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The Greatest Story Never Told
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| By Nick
Schulz |
06/14/2002
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| What is the biggest story
of the last generation? The question is not a simple one to answer.
After all, the last two decades have seen significant and in some
ways entirely unprecedented global changes: The fall of the Berlin
Wall and the collapse of communism; the information and
biotechnological revolutions; the emergence of Islamo-fascism with a
global scope; and, to some who share Al Gore's dismal view of the
world, the big story is how man is destroying the planet.
The right answer,
though, is: "The emergence of a world middle class." This
development -- the extraordinary increase in wealth and relative
economic equality across the board and around the world -- is the
unsung story of the last 20 years. (The influential academic Denis Dutton scratched the surface of this answer
two years ago; new evidence confirms his earlier points and broadens
the scope).
We often hear that the rich are getting richer
and the poor are getting poorer. And through some periods of history
and in some places that's been true. But in the last two decades,
not only are the rich getting richer, but the poor around the world
have become richer, too -- in some ways almost miraculously so.
In the last thirty years, the global poverty rate has
dropped, meaning there are fewer poor people around the world as a
percentage of the world population. Amazingly, the poverty "head
count" has dropped, too -- 235 million fewer people are living below
the poverty level today than there were in the early 1970s, even
though the global population has increased by well over a billion
people since that time.
Inequality: Past, Present,
Future
Still, some might complain that it's not enough
that the poor are getting richer, or that there are fewer of them,
because the rich are getting so much richer. Income inequality, they
say, is getting worse, creating social frictions among classes and
offending our collective sense of social justice.
Only this,
too, is not true, as we find in an important new paper
published for the National Bureau of Economic Research from Columbia
University economist Xavier Sala-i-Martin. Of some nine different
measurements of global income inequality, all demonstrate
that global inequality lessened over the last generation.
It
is these developments -- a decreasing global poverty rate,
decreasing absolute numbers of poor people, and decreasing global
inequality -- that have helped give rise to what Sala-i-Martin calls
a "world middle class."
In the 1970s, such as class didn't
exist: The distribution of income around the globe then was
characterized by what economists call a "bimodality." What that
means is that if global income distribution were mapped on a
statistical grid, some 30 years ago there would be a "hump" curve
distribution of poor people, and then another hump curve
distribution of richer people (albeit not nearly as large in
number). But the last 30 years - especially the period of the '80s
and '90s -- have seen that bimodality vanish. Now there is a single,
large, gradual "hump" through the statistical middle -- a global
middle class.
Now, the Bad News
The growth
and increasing prosperity of the '80s and '90s should give pause to
the various critics of globalization, from Nobel prize winning
economist Joseph Stiglitz to the post-pubescent protesters
at global confabs. Indeed, the one exception to this global good
news of economic growth producing greater equality -- Africa --
substantially undermines their protests against globalization.
The last 30 years have been a disaster for Africa. In 1970,
76% of the world's poor lived in Asia and only 11% lived in Africa.
Today, those two continents have switched places -- 66% of the
world's poor live in Africa while only 15% live in Asia. These
differences are due almost entirely to the different growth paths
each region took. Asia rode a wave of export-led growth in an
increasingly globalized world to stunning economic progress, while
Africa's economy tragically shrunk.
These sad facts have led
Sala-i-Martin to conclude, rightly, that figuring out how to turn
around the growth performance of Africa is "the most important
question in economics." Where might we want to look -- and, more
importantly, not look -- for answers to the problems Africa faces?
It's Growth, Stupid
Let's return to the
question of income inequality. Many liberal economists have fretted over economic
growth, fearing it will exacerbate income inequality; while many
libertarian economists and others have argued that economic growth
doesn't lead to greater inequality -- and even if it did, what
matters most is that the least well-off in society benefit from the
growth.
Depending on where you look, there's evidence to
support your position. For example, economic growth in China has
been enormous over the last 30 years, but income inequality has
worsened. This example suggests that economic growth and rising
income inequality go together.
But consider Indonesia. An
extraordinarily poor country in 1970, Indonesia experienced strong
economic growth for three decades eliminating poverty in remarkable
fashion. But income inequality lessened over that same
period, undermining the supposed link between growth and rising
inequality.
And consider the case of Nigeria where since the
1970s the rich did indeed get richer while the poor got much, much
poorer all while Nigeria's economy contracted significantly.
What these examples suggest is that politicians,
bureaucrats, and policy makers concerned about the welfare of least
well-off members of society should concern themselves primarily with
creating and fostering the conditions necessary for economic growth.
Worrying about income inequality should be a
secondary concern, if it is a concern at all. Why? Because only
societies experiencing strong economic growth can lift the poor out
of a life that is all too often nasty, brutish and short.
The Role of Technology
Technology fits into
this picture in an interesting way. While there needs to be much
more economic research done before any conclusions can be drawn,
some have argued that technological advances (and globalization)
exacerbate income inequality in part because the better-educated and
already well-to-do are uniquely poised to benefit.
Naturally
enough, no one likes scenarios where the rich do a whole lot better
than the not-rich. But experience shows that such concerns should be
irrelevant. Economic growth and technological progress -- regardless
of their effect on income inequality -- are the only hopes
for the world's poor.
Proponents of so-called "sustainable
development" as well as opponents of globalization would do well to
bear in mind the singular importance of growth. A first step would
be for them to absorb Xavier Sala-i-Martin's ground-breaking
research. If they do, rather than setting up blockades to growth in
the name of preventing inequality, they might work to spread
technology and knowledge in ways that spur an even larger global
middle class.
URL Next Door -- Much of the data used
for this piece came from the research of Xavier Sala-i-Martin whose
vanity home page is this week's URL next door. An
interesting trend since the advent of easily programmable web pages
has been the proliferation of individual academics' sites. His is
the best I've seen so far of the interesting quirky, entertaining,
informative, and weird web pages built and maintained by scholars.
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