Monday, June 02, 2008

RX for Global Poverty

I agree with Robert Samuelson's assertion that global poverty is the greatest moral challenge we face and that the surest way to help eradicate it is by embracing globalization. I do not think, however, that embracing globalization should stop with the developing world. Thomas Friedman has written and talked on end about the benefits of globalization for the developing and developed world. A tremendous failure of the Democrats will be if they follow through on promises to roll back our trade agenda. In foreign affairs, it will only weaken our leverage to encourage countries to embrace free markets and greater democratic reforms. Domestically, it will hurt consumers already facing high gas and food prices.

What's the world's greatest moral challenge, as judged by its capacity to inflict human tragedy? It is not, I think, global warming, whose effects -- if they become as grim as predicted -- will occur over many years and provide societies time to adapt. A case can be made for preventing nuclear proliferation, which threatens untold deaths and a collapse of the world economy. But the most urgent present moral challenge, I submit, is the most obvious: global poverty.

There are roughly 6 billion people on the planet; in 2004, perhaps 2.5 billion survived on $2 a day or less, says the World Bank. By 2050, the world may have 3 billion more people; many will be similarly impoverished. What's baffling and frustrating about extreme poverty is that much of the world has eliminated it. In 1800, almost everyone was desperately poor. But the developed world has essentially abolished starvation, homelessness and material deprivation.

The solution to being poor is getting rich. It's economic growth. We know this. The mystery is why all societies have not adopted the obvious remedies. Just recently, the 21-member Commission on Growth and Development -- including two Nobel-prize winning economists, former prime ministers of South Korea and Peru, and a former president of Mexico -- examined the puzzle.

Since 1950, the panel found, 13 economies have grown at an average annual rate of 7 percent for at least 25 years. These were: Botswana, Brazil, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand. Some gains are astonishing. From 1960 to 2005, per capita income in South Korea rose from $1,100 to $13,200. Other societies started from such low levels that even rapid economic growth, combined with larger populations, left sizable poverty. In 2005, Indonesia's per capita income averaged just $900, up from $200 in 1966.

Still, all these economies had advanced substantially. The panel identified five common elements of success: Openness to global trade and, usually, an eagerness to attract foreign investment. Political stability and "capable" governments "committed" to economic growth, though not necessarily democracy (China, South Korea and Indonesia all grew with authoritarian regimes). High rates of saving and investment, usually at least 25 percent of national income. Economic stability, keeping government budgets and inflation under control and avoiding a broad collapse in production. A willingness to "let markets allocate resources," meaning that governments didn't try to run industry.

Of course, qualifications abound. Some countries succeeded with high inflation rates of 15 to 30 percent. Led by Japan, Asian countries pursued export-led growth with undervalued exchange rates that favored some industries over others. Good government is relative; some fast-growing societies tolerated much corruption. Still, broad lessons are clear.

One is: Globalization works. Countries don't get rich by staying isolated. Those that embrace trade and foreign investment acquire know-how and technologies, can buy advanced products abroad, and are forced to improve their competitiveness. The transmission of new ideas and products is faster than ever. After its invention, the telegram took 90 years to spread to four-fifths of developing countries; for the cellphone, the comparable diffusion was 16 years.

A second is: Outside benevolence can't rescue countries from poverty. There is a role for foreign aid, technical assistance and charity in relieving global poverty. But it is a small role. It can improve health, alleviate suffering from natural disasters or wars, and provide some types of skills. But it cannot single-handedly stimulate the policies and habits that foster self-sustaining growth. Japan and China (to cite easy examples) have grown rapidly not because they received foreign aid but because they pursued pro-growth policies and embraced pro-growth values.

The hard question (which the panel ducks) is why all societies haven't adopted them. One reason is politics; some regimes are more interested in preserving their power and privileges than in promoting growth. But the larger answer, I think, is culture, as Lawrence Harrison of Tufts University argues. Traditional values, social systems or religious views are often hostile to risk-taking, wealth accumulation and economic growth. In his latest book, "The Central Liberal Truth," Harrison contends that politics can alter culture, but it isn't easy.

Globalization has moral as well as economic and political dimensions. The United States and other wealthy countries are experiencing an anti-globalization backlash. Americans and others are entitled to defend themselves from economic harm, but many of the allegations against globalization are wildly exaggerated. Today, for example, the biggest drag on the U.S. economy -- the housing crisis -- is mainly a domestic problem. By making globalization an all-purpose scapegoat for economic complaints, many "progressives" are actually undermining the most powerful force for eradicating global poverty.

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