Sharing the Benefits of Globalization More Widely

Those in Danger of Being Left Behind
On the first question, I want to share with you some figures. In 1960, per capita GDP in the richest twenty countries was eighteen times that of the poorest twenty countries. By 1995, this gap had widened to almost forty times. There is evidence that wage disparities between skilled and unskilled workers have been on the rise in many parts of the developing world (particularly the middle-income Latin American countries) and also the developed world. Gains in life expectancy since the mid-twentieth century will soon be wiped out in countries at the center of the HIV-AIDS epidemics in Africa. In the transition economies of Europe and Central Asia, the number of people living on less than a dollar a day rose from about one million in 1987 to twenty-four million in 1998—more than twenty-fold. Ethnic and racial minorities face higher poverty rates in many societies and this may not be improving. In Peru, for example, indigenous groups were 40 percent more likely to be poor than non-indigenous groups in 1994, and 50 percent more likely in 1997.

While donor countries’ economies grew in the 1990s, at the same time their development assistance shrank from one-third to one-fourth of one percent of their combined national product. It has been estimated that industrialized countries’ trade barriers cause annual losses in developing countries’ potential welfare of more than twice the yearly amount of development assistance. Only ten percent of the $50-$60 billion in health research worldwide each year is spent on the diseases that afflict 90 percent of the world’s people. Over thirty-two million HIV-positive individuals in the developing world do not have access to treatment because AIDS drugs cost $10,000-$15,000 a year—between five and fifty times more than annual average incomes in some of these countries. There is also evidence that, in many developing countries, public spending is not progressive and is not protected from adverse shocks.

Globalization Is Producing Winners and Losers
What’s the link of all this to globalization? I include in the concept of globalization the process of market reforms, particularly the process of liberalizing trade and capital accounts and deregulating the economy. The evidence shows that market reforms in general have resulted in positive outcomes in countries that have introduced them. Studies on Latin America indicate that the counterfactual of no reforms would have cost, on average, two percentage points of growth in the early 1990s. The countries of the former Soviet Union that reformed faster did better. China is a very good example of a country that reaped large growth dividends from the introduction of market mechanisms.

More growth, as we know, means less poverty. At the same time, however, I think we have to recognize that growth in developing countries has been disappointing, partly as the result of external shocks, but partly because some reform processes have failed to deliver what was expected or failed entirely. In some cases, financial and capital account liberalization has been one of the main causes of significant banking crises worldwide. Another problem has been the capture of the reform process by rent-seeking elites.

Country-focused studies have found that liberalization can generate benefits for the poorer sectors of society, particularly when it involves agriculture. In some cases, like Ghana, Chile, China, and Uganda, there have been gains for everybody, including the poor. However, other studies show that the process of liberalization has created losers, particularly during the transition when subsidies are eliminated and trade barriers are dropped. Some of these losers may be the already poor or people who become poor as a result of reforms.

Level the Playing Field and Address Systemic Risks
What actions can be undertaken so the benefits of globalization are more widely shared? Economic growth continues to be one of the main factors in reducing poverty worldwide. There is no doubt about it. But we have to be aware that reducing poverty through growth may be quite slow. For example, in Brazil—where half of Latin America’s poor live—for those people who live at below half the poverty line, their income would have to increase 300 percent in order to reach the poverty line, so it would take several decades for them to become non-poor. This is the case even if the country’s GDP per capita grows steadily at 3 percent, a growth rate higher than Brazil’s past performance.

In order to accelerate the spread of benefits that growth may bring, specific actions are needed both nationally and internationally. Actions are needed to level the playing field, particularly by increasing the asset-base of poor people in the areas of education, health, and land; by making markets work better for poor people; and by reducing social barriers that keep certain ethnic and racial groups or women in a state of disadvantage in society. The other important sets of actions that have to be undertaken have to do with risk management. It has to be recognized that reforms can produce losers and new sources of risk during the transition. Mechanisms reducing the likelihood and risks of shocks, and helping poor countries and poor people cope with shocks when they occur have to be integral parts of the process of globalization if the benefits are to be shared.

Beyond the domestic arena, there is also a number of international actions that can help level the playing field and address systemic risk. One is the importance of reducing protectionism in developed countries. A second is promoting financial stability. There is now a debate over how that stability has to be promoted. In particular, how important are ex-post rescue packages? In a world where contagion and herd behavior prevails, timely rescue packages—supported by appropriate domestic policies—will continue to be crucial. Another is promoting global public goods, such as research in agriculture and communicable diseases that affect the developing world, and providing access to the results of this research to the poorer parts of the world. Other actions include focusing aid on poverty reduction; stemming armed conflict; and encouraging the constructive participation of the poorer countries and poorer people in the world fora that decide how the process of globalization takes place.