Has globalisation reduced poverty?

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The other day, I had one of those Twitter discussions with Scott Steel (AKA Possum Pollytics) and Shaun Ratcliff about poverty and capitalism. It started from a tweet by Steel:

Was asking about 3D printing as part of wondering whether it will redefine poverty. When shit becomes so cheap to be absolutely ubiquitous

I replied:

AW: @Pollytics “shit” is already pretty cheap. Cheap shit helps create poverty.

Here’s the rest of the discussion:

Scott Steel: @alexanderwhite “cheap” shit pulled the world out of poverty since the first industrial revolution!

Scott Steel: @alexanderwhite Your material standard of living is defined by the basket of goods and services you can afford to purchase!

AW: @Pollytics Hmmmm. Think we have different idea of “cheap shit”. Crap from $2 shop not really responsible for poverty reduction IMO.

Scott Steel: @alexanderwhite Buying a bike for a tenth of the price it was 20 years ago is though. Same with white goods,electronic goods etc

AW: @Pollytics simply changes place where poverty is. Creates wage-slaves in 3rd world, plus enviro-destruction, for cheap bikes.

Scott Steel: @alexanderwhite How can you honestly say that when the move from subsistence farming to low wage manufacturing saved millions of lives?

Scott Steel: @alexanderwhite Let alone the wealthcreation of that and allowing for the expansion of education!

Scott Steel: @alexanderwhite Then we have the next step as seen in Singapore,Malaysia, S.Korea & now parts of China – leading to higher wage/skill work

AW: @Pollytics lots of really nasty things happened due to supply-side imperialistic expansion of US manufacturing before it was outsourced.

Scott Steel: @alexanderwhite Sure – but that’s an issue with standards which we should focus on, not the process of development!

Scott Steel: @alexanderwhite The last 100 years of econ development has been *defined* by technical efficiency allowing people to buy the stuff they make

Scott Steel: @alexanderwhite That process has pulled a couple of billion people from the torpor of subsistence farming into working and middle classes!

AW: @Pollytics “development” always a shield for corporate profits at expense of human dignity. Not convinced “cheap shit” is a good thing

AW: @Pollytics Unlikely that recent economic times have actually reduced poverty: http://bit.ly/Z6Nznm

AW: @Pollytics “development” always a shield for corporate profits at expense of human dignity. Not convinced “cheap shit” is a good thing 1/2

AW: @Pollytics 2/2 in an of itself. Lots of wasted productive capacity on producing Xmas rubbish no one wants or needs for e.g.

Scott Steel: @alexanderwhite “development” isn’t a shield for profits-it’s the difference between dying from your pesticide or preventable disease,& not.

Scott Steel: @alexanderwhite Maybe approach it from a different angle. Over the last 200 years, which nation do you believe has developed “best”?

AW: @Pollytics depends on how you measure it. Which country is happiest?

Scott Steel: @alexanderwhite Choose one on how you think it should be measures

AW: @Pollytics I suppose I think the economy should serve human needs, not the reverse. Also, not enrichment of few at expense of many.

Scott Steel: @alexanderwhite Sure – I think that too.But the transition from poverty to wealth isn’t a click your fingers thing.

Scott Steel: @alexanderwhite Don’t think I’m not saying there’s problems either.They’re many. But the process is surely bigger than rapacious capitalists

AW: @Pollytics problem is that cheap shit is made primarily for minority enrichment, not lifting people out of poverty.

Scott Steel: @alexanderwhite Most consumer goods aren’t made with regard to what end of the spectrum it benefits. It’s made for demand

Scott Steel: @alexanderwhite Yet, even though the consumers *were* often the rich of other nations, it’s increasingly the working and middle classes

AW: @Pollytics it is, but they are biggest part of the problem IMO.

Scott Steel: @alexanderwhite Can remember a great quote (WTTE) from a guy I worked for on aid channeled through industry development regarding S. Korea.

Scott Steel: @alexanderwhite “What’s worse than the life of a factory worker? The life of his father. Worse than the life of his father? His grandfather”

AW: @Pollytics nice quote, but then read some accounts of what it was like working in Gilded Era factories in Chicago or NYC.

