Making Globalization Work for the Poor

• Author: Kevin Watkins
• Position: Senior Policy Advisor with Oxfam

Economists are sometimes chastised for their inability to reach a consensus view. George Bernard Shaw, the Irish playwright, captured the mood rather neatly when he wrote: "If all economists were laid end to end, they wouldn't reach a conclusion." If he were writing today, he would be forced to concede the rider "unless they were discussing the benefits for the poor of openness to trade."

"Openness" has become the great religion of the globalization era. No meeting of international financial institutions is complete without a homily to its benign effects. In the view of the IMF, the World Bank, and most northern governments, removing barriers to trade is one of the most powerful things that governments can do to give the poor a bigger stake in global prosperity. As a World Bank research report published in 2001 concluded, openness explains why "globalization leads to faster growth and poverty reduction in poor countries." Expressed differently, openness-along with associated free market reforms-holds the key to making globalization work for the poor.

Some critics respond by asserting that globalization can never work for the poor and that integration into global markets will inevitably cause more poverty and inequality. Widespread as it is, such "globaphobia" is unjustified. International trade has the potential to act as a powerful catalyst for poverty reduction, as the experience of East Asia demonstrates. It can provide poor countries and people with access to the markets, technologies, and ideas needed to sustain higher and more equitable patterns of growth.

But if globaphobia is unjustified, so too is "globaphilia"-an affliction, widespread on Nineteenth Street in Washington, that holds that increased integration through trade and openness is an almost automatic passport to more rapid growth and poverty reduction.

Growing income inequalities

Bluntly stated, the argument that globalization is working for the poor does not deserve to be taken seriously. Between 1988 and 1998, the incidence of global poverty fell by the derisory rate of 0.2 percent a year. Already obscene global income inequalities are widening. At the end of the 1990s, high-income countries representing 14 percent of the world's population accounted for over three-fourths of world income-roughly the same as at the start of the decade. The world economy ended the 1980s more unequal than any national economy, and since then it has become even more unequal (the global Gini coefficient rose by 3 points between 1988 and 1993 alone). These figures come from a 1999 World Bank report, "True World Income Distribution, 1988 and 1993," authored by Branko Milanovic of the World Bank Development Research Group. Of course, they can be disputed. Some economists, on the basis of no credible evidence, assert that the incomes of rich and poor countries are starting to converge. Surely, the real issue is that current patterns of global inequality are inconsistent not just with civilized values but also with the international commitment to halve poverty by 2015.

International trade is reinforcing income inequalities. Because exports are growing faster than global GDP, they have an increasingly important bearing on income distribution. And world trade shares mirror income distribution patterns. Thus, for every $1 generated through...