Sharing Globalization’ s Benefits

Are people and countries being left behind by globalization? The answer, undoubtedly, is yes. In 1960, per capita GDP in the richest twenty countries was eighteen times that of the poorest twenty countries. By 1995, this gap had widened to almost forty times. Evidence also exists showing that wage disparities between skilled and unskilled workers are rising in many developing countries (particularly in middle-income Latin American countries) and in the developed world, too. In Mexico, for example, the gap rose by 40% between the mid- eighties and the mid-nineties

Gains in life expectancy made since the middle of the twentieth century will soon be wiped out in countries at the center of Africa’s HIV-AIDS epidemic. In the transition economies of Europe and Central Asia, the number of people living on less than a dollar a day rose from about one million in 1987 to twenty-four million in 1998 — a more than twenty-fold increase. Ethnic and racial minorities face higher poverty rates in many societies, and this appears not to be improving. In Peru, for example, indigenous groups were 40% more likely to be poor than non-indigenous groups in 1994, and 50% more likely in 1997.

Making matters worse, rich countries are turning their backs. Despite robust growth in most of their economies in the 1990s, development assistance shrank, on average, from one-third to one-fourth of one percent of their combined national product. Their policies are often equally cold- hearted. It is estimated, for example, that industrialized countries’ trade barriers cause annual losses in developing countries of more than twice the yearly amount of development assistance.

Only 10% of the $50-$60 billion spent worldwide each year on health research worldwide is devoted to the diseases that afflict 90% of the world’s people. Thirty-two million HIV-positive individuals in the developing world have no access to treatment because AIDS drugs cost between five and fifty times more than annual average incomes in some of these countries. There is also evidence that in many developing countries public spending is focused on the rich and middle classes and that spending on the poor is not protected from adverse shocks.

Should we throw up our hands in despair? Should we continue to turn our backs? Or are there actions that can be undertaken to share the benefits of globalization more widely?

Economic growth remains a key factor in reducing poverty worldwide. But reducing poverty through growth takes time. For example, in Brazil — where half of Latin America’s poor live — the millions of people who live at a level below half the poverty line would need to see their income increase 300% in order to simply reach the poverty line. It will take several decades of growth for them to become non-poor. This is the case even if Brazil’s per capita GDP grows steadily at 3%, a growth rate above its past performance.

To accelerate the spread of benefits that growth may bring, specific actions are needed both nationally and internationally, including:

— leveling the playing field, particularly by increasing the asset-base of poor people in the areas of education, health, and land;

— by making markets work better for poor people; and

— by reducing social barriers that keep certain ethnic and racial groups or women disadvantaged.

But reforms, although essential to improving conditions for the poor, also produce their own losers and risks. Mechanisms to reduce the likelihood and risks of shocks (economic crises, natural disasters, catastrophic illness and unemployment, for example), and helping poor countries and poor people cope with shocks when they occur must be integral parts of the process of globalization if the benefits are to be shared. Examples of such mechanisms are workfare programs and unemployment insurance, cash and in- kind transfers, and microfinance.

Beyond the domestic arena, a number of international actions can be undertaken to help level the playing field and address systemic risk. A vital policy change is a reduction in protectionism by the developed economies. A second needed change is a clear policy to promote global financial stability. There is now a debate over how that stability can best be promoted. In particular, how important are rescue packages that come after a financial crisis has ravaged an economy?

In a world where contagion and herd behavior prevails, timely rescue packages supported by appropriate domestic policies will continue to be crucial. So will ensuring data transparency and adequate regulatory frameworks to avoid financial crises.

Beyond these economic reforms, the developed world must also make greater efforts to promote global public goods, such as research in agriculture and communicable diseases that affect the developing world. Access for those most in need of the results of this research must also become assured. Other actions include focusing aid on poverty reduction; stemming armed conflict; and encouraging the constructive participation of poorer countries and poorer people in the decisions that are shaping the globalization process.

Nora LUSTIG is Senior Advisor and Chief of the Poverty and Inequality Unit of the Inter- American Development Bank and was co-director of the World Development Report 2000/1 “Attacking Poverty.”