Scott Steel: @alexanderwhite Sure.The transition issues – especially today – should be the focus of privileged folks like us. But not the process

Scott Steel: @alexanderwhite With our privilege, complaining about the development *process* for reasons of theory just makes us pro-poverty in practice

Shaun Ratcliff: @alexanderwhite read accounts of what it was like working on subsistence farms. Gilded Era factories led to something much better.

AW: @ShaunRatcliff They’re both bad, but let’s not pretend living in slums in the city is a nice way to live.

Shaun Ratcliff: @alexanderwhite No one said either was. Hwv, it beats what came before, and appears to be a necessary step to what comes after.

AW:@ShaunRatcliff nonsense.

Shaun Ratcliff: @alexanderwhite what part of what i said was nonsense?

AW: @ShaunRatcliff “appears to be a necessary step”…

Shaun Ratcliff: @alexanderwhite I said ‘appears’. Fact is, the only countries that have come close to eliminating poverty are those that have industrialised

AW: @ShaunRatcliff largely on the back of creating more poverty in the 3rd world.

Shaun Ratcliff: @alexanderwhite now it’s my turn to say nonsense.

Phew. Did you follow all that?

Now, the main purpose of my post here is to highlight some interesting research done into poverty and globalisation.

During the tweet-debate, I linked to it, but here it is again: Is Globalization Reducing Poverty and Inequality? by Robert Hunter Wade from the London School of Economics (note: pdf link). It’s worth excerpting some parts from the paper.

The neoliberal argument says that the distribution of income between all the world’s people has become more equal over the past two decades and the number of people living in extreme poverty has fallen, for the first time in more than a century and a half. It says that these progressive trends are due in large part to the rising density of economic integration between countries, which has made for rising efficiency of resource use worldwide as countries and regions specialize in line with their comparative advantage. Hence the combination of the ‘‘dollar-Wall Street’’ economic regime in place since the breakdown of the Bretton Woods regime in the early 1970s, and the globalizing direction of change in the world economy since then, serves the great majority of the world’s people well. The core solution for lagging regions, Africa above all, is freer domestic and international trade and more open financial markets, leading to deeper integration into the world economy.

… The standard Left assumption, in contrast, is that the rich and powerful countries and classes have little interest in greater equity. Consistent with this view, the ‘‘anti-globalization’’ (more accurately, ‘‘anti-neoliberal’’) argument asserts that world poverty and inequality have been rising, not falling, due to forces unleashed by the same globalization (for example, union leader Jay Mazur’s quote above). The line of solution is some degree of tightening of public policy limits on the operation of market forces; though the ‘‘anti-neoliberal’’ camp embraces a much wider range of solutions than the liberal camp.

The debate tends to be conducted by each side as if its case was overwhelming, and only an intellectually deficient or dishonest person could see merit in other’s case. For example, Martin Wolf of The Financial Times claims that the ‘‘anti-globalization’’ argument is ‘‘the big lie.’’ If translated into public policy it would cause more poverty and inequality while pretending to do the opposite.

I think this is a reasonable summary of the two core competing positions on globalisation and poverty. Certainly, my experience with talking to people with a — conscious or unconscious — neoliberal economic position (as evidenced in the above tweets) is that there is an assumption that industrialisation and rapid increase in production of goods, and “opening up” of markets (particularly labour markets) in the Third World is responsible for a reduction in poverty in those countries.

My own view, which is roughly summarised as the “standard Left assumption” is that imperialistic and developed countries have grossly exploited developing nations for the enrichment of a few global elite, with catastrophic human, social and environmental costs.

I would contend for example, that the over-production of Gilded Era capitalism in the late 1800s for example was a driving force behind the imperialistic expansion of the USA, annexation of the Philippines and Cuba, not to mention the brutal repression of working people and unionists in the great industrial centres of the US (e.g. Chicago, New York City, etc).

