Growth and globalization.

• Author: Ricupero, Rubens
• Position: International economy - Includes related articles on liberalization worldwide and global management of distribution, profits and integration

The big story of the world economy since the early 1980s has been the unleashing of market forces. The deregulation of domestic markets and their opening up to international competition have become universal features. The "invisible hand" now operates globally and with fewer countervailing pressures from Governments than for decades. Many commentators are optimistic about the prospects for faster growth and for convergence of incomes and living standards which greater global competition should bring, writes Rubens Ricupero, Secretary-General of the United Nations Conference on Trade and Development, in this excerpt from his overview to UNCTAD's "Trade and Development Report, 1997".

However, there is also another big story. Since the early 1980s, the world economy has been characterized by rising inequality and slow growth. Income gaps between North and South have continued to widen. In 1965, the average per capita income of the G-7 countries was 20 times that of the world's poorest seven countries. By 1995, it was 39 times as much.

Certainly, a number of developing countries have been growing faster than industrial countries, but nevertheless not fast enough to narrow the absolute per capita income gap. In Africa, where the gap has been widening over the last three decades, average per capita income is now only 7 per cent of that of the industrial countries. In Latin America, the change has been more abrupt: average per capita incomes have fallen from over one third of the northern level in the late 1970s to one quarter today. Only a handful of East Asian economies have managed to sustain growth rapid enough to narrow the gap, or even in some cases to catch up, with the North. However, as these economies have graduated into the high-income club, few developing countries have been able to step into their place; the middle strata of developing countries, with incomes between 40 and 80 per cent of the average in advanced countries, are thinner today than in the 1970s.

Polarization among countries has been accompanied by increasing income inequality within countries. The income share of the richest 20 per cent has risen almost everywhere since the early 1980s, in many cases reversing a postwar trend. In more than half of the developing countries, the richest 20 per cent today receive over 50 per cent of the national income. Those at the bottom have failed to see real gains in living standards and, in some cases, have had to endure real losses. In many countries, the per capita income of the poorest 20 per cent now averages less than one tenth that of the richest 20 per cent. But the increase in the shares of the latter has invariably also been associated with a fall in the share of the middle class. Indeed, this hollowing out of the middle class has become a prominent feature of income distribution in many countries.

The trend towards a widening of gaps between income groups is apparent in both more and less successful developing countries, and is associated with export-oriented, as much as with inward-oriented, strategies. In East Asia, inequality has increased, albeit to different degrees, in both the first- and second-tier newly industrializing economies (NIEs) during the past two decades. With the exception of the Republic of Korea and Taiwan Province of China, inequality in East Asian economies today is as high as or even higher than in other developing countries. In Latin America, while the debt crisis of the...