By Christopher Farrell
Is the spread of capitalism unleashing prospects for vast gains in material wealth in the developing world? Proponents of globalization, including this columnist, point to the benefits from the huge increases in global trade and international investment over the past decade. For instance, China and India, which together accounted for more than 40% of the global economy in the early 1800s, are rapidly reclaiming a major stake in world commerce.
From the Internet to cell phones, the Information Revolution is taking deep root in many emerging markets. Perhaps the most telling observation comes from Jagdish Bhagwati, an economist at Columbia University: China and India pursued autarchic economic policies from 1950 to 1980. Both economies suffered from weak growth, and their poverty rates in 1978 were 28% ands 51%, respectively. China and India then increased their integration into the world economy, growth picked up, and toward the end of the 20th century poverty rates had plunged to 9% in China and 27% in India.
Still, many people see the global economy as a force for wrong. Yes, the economic gains are stunning, the critics say, but they're largely going to a handful of multinational corporations headquartered in the major industrial nations and to corrupt local plutocrats. Globalization is little more than a Darwinian crushing of worker aspirations, the trampling of cultural traditions and time-honored ways of doing business, a brutal process that leaves millions with less security and income than before.
The economies of the Middle East have shrunk, much of Africa is torn by civil war, and a disappointed Latin America is abandoning a decade-long experiment with market-oriented reform. The income gap between rich and poor societies is widening, not narrowing. "The real world is one of rising inequality and -- outside China and India -- zero per capita growth," said University of Texas economist James Galbraith in a recent lecture at Tufts University."
Cutting through this debate is hardly simple. And there's no one "developing" world. The experience of the emerging markets of East Asia and Southern Africa has been vastly different, for instance. Still, a growing body of empirical evidence suggests that trade promotes growth and growth reduces poverty.
That notion seems to inform the latest reading of global attitudes by the Pew Research Center for the People & the Press. It shows that most people in the 44 countries surveyed favor the free-market model and representative democracy. And a recent economic study suggests one reason for the surprisingly widespread support: The gains in the developing world may have been much larger than the picture painted by traditional income measures.
A classic sign of a better economy and society is improvements in longevity. Americans have been living longer, healthier lives, reflecting gains in public health and medical care, as well as higher levels of education. One study recently figured that the average annual change in life expectancy in the U.S. from 1970 to 1990 had an aggregate value of $2.8 trillion.
In The Quantity and Quality of Life and the Evolution of World Inequality, economists Gary S. Becker (also a BusinessWeek columnist), Rodrigo R. Soares, and Tomas J. Philipson decided to add changes in longevity to their income and inequality equation. They discovered that over the past 50 years, developing countries that started with modest longevity levels experienced substantial life-expectancy gains far greater than wealthy countries with their already-high longevity levels. Adding together per capita income and the monetized value of longevity, their longevity-adjusted income measure grew at a 192% average rate from 1965 to 1995, vs. a 140% pace for developed countries. World inequality by this metric is narrowing.
The freer flow of ideas, money, technology, and people that defines the global economy played a vital role in the progress in life expectancy in poorer countries. The authors surmise that reduced mortality from infections, digestive diseases, and congenital conditions resulted from developing nations absorbing public-health knowledge and borrowing medical advances from richer countries at a fairly low cost. The gains in the richer countries mainly stemmed from medical breakthroughs on the frontiers of technology.
Globalization is largely a story of two steps forward for every step back. But it's heartening that by at least one important measure there world inequality between the industrial nations and the developing world may have narrowed over the past three decades or so.
Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over Minnesota Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BusinessWeek Online
Edited by Beth Belton