Is globalization a good or a bad thing?

February 11, 2014

Xavier Devictor Rzeczpospolita

Is globalization a good or a bad thing?  Does it benefit everybody or mainly the “banksters”?  There have been many debates about globalization and inequalities, but what is the evidence?

Global inequalities started to rise with the Industrial Revolution, when a score of countries experienced much faster economic growth than the rest of the world.  This gave them an advantage which they kept until the beginning of the globalization era.  A “catching up” phenomenon is now at play, with some of the poorest countries having emerged and turned into global engines of growth.  It is too early to pass a definitive judgment, but it seems that inequality across countries has started to decline since the late 1990s.  On the other hand, there is evidence that in some countries globalization has been accompanied by an increase of inequalities – as recently raised by people as different as Pope Francis and President Obama.

Yet, in a recent paper, a World Bank researcher, Branko Milanovic, looked at the question from a different perspective – what if we forget for a moment about borders and measure inequality among individuals (not nations)?  What if we do not compare, say, Poland to Germany, or rich and poor in Poland, but each person in the world to all others?  Would we see global inequalities, those between the world’s richest and poorest citizens regardless of where they live, on the rise or in decline ?  The study provides some interesting insights on the nature of inequality in the age of globalization.

As could be expected, it shows that the world remains a tremendously unequal place.  Using a standard indicator (the Gini coefficient), global inequality is far greater than inequality within any country, even the most unequal ones.  The gap between a poor person in India or Sub-Saharan Africa and the Western upper-class is an abyss.

The study also shows that the determinant factor of one’s income is where one lives.  The poorest five percent of Germans are richer than the wealthiest five percent of Ivoirians.  In other words, social classes matter less than places of residence (bye-bye Marx !).  The consequences are clear – either poor countries can develop their economies fast, or their people will be inclined to migrate to richer shores. 

Maybe most interestingly, the study looks at the winners and losers of the globalization process – and unveils several unexpected facts. 

It is often assumed that there are two main groups who benefit from globalization – the “top 1 percent” and the “emerging middle class” in countries like China, India, etc.  The numbers confirm these intuitions.  But they also show that the income of the “emerging middle class” rose even faster than that of the top 1 percent.  And that this “emerging middle class” accounts for about half of humankind.  This is no small feat!

The study also shows that the people at the “global bottom” too have gained over the last decades, less than the “emerging middle class” but enough to reduce abject poverty dramatically (the exception is the poorest five percent of the world population, people who typically live in conflict-affected countries, and who have seen little benefits of a globalization process that has largely bypassed them).   This is very encouraging.

In fact, the biggest losers of the globalization process may well be the “global upper middle class” (technically: those between the 75th and 90th percentile of income distribution), i.e., the poorest part of the population in Western European countries, the lower middle class in Central Europe.  These groups have not lost out, but they have not seen their income rise in any meaningful manner over the last two decades while the rest of the world surged. 

So what does it all mean for a country like Poland?  In spite of common perceptions, Poland as a whole is already among the wealthiest countries in the world, even though of course not everybody in Poland is wealthy.  The study highlights the need to accelerate economic growth, so as to increase as rapidly as possible the distance from the potentially swampy grounds of the “global upper middle class”.  It also suggests that continued policy action is needed to ensure that prosperity can be truly shared by all, that the gains of globalization are not captured by a “happy few”, but on the contrary that all can take advantage of the opportunities offered by the globalization process, including those who earn the least.  It highlights the importance of contributing to other countries’ development to reduce the global inequalities which can be the seeds of geopolitical turmoil.  And most importantly it provides a confirmation (with numbers !) that the world is indeed becoming a better place. 

The full study is available at https://elibrary.worldbank.org/doi/pdf/10.1596/1813-9450-6259