While I have no doubt that many millions of people are now not living in poverty because of the ongoing industrialisation of countries like China or India (although China argues the reported World Bank numbers are overstated), I also have no doubt that many more millions (probably hundreds of millions) have been impoverished  sickened and subjected to untold cruelty as a result of globalisation and the production of “cheap crap” (as Steel puts it).

Additionally, I have no doubt that globalisation has allowed wealthy, developed nations to effectively export their poverty, just as they export their carbon emissions, low labour standards and pollution as well. Devastating toxic pollutants banned in places like Australia and the US are regularly manufactured in and exported from (and spilled in) in the Third World, for the benefit of the First.

Cheap goods are produced in great abundance because of poor labour standards, including the harassment, arrest and murder of unionists, child labour, deplorable health and safety conditions or near (or actual) slave-like standards. Large multitudes of people are moved from rural (yes, subsistence) lives to work in vast slums where health standards are poor, and violence (both state and individual) is rife.

In many areas (especially Africa), whole countries’ economies,  infrastructures and governments are warped by the needs of multi-national corporations, designed solely to funnel the natural resources of those nations to the West. This can create or exacerbate conflict zones, ethnic tensions and civil war.

I am utterly unconvinced that the present economic system has resulted in a fair or equitable distribution of the world’s wealth. I am also unconvinced that this economic system of globalisation has done anything to reduce poverty.

In fact, as article-author Robert Hunter Wade notes: “The opening sentence of the Bank’s World Development Indicators 2001 says, ‘‘Of the world’s 6 billion people 1.2 billion live on less than $1 a day,’’ the same number in 1987 and 1998.”

Even accepting that the lives of subsistence farmers in the Third World were “nasty, brutish and short” (to use a turn of phrase), that does not excuse the fact that the lives of slum-dwelling sweatshop workers is substantively better. Even were they marginally better, it does not make it good that they dwell in such misery… that somehow the march of progress justifies such infliction of mass human misery by one group (the West) upon another (the global South).

Additionally, assuming that poverty has at least remained the same over the last thirty years, in the last decade we have seen the most dramatic rise in inequality in history. The neoliberal argument is that both poverty and inequality decrease due to globalisation. This is manifestly not true.

The global distribution of wealth has tipped so far in favour of a small band of plutocrats that it is now in danger of falling permanently in their favour. This is, of course, the nub of the 1%-99% ‘movement’. Across the world, “pay inequality” (which I assume equates to wages as a share of GDP) has increased sharply since the 1980s. In the US, income inequality has now returned to the robber-baron era of the late 1800s.

The evidence does support the liberal argument when inequality is measured with population-weighted countries’ per capita PPP adjusted incomes, plus a measure of average inequality, taking China’s income statistics at face value. On the other hand, polarization has clearly increased. Moreover, several studies that measure inequality over the whole distribution and use either cross-sectional household survey data or measures of combined inequality between countries and within countries show widening inequality since around 1980. The conclusion is that world inequality measured in plausible ways is probably rising, despite China’s and India’s fast growth.

In fact, the argument can be made that rapid industrialisation without market forces (that is, through government policy and direct investment) is more effective at advancing a nation and reducing poverty. The examples of both China and India are exemplars — where both nations industrialised before selectively opening up to global market forces (South Korea and Japan, and even Australia, are examples of this). Compare this to nations like Chile, Mexico or many of the former Soviet states (like the Czech Republic), which have undergone the “shock doctrine“.

I acknowledge that Steel and Ratcliff were not explicitly writing about globalisation or free markets, but neoliberal assumptions on economic development were certainly present.

Nevertheless, their argument, that industrialisation “pulled the world out of poverty” in my view, doesn’t hold up. In fact, I would contend that the opposite has occurred and that poverty has increased.

(And we’re obviously a long, long way away from 3D printers!)

ReferenceIs Globalization Reducing Poverty and Inequality? by Robert Hunter Wade

Note: I’d be interested in other relevant papers on this topic.

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  1. Dr Mark Bahnisch - January 2, 2013

    In which I tediously rehash a twitter argument from yesterday: http://t.co/MOth6UNE (ping @Pollytics, @shaunratcliff & @kpgriffin)

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