Inequality Matters
Why globalization doesnt lift all boats
Nancy Birdsall
After spending the late 1980s working on Latin America for the World Bank,
I became involved in a major study of East Asias postwar growth. The
contrast between the two regions was notable: Latin America was stagnating
while East Asian economies were growing rapidly, with tremendously high
rates of private and public investment and savings. The emphasis on exports
and the pressure to compete in global markets seemed to have worked.
The impressive growth in Taiwan, Korea, Hong Kong, and Singapore, and later
in Malaysia, Indonesia, and Thailand, reflected and was reinforced by
equally impressive changes in peoples behavior and lives: unprecedented
gains in small farmers productivity, high demand for schooling (including
schooling for girls), and declines in fertility far steeper and at lower
income levels than in industrialized economies. These changes contributed
to income gains for households that, in a virtuous circle over many years,
fueled further economic growth, demand for education, productivity
increases, and declines in fertility. I was familiar with many of the
household-level changes through my earlier research in the postwar
developing world. What particularly surprised me was that the rapid growth
had not led to higher inequality.
Textbook economics describes a tradeoff between growth and equality.
Increasing inequality (as in China today) seems to be a natural outcome of
the early stages of development, for example as the shift from
low-productivity subsistence agriculture to high-productivity manufacturing
brings income gains for some people but not for others. In addition,
inequality is likely to enhance growth by concentrating income among the
rich, who save and invest more. Moreover, inequality reflects a system that
rewards hard work, innovation, and productive risk-takingwhich ultimately
ensures higher output and productivity, and thus higher average income and
rates of growth. These inequality-related incentives are the backbone of
the argument against tax-financed redistribution: such transfers undermine
individual responsibility and the work ethic and thus slow growth.
full: http://bostonreview.net/BR32.2/birdsall.html
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