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The Miracle of Globalisation: Most of the World has Never Had It So Good

30 April 2013

12:03 PM

30 April 2013

12:03 PM

Could life in Bangladesh be better? Of course it could. Is life in Bangladesh getting better? Of course it is. The horrific death toll after a factory building collapsed in Dhaka last week encourages us to forget this second point. But we should still try and remember it.

Sensible advocates for reform and improvement know that globalisation has made an enormous difference to Bangladesh just as it has in many other poor countries. That more could be done to provide safer working conditions is scarcely in doubt. Similarly, you can be in favour of globalisation and still think Bangladeshi textile workers should be able to organise themselves in Trade Unions.

Sweatshops are not Bangladesh’s destination but they are a staging-post on the road to wealth just as comparably hard working conditions were once a feature of working life in this country. In the context of a country in which opportunity is in short supply factory-working, however grim, is surely preferable to a realistic alternative which in many cases is likely to be little more than subsistence farming.

Bangladesh has few cards to play. Cheap labour is its competitive and comparative advantage. So while are good moral reasons for wishing to see working conditions improve in Bangladesh there are also good moral reasons for resisting calls  – foolish in the extreme – to make doing business in Bangladesh a hugely more expensive matter. Because the people most likely to be penalised by that are the people of Bangladesh, not western clothing companies.

It is also true that, despite this and other tragedies, the world is becoming a better place. Globalisation is a great and transformational force for good across most of the planet. This is not a matter of opinion, it is a fact. As Justin Forsyth, Chief Executive of Save the Children, writes (£):

Investment from the private sector is a big cause of growth in poor countries and has played [a] powerful part in creating jobs, lifting people out of poverty and improving the prosperity of countries such as Bangladesh, where headline rates of poverty have fallen from 57 per cent in 1992 to 31.5 per cent in 2009. That means a child born in 2008 can expect to live to 66, while in 1970 it was 44. Economic growth has also provided tax revenues that have led to investment in healthcare and education: there has been an impressive rise in girls attending school, to as much as 82.5 per cent in 2009.

That’s the power of trade. It cannot be stressed too often that trade, not foreign aid is the path to prosperity in the developing world just as it was – and is – in the developed world. Globalisation is a creator, not a destroyer, of worlds.

And not just in asia either. There are signs of hope even in Africa. As Mohamed El-Erian points out in an article for Foreign Policy, sub-Saharan economies have grown at an average of 4.8% in the past five years. Granted, that is growth from a low base but it is at least growth. There’s more:

Now, from bonds to private equity, new vehicles are emerging to channel foreign investments into more of the most promising African economies. How real is the boom? Foreign direct investment in sub-Saharan Africa has leapt from $6 billion in 2000 to $34 billion in 2012. In just the past couple of years, several African countries — among them Angola, Namibia, Senegal, and Zambia — have issued external debt for the first time, allowing them to invest for the future.

[…] An expanding set of small- and medium-sized enterprises is bringing real economic diversification. According to World Bank statistics, these firms add some 20 percent to the continent’s GDP and contribute roughly 50 percent of the new jobs in sub-Saharan Africa. These successful businesses are giving rise to internationally competitive companies, thereby providing access to global markets, new business models and technologies, and higher wages and salaries.


An African Free Trade zone would only help, not least since intra-african trade still remains far too difficult and expensive. This too is vastly more important than increasing foreign aid (a policy chiefly designed, in terms of domestic politics, to assuage middle-class guilt).

Hundreds of millions of people have lives of opportunity their grand-parents could scarcely have imagined. Their lives may still be hard and unpleasant by western standards but their lives are still, nevertheless, transformed. Even some sceptics admit there’s some truth in this.

But there’s more truth than is sometimes realised. Relatively few people, I think, appreciate just how many “winners” globalisation has produced. It is true that the wealthiest westerners have done well from this new era of globalisation but their gains are less important than those enjoyed by so many people in so many developing countries.

Consider these findings (based upon World Bank datasets):

The top 1% of the global income distribution has seen its real income (adjusted for inflation) rise by more than 60% over those two decades.

What is far less known is that an even greater increase in incomes was realized by those parts of the global income distribution that now lie around the median. They achieved an 80% real increase in incomes.

It is there — between the 50th and 60th percentile of global income distribution, which in 2008 included people with annual after-tax per capita incomes between 1,200 and 1,800 international dollars — that we find some 200 million Chinese and 90 million Indians, as well as about 30 million each in Indonesia, Brazil, Egypt and Mexico. These 400 million people are among the biggest gainers in the global income distribution.

The real surprise is that those in the bottom third of the global income distribution have also made significant gains, with real incomes rising between more than 40% and almost 70%. (The only exception is the poorest 5% of the population, whose real incomes have remained about the same.)

It is precisely this income increase in the bottom of the global pyramid that has allowed the proportion of what the World Bank calls the absolute poor (people whose per capita income is less than 1.25 PPP dollars per day) to decrease from 44% to 23% over approximately the same 20 years.

Is this journey complete? Hardly. Is it still the greatest anti-poverty revolution we’ve ever seen? Indeed it is. Could more be done? Sure. Should we more often celebrate what has been achieved already? Of course we should. Again: extreme poverty has been halved in just 20 years.

Of course the poor in China, India, Vietnam, Bangladesh and elsewhere remain poor. The point is, however, that they are not as poor as they were. In relative and absolute terms most of them have never had it so good.

More free trade, better governance, the application of the rule of law: these are the things that change the world and, more pertinently, change it for the better. Capitalism works.

That does not mean, as we see in Bangladesh, that it always works perfectly or that there are not moments when it can seem a harsh and ugly thing. But, viewed objectively, the trend is clear: the world is becoming a better, wealthier place and it is trade and more trade that’s responsible for that improvement.

Again, could things be better still? Indeed they can. I have no issue with western consumers lobbying companies to do what they can to improve working conditions in the Third World. I would only suggest, however, that we remember that even well-intentioned measures can sometimes have unfortunate consequences. Agitate for improvements by all means but not at any price.

More globalisation, not less, will lift more people out of poverty. People have every right to deny or otherwise dispute the benefits of globalisation but it is worth pointing out that they do not have the facts on their side.

 

 

 


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