Are levels of global poverty and inequality getting worse? What are the means for reducing poverty and inequality at a worldwide level? This chapter from a book, published by Polity, contains an exchange of views between two leading experts, Martin Wolf and Robert Wade. Wolf claims that there has been a decline in world-wide levels in absolute poverty and household inequality and moreover, that globalisation and economic integration provide the best means for reducing poverty and inequality. In contrast, Wade argues that household inequality is probably rising and that increased economic integration–in the sense of free trade and investment – is in most cases neither a necessary nor sufficient condition for development and may actually be harmful for some developing countries at some points in time.
There is little agreement on the overall trends in global poverty and inequality. The contrasting views of Martin Wolf, the chief economics editor of the Financial Times, and Robert Wade, Professor of political economy and development at the London School of Economics, serve to illustrate the deeply contested nature of this subject. The main points of divergence between Wade and Wolf on global trends in poverty and inequality include:
According to Martin Wolf:
- World Bank statistics indicate that the level of absolute poverty has fallen considerably over the past two decades and furthermore, that there has been a decline in world-wide inequality among households.
- The decline in poverty and inequality on a world scale can be attributed to fast economic growth in China and, to a lesser extent, in India. This progress has not been offset by rising inequality within these countries.
- Raising average incomes in poor countries is an urgent goal of public policy. Global inequality and mass poverty are the result of deep-seated historic processes that can be reversed only with vast and sustained improvements in poor countries, supported by rich ones.
Robert Wade questions the data used by the World Bank to calculate global poverty levels. He argues that:
- More emphasis needs to be placed on global inequality. The most comprehensive data on world incomes points to an increasing trend towards global inequality among households (though the result is sensitive to the specific measure and the time period).
- The sheer magnitude of poverty and inequality on a world scale means that inequality reduction should be made a high priority on the development agenda, regardless of trends in global absolute poverty.
Wade and Wolf propose significantly different strategies for dealing with global poverty reduction and inequality.
Wolf argues:
- The greatest challenge is to accelerate economic growth in poor countries. Trade is the handmaiden of growth and there is no evidence to suggest that any country that set out to reduce their reliance on trade as anti-globalisers propose has managed to secure sustained growth.
- Globalisation and increased economic integration provide the best means for reducing poverty and inequality. The anti-globalisation movement encourages countries to adopt policies that will in fact only intensify their poverty and inequality.
- Open markets in the north and foreign direct investment make an important contribution to economic growth in developing countries.
Wade argues:
- The high level of global inequality strengthens the case for national and international action to tilt the playing field in favour of lagging regions. Wolf rejects this proposition and argues that all of the previous attempts to do this have failed.
- # A distinction has to be made between economic integration as policy and as outcome.Policy refers to low trade barriers (tariffs, quantitative controls). Outcome refers to volume of trade relative to, say, GDP. It is a mistake to suppose that free trade policy is a necessary condition for fast growth of trade (see East Asia). It is also a mistake to suppose that fast growth of trade is a necessary condition for fast growth of GDP (holding size of country restraint). But only a marginal fringe proposes that developing countries would be better off cutting their trade/GDP ratios. This is a straw man.
- Rapid globalisation and economic integration may be harmful for some developing countries some of the time. It often makes sense for countries to liberalise in line with the growth of domestic capacities by exposing domestic producers to enough competition to make them more efficient without destroying them.
- The most powerful engine of development is the advance of technology and the diffusion of technical capacities of people, firms and governments. Some forms of integration may help this; however, others may hinder it, depending on the country’s level of development.
- Under WTO rules, developing countries face constraints which prevent them from adopting the measures that many developed countries have deployed to nurture their technological learning. WTO rules and the World Bank’s Official View need to be revised in the interests of developing countries.
