Globalization Cures Poverty: Study


Free Markets Credited with Reducing Misery - Yet
the Gap Between Rich and Poor Widens

By Jan Cienski

National Post

Globalization is responsible for dramatically reducing the number of abjectly poor people around the world, according to a new study that contradicts the claims of skeptics who say it has worsened global poverty.

"On average economic growth is good for the poor, and trade is good for growth," said the study by the London-based Centre for Economic Policy Research.

The study, prepared for the European Commission by a group of respected economists who surveyed existing literature and studies on globalization, was unambiguous in saying that almost every criticism levelled by free trade's skeptics is wrong.

Many globalization critics are "poorly informed about the historical record, and appear not to be aware of the contribution played by globalization in the struggle against poverty," the study's authors say.

They say closer economic ties between countries, reduced tariffs and greater flows of investments have made the most startling impact on global poverty.

While acknowledging the number of poor people in the world remains "disturbingly high," the study says that in 1950 about 55% of the world's population lived on less than US$1 a day (in constant, inflation-adjusted dollars). By 1992, only 24% of the world's population had to make do with that tiny amount. During that time the number of poor remained static at about 1.3 billion people, while the global population grew rapidly.

"The proportion of the world's population living in absolute poverty is lower now than it has ever been," the report says.

The study echoes a recent World Bank report which found the degree of an economy's openness is closely linked to its standard of living.

The support for the often-controversial position of continuing to lower tariffs and expand free trade was a little much for the European Commission, which represents governments of various stripes and stressed that the study was not its official position.

"In many respects, the findings will prove controversial, at least to those outside the circle of professional economists, contradicting as they do certain deeply held beliefs about the negative consequences of globalization," wrote Romano Prodi, the European Commission President.

The study notes that, while there are fewer people in abject poverty, the gap between average incomes in rich and poor countries is wider.

Improved communications has had the perverse effect of undermining the case for globalization because "the poor that remain, though a shrinking proportion of the whole population, are more than ever aware of their relative deprivation."

Technology also makes it easier to draw attention to the startling discrepancies in world incomes.

The study takes issue with the slogans of protesters at anti-globalization rallies, like the one in Calgary during last month's G8 summit at Kananaskis, Alta.

Critics charge globalization with increasing inequality, polluting the environment, exploiting workers, undermining the ability of governments to raise taxes to provide health care and welfare and with causing economic instability.

Untrue, according to the study.

"Many of the charges against globalization are misguided," says the study, which says that while globalization does carry some costs, they are more than outweighed by the benefits.

The drumbeat of protest about manufacturers such as Nike and the Gap using Third World sweatshops to make their products actually harms the workers in those factories.

While a salary of $5 a day may seem "shockingly poor" to protesters in rich countries, that is often five times more than the workers would have gotten by staying in traditional industries such as agriculture, the study says.

Although there is some proof that countries exporting energy and natural resources such as timber underprice those products, causing environmental harm, there is no evidence of a "race to the bottom" in wages or environmental standards.

Many critics contend that corporations will relentlessly hunt for the cheapest place to do business, forcing richer countries to gut their social safety nets and environmental rules to match those of the lowest-cost country.

"If low wages alone were enough of an attraction, more [investment] would have flowed to the poorest countries in Africa, rather than predominantly to a small number of middle-income countries in Asia and Latin America," it says.

In fact, it is in Africa that the study finds the weakest international performers, and failed economies that drag down the statistics for the rest of the world.

Recognizing that skeptics often make a better case than the proponents of deeper globalization, the study recommends that rich countries do a better job of explaining the benefits of globalization or else risk a backlash similar to the one that ended the last burst of freer trade that lasted from 1870 to 1913.

The study also recommended the wealthiest nations commit to lowering tariffs and subsidies for agriculture and textiles, which would boost incomes of the poorest workers and farmers, and also increase their foreign aid to 0.7% of GDP.

Currently, only Scandinavians, Luxembourg and the Netherlands give that much. Canada gives only 0.24% of GDP in aid, while the United States gives only 0.1% of GDP.

The study's optimistic conclusions were discounted by globalization skeptics, who saw it as one of a host of biased reports aimed at confirming the reigning orthodoxy.

"For the last 25 years, globalization has been heavily tilted in favour of banks and investors and against the interests of working people," said Robert Scott, an economist at the Economic Policy Institute, a left-leaning Washington-based think-tank.

He charged that the numbers showing poverty reduction were skewed by the exceptional cases of China and India. Removing those two huge nations creates a much more ambiguous case for globalization and shows dramatic increases in global inequality, Dr. Scott said.

"The evidence shows that unregulated capital and trade flows contribute to rising inequality and impede progress in poverty reduction," a new Economic Policy Institute study said."

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