Banking & finance

Globalization is narrowing the poverty gap

  • 27 January 2003

Far from widening the gap between rich and poor, globalization has helped to bring about unprecedented improvements in the living conditions of many of the world's poorest people, ICC economic analysts report.

An ICC paper quotes new research as showing that “contrary to popular belief, it is precisely during the recent period of increased globalization of the world economy that poverty rates and global income inequality have most diminished”.

Entitled New facts on globalization, poverty and income distribution, the ICC paper takes the United Nations Development Programme (UNDP) to task for highlighting failures to reduce world poverty in its annual reports and downplaying improvements.

The paper points out that, according to World Bank researchers, Indonesia, Bangladesh, Uganda and Vietnam have all succeeded in sharply reducing poverty over the last decade. The latest UN report on Africa says that since 1970, the proportion of people living on less than a dollar a day decreased in 13 African countries. Most African countries achieved economic growth of 3% in 2001 – although from a very low base.

“Global integration is crucial for the recovery of African countries. Globalization must therefore not be seen as a threat to welfare but rather as an opportunity to achieve higher economic growth and rising incomes.”

The ICC paper says that UNDP’s Human Development Report 1999 – widely cited by anti-globalization activists – used faulty methodology and took an unduly pessimistic view of recent globalization and its consequences, claiming that the process is concentrating power and marginalizing the poor.

ICC goes on to cite Professor Xavier Sala-i-Martin of Columbia University, who has observed that the UNDP report computed its poverty ratios using current exchange rates, ignoring the lower cost of living in developing countries.

Once these figures have been adjusted for purchasing power parity, Prof. Sala-I-Martin finds that the poverty ratio of the richest 20% to the poorest 20% has actually started to diminish over the last two decades.

Quoting several different authorities, ICC says their evidence shows that overall, quality of life has improved in the developing world.

According to the Australian Department of Foreign Affairs and Trade, the number of undernourished people in the world has been reduced from 920 million in 1970 to 810 million today. A study for the Brookings Institution, the Washington think-tank, shows that life expectancy has been rising almost everywhere in the world. Giving a specific example, the World Bank reports a doubling of school enrollments in Uganda during the 1990s.

The ICC paper notes that another authority, Arne Melchior, from the Norwegian Institute of International Affairs, has warned against reaching quick conclusions about inequality between countries.

Mr Melchior says that, while many poor countries, especially in Africa, have experienced falling income in recent years, a significant number of poor countries, among them India and China, have grown faster than the richest group of nations.

When weighted by population, the measure of income inequality shows that many developing countries are actually converging towards the richest countries’ living standards.

The author of the ICC analysis, Julian Kassum, commented: “Nobody should play down the poverty that afflicts so much of the developing world. But it is important to see the whole picture and to realize that global economic integration has brought a substantial narrowing of the gap between rich and poor during the last two decade.”

Living standards and not income were the yardstick by which progress should be judged, the ICC expert said, adding that progress was far from universal. Many developing countries, especially in Africa, had been unable to reduce poverty and inequality over the past two decade.

Mr Kassum added: “The record shows that those developing countries that have most successfully integrated into the global economy have made the most rapid progress. Those that have been marginalized as a result of war or bad government are invariably the ones that have been left behind.”