For all those who believe that global inequality and poverty have been worsening, here is some dramatic news. In the two decades from 1980 to 2000, the proportion of poor people in the world has fallen from 44 per cent to 13 per cent.
In these two decades, commonly regarded as the new era of globalisation, poor countries have grown twice as fast as rich ones (3.1 per cent against 1.6 per cent annually).
Every 10 per cent increase in the income of the non-poor has been accompanied by an increase of 18 per cent in the income of the poor.
The developing world as a whole has been catching up with the rich West. The share of developing countries in the global middle class has risen from 20 per cent in 1960 to 70 per cent in 2000.
These are some of the findings of a brilliant new book by Dr Surjit Bhalla, an eminent Indian economist and columnist, called ‘Imagine There’s no Country’. The title is taken from John Lennon’s song, but used in the context of globalisation. A world where there’s no country will be truly globalised, according to Bhalla, and as desirable as Lennon’s imagined world. This is an academic book, not a rhetorical outpouring. It brims with statistics, economic debates and methodologies. It covers all the economic literature on global poverty, and in the bargain pours scorn on the World Bank, the IMF, the UNDP, Nobel Prize-winner Joseph Stiglitz (suggesting that most or all have grossly overestimated poverty). It creates its own statistical methods for correcting the errors of other models.
The lay reader will ask, is it really possible that all those experts are wrong and Bhalla is right? When so many models show radically different outcomes, what are lay folk supposed to believe? Why should we take Bhalla’s estimates more seriously than the others?
Bhalla produces statistical arguments, which I leave statisticians to deal with. But for ordinary folk, I think the credibility or otherwise of any proposition should lie, mainly if not wholly, in what Bhalla calls duck tests and smell tests. If something looks, walks and talks like a duck, beware of statistics that claim it is a peacock. Similarly, if it smells like the gutter, beware of statistical claims that it is a rose. Take a sniff at estimates of World Bank economist Branko Milanovic, widely quoted by left-wing groups and debated in magazines like The Economist. Milanovics model shows that poverty and inequality worsened in the five-year period 1988-93. Now, five years is probably too short to prove anything conclusively. But let us apply the smell tests. Milanovics estimates rely entirely on household surveys, ignoring GNP data. If you believe his estimates, Korea in 1993 was richer than Britain, Sweden or Australia; and Ethiopia and the Central African Republic were richer than India. This smells like rubbish.
China and India were very poor in 1980, poorer than many countries in Africa. They now have 2.2 billion people, more than one-third of the world’s entire population and more than half the Third World’s population. These two countries have experienced record income growth since 1980. Another one billion people in other Asian countries have done almost as well on average. When half the global population has fared so well, can you not smell the inconsistency in estimates that global poverty and inequalities have increased?
Wait a minute, some readers will say, do Bhalla’s estimate smell any better? After all, several surveys show without doubt that the gap between the richest and poorest countries has been increasing. Other surveys show that inequalities within countries has been worsening. If gaps are increasing both globally and within countries, how can global inequality have decreased?
The answer is illuminating. The so-called middle class has been a major beneficiary of rapid economic growth in India and China. Bhalla estimates that the middle class has grown in 1989-2000 from 1 per cent of the population to 22 per cent the population in India and China. In absolute terms, it is a whopping 450 million people. Now, the gap between the Sino-Indian middle class and the poorest Africans has indubitably increased. But by the same token, the gap between the Sino-Indian middle class and rich Americans has decreased. Remember, poor countries are growing faster than rich ones. As the huge middle class bulge of India and China moves up the income ladder, it actually improves global equality.
Here then is the paradox. Even though inequality has increased within India and China, and between Africa and America, global inequality has nevertheless diminished. Indians and Chinese account for one-third of the global population. The very fact that Indians and Chinese are getting richer guarantees that world poverty and inequality will diminish. Bhalla’s book will not end the endless statistical debates on poverty. But Bhalla’s model, unlike many others, passes the smell test. It accords with common sense. You do not have to agree with the exactness of Bhalla’s estimates to agree with his main conclusion. This is that, in the two decades marking the new era of globalisation, poverty and inequality have declined dramatically.