Globalization: Bad Rap, Rich Rewards?
By Mark L. Clifford
The poor shall always be with us, cautions the Bible. Maybe not, argues Indian economist and former World Bank staffer Surjit S. Bhalla in a provocative new book, Imagine There's No Country: Poverty, Inequality and Growth in the Era of Globalization, which was published late last year by the Institute for International Economics, a highly regarded Washington think tank. That's a mouthful of a title, but the book is a must-read for anyone seriously interested in the debate about whether globalization is good for the poor -- or if the collapsing of borders has added to the misery of those at the bottom of the economic heap while enriching the relatively well-to-do.
Antiglobalization advocates claim that the free-market, pro-globalization policies of the past two decades have made the world worse for the poor. Even the World Bank has joined in the fray, professing concern that the number of people in poverty has fallen only slowly.
Look again, urges Bhalla. He contends that the past 20 years have been a time of "fantastic" opportunity for the world's poorest people. Poverty has fallen at the fastest rate in history. Average annual growth in developing countries has been almost double that of the industrialized world -- 3.1% vs. 1.6%. For each 10% rise in consumption by the nonpoor, consumption by poor people rose 18%.
Indeed, Bhalla convincingly shows that the global target of cutting the ranks of the world's poor -- those living on $1 a day or less -- to 15% by 2015 has already been reached. Writes Bhalla: "The globalization period has been the golden age of development."
At the same time, and very much contrary to conventional wisdom, global inequality has also fallen sharply. By 2000, Bhalla says global inequality was it lowest level in 50 years. By the end of this decade it's likely to be the same as that of a century ago.
It's not all a rosy picture. The number of poor in Africa has risen sharply, offsetting some gains in Asia. Bhalla doesn't think the world should ignore places that have fallen behind. Indeed, he wants to ratchet up the definition of poverty from $1 a day to $2 and put more focus on the people who are truly poor. But he doesn't want to tinker with a globalization formula that demonstrably works.
The big gains in poverty reduction have come in China and India. That makes sense, because they're the world's two most populous countries. But both, on the surface, pursued quite different policies. India has pursued a slower, more democratic path. China has followed a top-down, authoritarian model. But both have moved dramatically toward more market-based economies.
To get his results, Bhalla used the same data as the World Bank but sliced it in radically detailed ways. Much of the book is taken up with the complexities of this exercise. But that's not to say that the subject matter is dry. He's out to single-handedly demolish the poverty lords.
In a nutshell, he contends that the World Bank has mishandled the data. It has mixed survey data with overall national-accounts, sort of like trying to give the same value to potatoes and oysters. And it has used what Bhalla attacks as an untested and unverifiable version of the Purchasing Power Parity index, which aims to smooth out differences in development levels and exchange rates. Bhalla also contends that the World Bank is moving toward less-reliable survey data.
The results are startling. Bhalla's data may have some hole that isn't obvious, but if he's right, his argument has significant implications. His findings are certainly worth debating.
The most important implication, if Bhalla is right, is that the pro-market policies of the last 20 years are working just fine. It's an illusion to look for policies that will be more pro-poor, because no formula in history has ever been more pro-poor. In essence, he's saying the search for an elusive Third Way of global development that lifts all the fortunes of the poor can be abandoned because it has already been found.
Clifford is Hong Kong bureau chief for BusinessWeek. Follow his China Journal column every week, only on BW Online
Edited by Douglas Harbrecht