Opinion: One cheer for the global economy

First, Stiglitz greatly underestimates the extent to which globalization, imperfect as it is, is helping people in poor countries. Already, it has lifted hundreds of millions of people out of poverty. Stiglitz finds a world ‘replete with failures.’ Typical is his remark that although 250 million Indians have improved their standard of living ‘immensely’ in the last two decades, 800 million haven’t—a good example of his failure to give progress its due. Or: ‘The sad truth...is that outside of China, poverty in the developing world has increased over the past two decades.’ The World Bank puts it differently: ‘By the frugal $1 a day standard we find that there were 1.1 billion poor in 2001—about 400m fewer than 20 years previously.’ Stiglitz believes that the increase in poverty outside China qualifies the progress made in poverty reduction. But 400 million fewer people living in extreme poverty is a happy, not a sad, truth, whether it happens in China or anywhere else. He also underplays the gain achieved outside China. It is true that the number of very poor outside China rose slightly. Stiglitz cites the figure of 877 million in the developing world in 2001 living on less than $1 a day, an increase of 3 percent over 1981. What he fails to mention is that the total population of these countries increased by 20 percent over this period, so that while there is a slightly higher number of very poor people in the developing world today, they represent, proportionally, a decline from 32 percent to 21 percent of the overall population. Stiglitz also ignores the fact that the number of those living on between $1 and $2 a day rose about as much as the number of people living on under $1 a day fell. Nor does he mention the World Bank estimate that if global poverty continues to fall at the rate it did between 1981 and 2001, the reduction will almost certainly be sufficient to meet the UN Millennium Development Goal of halving the proportion of people living on less than $1 a day by 2015.[4] A different observer might see the glass half full rather than half empty. Where Stiglitz accepts that progress has happened, he denies that it can be attributed to the current way globalization is occurring. His method is to show that countries that rejected the free-market mantra known as the ‘Washington consensus’ did better than countries that followed it. For example, East Asian governments, such as Japan, Taiwan, and South Korea, invested in industries with high growth potential, encouraged their populations to save, limited imports that undercut their agriculture and manufacturing, and (in the case of China and India) restricted short-term capital flows. Such interventions may or may not have contributed to their ‘miracles.’ But surely much more important were the acts of domestic liberalization of the economy: for China the decollectivization of agriculture and introduction of the ‘household responsibility system’ in the late 1970s; for India, the deregulation of much production, investment, and foreign trade in the 1990s. Above all, the ‘export-led growth’ of East Asia depended crucially on the opening up of foreign, especially Western, markets through bilateral deals and successive rounds of tariff reductions.