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Steve Waite's
Vitamin B: Global Wealth and Poverty
By: Steve
Masson, Portfolio Manager – Altamira Science & Technology
Team
24-Sep-2002
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.
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