From Virginia Postrel's latest NY Times column, Professor Sala-i-Martin gets to an important point about economic development and income inequality:

One would like to think that it is unambiguously good that more than a third of the poorest citizens see their incomes grow and converge to the levels enjoyed by the richest people in the world. And if our indexes say that inequality rises, then rising inequality must be good, and we should not worry about it!

According to Professor Sala-i-Martin, as long as all strata are getting richer, who really cares if the rich are becoming more better off?

This point is vital to any discussion about the supposed need for government to tax the well off just so it can redistribute it to those not so well off. Economic growth isn't a zero sum game. There isn't one big apple pie and if the rich take a big slice, then that's so much less left for the poor. No, economic growth is when people better meet the wants and needs of others. Intel will come up with a new microprocessor that doubles the speed of their current chips. They will sell the chip at the same price as they initially sold the slower chip. If I buy that chip for my computer (assuming all things being equal), I'm better off because I have a faster machine to post interesting thoughts and download porn--I mean pictures of GOP babes. Intel's better off because they got the money from my chip purchase. We both benefited and are better off. Now, someone with little understanding of exchange could see the transaction as only benefiting Intel, because the Silicon Valley behemoth ended up with a few hundred dollars that was once sitting in my pocket. What that person misses is the little piece of silicon I got in return for the money I gave Intel. I think I'm better off with the chip than without, and Intel thinks they're better off with my money than without. We're both subjectively better off than before, or we wouldn't have entered into the exchange.

Next, this must be applied to globalization. Noam Chomsky and just about anyone who's written for IndyMedia think poor nations are being exploited by multi-national corporations. Workers in Third World nations toil in sweatshops while Americans get cheap khakis at The Gap or cheap trinkets in gas stations. But here's the dirty little secret: those workers want to work for them. For them, $2 a day is a lot better than the 25-cents they were earning plodding around in a rice paddy or digging a ditch. Sewing together a pair of wrinkle-resistant Dockers sure beats unemployment. Are these the greatest jobs in the world? Nope, not by a long shot. The hours are long, and the work is hard and sometimes dangerous. But what it is is a start to further economic development. No matter how much foreign aid is pumped into a place like Nigeria, an Intel microchip fabrication plan will not spout up and offer high five-figure engineering salaries. The most valuable resource developing countries have is cheap labor. In time, that labor pool will benefit from the knowledge and business practices of their multi-national benefactors, and they will move on to making more valuable goods and services.

An example of this is Taiwan. For years, they were used as sources of cheap labor. Many of my toys were stamped with "Made in Taiwan." As the Taiwanese economy has developed, they've moved into more technical areas. Many of the world's memory chips are produced there as well as durable goods (Dell notebook computers and HP printers) made by contractors. It's now at the point where business are moving their operations from developed countries like Taiwan to countries like Vietnam and Thailand where the labor's cheaper. Sure, people are displaced, but countries like Taiwan are better off from the international investment. The multi-national corporations are better off, but developing countries are too. The rich win; the poor win. It's a win-win and a good thing.

"The Rich Get Rich and Poor Get Poorer. Or Do They?" [via Right Wing News]

Sean Hackbarth |