Rx for Global Poverty
Why globalization can enrich everyone.
What's the world's greatest moral challenge, as judged by its capacity to inflict human tragedy? It is not, I think, global warming, whose effects -- if they become as grim as predicted -- will occur over many years and provide societies time to adapt. A case can be made for preventing nuclear proliferation, which threatens untold deaths and a collapse of the world economy. But the most urgent present moral challenge, I submit, is the most obvious: global poverty.
There are roughly 6 billion people on the planet; in 2004, perhaps 2.5 billion survived on $2 a day or less, says the World Bank. By 2050, the world may have 3 billion more people; many will be similarly impoverished. What's baffling and frustrating about extreme poverty is that much of the world has eliminated it. In 1800, almost everyone was desperately poor. But the developed world has essentially abolished starvation, homelessness and material deprivation.
The solution to being poor is getting rich. It's economic growth. We know this. The mystery is why all societies have not adopted the obvious remedies. Just recently, the 21-member Commission on Growth and Development -- including two Nobel-prize winning economists, former prime ministers of South Korea and Peru, and a former president of Mexico -- examined the puzzle.
Since 1950, the panel found, 13 economies have grown at an average annual rate of 7 percent for at least 25 years. These were: Botswana, Brazil, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand. Some gains are astonishing. From 1960 to 2005, per capita income in South Korea rose from $1,100 to $13,200. Other societies started from such low levels that even rapid economic growth, combined with larger populations, left sizable poverty. In 2005, Indonesia's per capita income averaged just $900, up from $200 in 1966.
Still, all these economies had advanced substantially. The panel identified five common elements of success:
- Openness to global trade and, usually, an eagerness to attract foreign investment.
- Political stability and "capable" governments "committed" to economic growth, though not necessarily democracy (China, South Korea and Indonesia all grew with authoritarian regimes).
- High rates of saving and investment, usually at least 25 percent of national income.
- Economic stability, keeping government budgets and inflation under control and avoiding a broad collapse in production.
- A willingness to "let markets allocate resources," meaning that governments didn't try to run industry.
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Member Comments
Posted By: tc125231 @ 05/29/2008 11:43:13 PM
Comment: Just to take a slightly different angle on why this column is drivel, let' us try applying the "Prisoner's Dilemma" problem from game theory to globalization.
--Two suspects are arrested by the police. The police have insufficient evidence for a conviction, and, having separated both prisoners, visit each of them to offer the same deal: if one testifies ("defects") for the prosecution against the other and the other remains silent, the betrayer goes free and the silent accomplice receives the full 10-year sentence. If both remain silent, both prisoners are sentenced to only six months in jail for a minor charge. If each betrays the other, each receives a five-year sentence. Each prisoner must make the choice of whether to betray the other or to remain silent. Each one is assured that the other would not know about the betrayal before the end of the investigation. How should the prisoners act?
http://en.wikipedia.org/wiki/Prisoner's_dilemma
What this problem illustrates is that courses of action that would be optimal if all parties are 'altruistic' --e.g. honest --are the most sub-optimal when one pary is dishonest.
This is pretty much the case with globalization in 1st world countries. The economic elite running companies has derived considerable benefit from globalization. If some reliable mechanism of sharing had been supported, it is possible that it would have benefitted the majority of citizens in these countries, and there would be widespread support gloabalization.
However, certainly in the US, there has been virtually no sharing of benefits. (median income has declined, while health care and education costs have increased rapidly).
Consequently, ordinary citizens find themselves in the position of the party in the prisoner's dilemma. Given that they believe the economic elite to be dishonest, it is not in their interest to support a course which WOULD be optimal if the benefits had been shared --e.g., the financial elite had operated on the square.
Noe Mr. Samuelson, and the elite, want to bemoan the fact that they can no longer get support for what WOULD have been the optimal course, because the population, with just cause, distrusts them.
Samuelson thinks this is tragic. I see it as a sign that the citizens' brain cells are beginning to operate again, and that they can apply elementary logical conclusions to their lives.
Posted By: tc125231 @ 05/28/2008 11:19:09 PM
Comment: Perhaps it is unfair to blame Mr. Samuelson for writing such utterly knuckleheaded columns. Upton Sinclair is quoted on the subject:
???It is difficult to get a man to understand something when his salary depends upon his not understanding it.???
Mr. Samuelson???s masters are doing quite well out of globalization. 1/10 of 1% of the population now controls 5.6% of the national income. This is a high since they began keeping records. THEY like globalization. So Mr. Samuelson had better keep finding reasons to support it.
Nonetheless, it is usual to informally review the history of the arguments for globalization. When I attended graduate business school 26 years ago, it was all David Ricardo and comparative advantage.
???The principle of comparative advantage shows that even if a country has no absolute advantage in any product (ie. it is not the most efficient producer for any good), the disadvantaged country can still benefit from specializing in and exporting the product(s) for which it has the lowest opportunity cost of production.???
http://en.wikipedia.org/wiki/Comparative_advantage
This was believed to have been completely proven, and immutably true. Anyone who questioned the revealed wisdom was treated as mentally challenged. However, some problems have arisen. One is that ???even if the overall income of America has benefited from globalization, most of the population demonstrably has not. There are a variety of reasons for this. Krugman discusses some of them more intelligently than Samuelson here:
http://krugman.blogs.nytimes.com/2007/05/14/notes-on-514-column-divided-over-trade/
Now, however, the new cant is MORAL: ???_Well, hey, globalization may not be good for EVERYBODY, the way we said, but it???s good for the world.???
Actually, what would be good for the world is less people. (I encourage people to look at Fallow???s recent picture of conditions in Beijing, here:
http://jamesfallows.theatlantic.com/archives/2008/05/seventy_three_days_to_go.php
Even Samuelson manages to mention that there are over 6 billion people alive today. However, Bush and the neocons (including Samuelson) have not publicly favored family planning, the financial and educational empowerment of women, or any of the factors that are known to reduce population without catastrophe.
So now, when their economic arguments no longer hold up, the stalwart Samuelson re-introduces the morality argument for his masters. We must support globalization or we won???t be good people.
I have only one thing to say: ???Pfui!???
Posted By: _Drew_ @ 05/28/2008 1:14:32 PM
Comment: A country "getting rich" through globalization is by no means a solution to poverty. There are many factors that come into play that prevent resources from trickling down to the masses. Corruption is one of them. It's hard to use economic modeling while taking into account the factor of corruption, since it's so hard to quantify. A country getting richer may ultimately just widen the gap between the rich and the poor.
Also, you say that the housing crash is a great example of the wild exaggerations against globalization. You forgot to mention how the rest of the world reacted to this U.S.-only crisis.