May 2, 2002 | Commentary on Foreign Aid and Development

A Global Reality Check

It's all too easy, when the anti-globalization crowd hits town, to get distracted by the cheap street-theater and ignore the fact that these self-anointed "champions of the poor" have it exactly backward when they claim a global economy brings more poverty.

They did provide a colorful diversion for those of us in Washington recently as they poured out their frustrations on the World Bank and the International Monetary Fund (IMF). But if they want to help the poor, they should be chanting slogans in favor of globalization.

Not that there is nothing wrong with the World Bank and the IMF. There is plenty, starting with their remarkable lack of success in helping poor nations grow economically. For instance, in Sub-Saharan Africa, 17 countries saw a decline in real per capita GNP between 1970 and 1999, despite receiving well over $100 billion in World Bank assistance.

But the protesters shouldn't blame globalization for this failure. It's the refusal of poor countries to adopt pro-globalization policies and embrace economic freedom that condemns their citizens to poverty.

A recent World Bank study found that, during the 1990s, developing countries with more open economies grew at over 4 percent annually, while developing countries with more closed economies shrank. This suggests that poor countries should embrace globalization if they want to court wealth.

UCLA researchers Richard Roll and John Talbott bolster this conclusion with a recent study showing that the amount of real income per capita a nation enjoys depends almost entirely on its economic, legal and political institutions. They examined more than 130 countries and how each performed between 1995 and 1999, and found that the presence of strong property rights, political rights, civil liberties, press freedom and low government expenditures-hallmarks of a "globalized" economy-meant higher incomes.

Roll and Talbott's work is backed up by the "Index of Economic Freedom," an annual survey that measures economic freedom in 161 countries by ranking their economies on a scale from 1 ("free") to 5 ("repressed"). "Free" countries in the 2002 Index had a per capita income of $23,325; "repressed" countries had a per capita income of $3,829.

Why this dramatic difference? Roll and Talbott explain:

"Economic participants cannot save in a world of inflationary government-sponsored counterfeiting. They cannot compete with state-sponsored monopolies. They cannot trade efficiently with the existence of high tariffs and phony official exchange rates. They cannot easily overcome burdensome regulation and corruption. They cannot capitalize future profits in a world devoid of property rights. And they cannot prosper without economic and personal freedoms."

Fifty years ago Hong Kong, South Korea and Singapore were about as poor as many developing countries are today. What a difference globalization makes: Real income per capita in Hong Kong in 1999 was 7.3 times larger than it was in 1960; in Korea, 9.6 times larger; in Singapore, 9.8 times larger. Meanwhile, real per capita income over the same time period in sub-Saharan African countries-where globalization and economic freedom are virtually unheard of-was only 1.2 times larger.

Some may ask: "But what about the concerns of the protesters-environmental degradation and labor standards?" Experience demonstrates that economic freedom and globalization, by leading to higher per capita incomes, enable countries to improve their labor and environmental standards. For instance:

  • As the income of a country increases, so does its ability to make investments and implement measures that raise labor standards. The World Bank's 2001 "World Development Indicators" shows that in countries with per capita incomes above $5,000, the number of children working between the ages of 10 and 14 was less than 1 percent, while in countries with per capita incomes between $0 and $1,000, the percent of children working between those ages was 21.7 percent.
  • Richer countries also tend to have more sustainable environmental policies than poor ones. The Environmental Sustainability Index (ESI), a project of the World Economic Forum and several other groups, assigns the health of a country's environment a single number ranging from 0 to 100; zero means low sustainability and 100 means high sustainability. Almost without exception, one finds that wealthier economies have higher levels of environmental sustainability.

If protestors truly want to see the poor become wealthier, increase environmental protection, and raise labor standards, they should back globalization. They could urge the senate to pass Trade Promotion Authority, write the White House to object to high tariffs on steel and textiles, or encourage poor nations to embrace economic freedom.

Unfortunately, they're more likely constructing a new cast of giant puppets for the next round of protests.

Brett D. Schaefer is the Jay Kingham fellow in international regulatory affairs in the Center for International Trade and Economics (CITE) at The Heritage Foundation.

About the Author

Brett D. Schaefer Jay Kingham Senior Research Fellow in International Regulatory Affairs
The Margaret Thatcher Center for Freedom

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