, has actually promoted economic equality and reduced poverty. Greater openness to international trade and investment has in fact helped to narrow the gap between rich countries and poor countries instead of widen it"
That greater openness also has speeded up economic growth and vastly expanded human productivity. In countries that have seen fast increases in international trade and investment, per capita growth has surged -- from an annual average 1 percent in the 1960s to 3 percent in the 1970s, 4 percent in the 1980s and 5 percent now.
By sharp contrast, in "non-globalizing" countries where trade has been protected and has stagnated, growth has slumped from 3 percent in the 1970s to 1 percent in the 1980s and 1990s. And these countries are falling further and further behind.
Power of globalization
Best example of the power of globalization: "China has seen the most spectacular reduction of poverty in world history -- which was supported by opening its economy to foreign trade and investment."
In fact, global inequality has declined since the mid-1970s, largely because growth in China and India -- stimulated by foreign trade -- began to accelerate. For the same reasons, the number of poor people in the world has declined by 200 million.
A key part of China's economic reform and super-charged growth since the 1980s, write Dollar and Kraay, "has involved opening up trade and investment, including a drop in its tariff rates by two-thirds and its non-tariff barriers by even more."
India also has liberalized foreign trade and investment and moved away from a highly regulated, planned system. Its per capita income growth now tops 4 percent a year.
"Meanwhile, Uganda and Vietnam are the best examples of very low-income countries that have increased their participation in trade and investment and prospered as a result. (As Vietnam has opened up its economy, the number of Vietnamese living in absolute poverty has dropped from 75 percent of the population in 1988 to 37 percent in 1998.) Mexico is noteworthy for signing its free trade agreement (NAFTA) with the United States in 1993 and for its rapid growth since then."
Social progress
In the same issue of Foreign Affairs, the eminent economist Jagdish Bhagwati of Columbia University argues persuasively that globalization often is a major force, not only for economic advance, but also for social progress.
Take multinational corporations, which the enemies of globalization often see as the far-ranging B52s of capitalism:
"Have they hurt women, as some claim? Japanese multinationals, as they spread throughout the world during the years of Japanese prosperity, took Japanese men with them. But these men also brought their wives: to New York, Paris, London and other cities in the West, where Japanese housewives saw for themselves how women could lead a better life. This experience transformed many of these women into feminist agents of change.
"Meanwhile, as the economists Elizabeth Brainerd and Sandra Black have shown, wage differentials against women have decreased faster in industries that compete internationally, for such industries simply cannot afford to indulge their biases in favor of men."
Bhagwati believes that globalization will have many other favorable social impacts. "Child labor, for example, will certainly diminish over time as growth occurs. In this sense, globalization is part of the solution, not the problem."
Marshall Loeb, former editor of Fortune, Money, and The Columbia Journalism Review, writes "Your Dollars" exclusively for CBS.MarketWatch.com.
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