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Thursday, November 14, 2002

Click here for past Steve Masson, Portfolio Manager – Altamira Science & Technology Team articles

Steve Waite's Vitamin B: Global Wealth and Poverty
By: Steve Masson, Portfolio Manager – Altamira Science & Technology Team

In our book, Boomernomics, we argued that globalization was likely to be a powerful economic force in the 21st century. We noted that innovative forms of information and communications technologies were dramatically lowering the cost of doing business globally. Companies such as General Electric, Dell, General Motors, and others could produce as efficiently, and sometimes more efficiently, out of India or China as they could in Indiana or Colorado. As globalization increased, we argued, so too would the level of wealth and living standards around the world.

Since the publication of our book in 1998, globalization has received a lot of bad press. Apparently, many folks feel that globalization is the root cause of increasing poverty, a widening gap between rich and poor, injustice, and terrorism. Federal Reserve chairman Alan Greenspan noted last year that anti-globalization protestors were, as he put it, “wrong headed.” Greenspan’s view on globalization is supported by a recent, comprehensive study on global income inequality by Columbia University professor Xavier Sala-i-Martin.

In his study, Professor Sala-i-Martin notes that the “dramatic” and “disturbing rise” in income inequality during the globalization period that is often discussed in the media is nowhere to be seen. On the contrary, he notes, income disparities during the last two decades have declined substantially. The reduction in global income inequality can be fully accounted for by the decline in across-income inequalities. A substantial part of the story—although not the entire story—has been the important growth rates experienced by the incomes of 1.2 billion Chinese individuals (economic reforms in China, which involve dismantling communist-based policies, appear to be paying dividends).

According to Professor Sala-i-Martin, a careful and close examination of the data on incomes around the world over the past thirty years shows the emergence of what he calls “a new world middle class.” This middle class is comprised of around 2.5 billion people in the developing world whose standard of living are approaching those of more developed countries in the West.

Sala-i-Martin points out that poverty rates and poverty headcounts have both declined dramatically in the world over the past couple of decades. The one-dollar-a-day poverty rate fell from 20 percent in 1970 to 5 percent in 1998. The two-dollar rate fell from 44 percent to 8 percent. Meanwhile, poverty headcounts have declined substantially: There were close to 400 million less poor in 1998 than there were in the 1970s.

The truth is, globalization is not a zero sum game--it’s a positive sum game. Globalization is the tide that has the potential to lift all boats. Professor Sala-I-Martin’s study supports this statement. To drive the point home, consider this: The fastest route to global poverty and economic depression is through policies that shut down world trade and reverse globalization. That was the lesson of the 1930s (if you need a refresher course on this lesson, we recommend picking up a copy of Charles Kindleberger’s excellent book “The World In Depression”).

Why policy makers would want to risk reliving those awful, war-plagued, depression years by turning back the clock on globalization is beyond our comprehension.

Click here for past Steve Masson, Portfolio Manager – Altamira Science & Technology Team articles



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