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What an American World Looks Like, in Two Charts



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Kevin’s piece today on the homepage talks about the triumph of the war on polio and how it reflects the benefits of a world that’s largely been converted to Western, liberal values. In fact, the rest of the world has been incredibly successful over the past 20 or 30 years, and, despite the hysteria raised over this week over a widely misinterpreted report from Oxfam that dramatized wealth inequality in the world, the globe has in some ways gotten more equal (flatter, you could say, if you were a Times columnist). Not dramatically so, in part because the world’s really rich have gotten much richer over the past few decades, but we’ve seen, globally, exactly the kind of growth everyone wants: The poor joined the middle class.

Freer markets and more trade have made most people in the world much richer — especially the global poor and the middle class. From a recent World Bank paper by Christoph Lakner and Branko Milanovic, here’s who benefited the most from the great liberalization, from 1988 to 2008:

A huge chunk of that growth happened in China and India, but it also took place in Latin America, Africa, and elsewhere, as they connected to global markets and replaced heavily dirigiste policies with marginally more free-market ones. This has made the world not just substantially richer, but by some measures more equal:

So what about the losers in the first graph, the “developed-world middle class”? Was Pat Buchanan right about NAFTA? Not quite: America is actually so rich that we’re not in that trough. The middle-income losers, the 80th to 90th percentiles, are people making around $7,000 a year in 2005 dollars, which only includes some of the American poor. It includes a lot more middle-class people in Eastern European countries, which performed poorly in large part because of the time frame: Their economies didn’t boom immediately when the Soviet Union fell, though they’ve done much better since. (There was also the 1990s financial crisis in Southeast Asia, which has a lot of people around this income level.)

Despite how it looks, then, the above data actually doesn’t show globalization’s benefits coming at the expense of America’s middle class. Yet, the American middle class have not seen huge gains in their earned incomes since the 1980s. Their gains aren’t as terrible as many measures will make you think, because taxes and transfers have boosted the middle class and the poor. The Milanovic paper takes that into account, by measuring consumption more than income, but the global 95th percentile’s 20 percent growth growth in incomes, adjusted for inflation, over 20 years is still not great.

Globalization hasn’t been bad for the American middle class; it’s just been even better for everyone else. To some extent, the gap is inevitable: It’s easier for poor countries to grow than for rich ones to do so. But we can and should do better, to encourage faster growth in the U.S. (and the rest of the rich world) and ensure that that growth is widely distributed.

What about the other (relative) losers on the chart? The extremely poor haven’t been exploited by globalization, either. Rather, the poor performance at the very bottom of the chart can be attributed to political instability and conflict, which has prevented some places from being hooked into globalization (or unhooked them – Cote D’Ivoire, par exemple — or hooked them in late — e.g., Angola). Bill and Melinda Gates remark in their foundation’s annual letter this year that they predict by 2035 there will be essentially no countries like these “very poorest” countries. As a matter of solely economics, this is almost an understatement of the growth we’re seeing in poor countries. But since the problem is political — both too much bad governance and not enough good governance — and the world has actually not shown signs of becoming a more peaceful, stable place in the past few years, their prediction may be overly optimistic. (Their mention of North Korea as a country kept poor by its politics and central Africa as a region kept poor by being landlocked understates the problem of bad politics substantially — but that’s a debate for another day.)



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