Saturday, 13 August 2016

Is the world getting richer?

There’s a Twitter hashtag called #firstworldproblems. Your WiFi packs up, a fat person sits next to you on the train and talks into their phone for the entire journey, Waitrose runs out of Italian Prosciutto slices forcing you to buy ordinary ham. Mildly irritating events that appear all-consuming, prompting you to take to social media to vent your frustration and simultaneously display a mature self-awareness that your petty grievances are as nothing in the scheme of things.

For accuracy although not brevity, #firstworldproblems should be rebranded #firstworldproblemsofthereasonablyprivilegedindevelopedcountries. A tweet complaining, ‘Had to wait 1 ½ hours for baked beans & noodles at the food bank today! #firstworldproblems’, doesn’t sound right.

Is, though, economic stagnation and decline a ‘first world problem™’? The 2008 Global Financial Crisis had, as its name suggests, a world-wide impact but has been felt most severely in developed economies. The UK’s economic ‘recovery’ disappears into thin air when GDP is calculated per capita – ie per person, taking into account the increase in population over the last six years. Europe has suffered two recessions since 2008. The near zero interest rates in evidence throughout the developed world betray the fact that no real economic recovery has taken place. If it had, borrowing by companies to invest would have pushed the price of money – the interest rate – upwards. This hasn’t happened.

By contrast, consider China. The Chinese economy has slowed to a growth rate not seen since the last year of the 20th century. But, at 6.8%, it still stands at a level that makes developed economies green with envy and represents a record of economic growth they have rarely equalled at any time in history. Per capita income in China grew fivefold between 1990 and 2010. In advanced economies, the story is the opposite. Between 2005 and 2014, real incomes were flat or declined for two-thirds of households in 25 rich economies.

Elsewhere, India, now the world’s seventh largest economy, has achieved an average of 7% annual GDP growth for the last two decades. The Turkish economy has grown by nearly 4% a year since 1999.  So is the malaise of weak economic growth, halting business investment and dwindling wealth limited to developed economies? Is it a first world problem?

Paul Mason, in his book Postcapitalism, marshals the evidence to suggest it is. According to him, the era of globalisation (the late 1980s onwards) has witnessed a palpable growth in the incomes of two-thirds of the world’s population. In terms of GDP per person, the developing world, he says, has grown by 404% since 1989, a spurt of economic expansion that outpaces even the post-Second World War boom, which was centred in Europe and the US.

In contrast, the people who have decidedly not benefited from globalisation live in the developed world. “They gained almost nothing from capitalism in the past twenty years,” Mason writes. “In fact some of them lost out.” The losers of globalisation include “black America, poor white Britain and much of the workforce of southern Europe”.

Branko Milanovic, a World Bank economist, argues that while the global 1% and the middle classes of so-called ‘emerging market’ economies have been the main beneficiaries of globalisation, they are not, by far, the only ones. The poor have also got decidedly less poor. “The surprise is that those at the bottom third of the global income distribution have also made significant gains, with real incomes rising between more than 40% and almost 70%,” he says. It is this rise in wealth at the bottom of the ‘global pyramid’, claims Milanovic, which is responsible for the startling fall in the ranks of the world’s ‘absolute poor’ over the last 20 years.

Milanovic does not spare the hype, calling this change, ‘probably the profoundest global reshuffle of people’s economic positions since the industrial revolution’.

Have the poor inherited a bit more of the earth?

But is the hype justified? Are we in the West largely blind to the material progress that has been made in other parts of the world? One reason, however, to remain sceptical of claims of mass global enrichment is that it rests heavily on poverty reduction in one country alone – China. Home to 1/5th of the world’s population, China has been responsible for more than three quarters of global poverty reduction. Without China, whose internal political economy is configured very differently to the market triumphalism dominant in most of the world, the World Bank’s poverty figures would look markedly less impressive.

Another reason for distrust is that world GDP statistics don’t bear out the world-bestriding optimism. “The relative stagnation of the economy since the mid-1970s is a global phenomenon,” insists US Marxist economist Andrew Kliman. He argues that slowdown in economic growth that has taken place in the US since the 1970s is “somewhat less drastic” than that of the rest of the world (advanced and developing countries alike). After 1973, says Kliman, the growth rate collapsed by more than half in Africa, Latin America and the Caribbean, as well as in Europe and Japan. Remove China and India from the mix and the Asian growth rate shows a similarly sharp contraction.

But the claim that globalisation represents ‘the greatest economic event in human history’ does not rest on development since the 1970s but since the late 1980s and, in particular, the early 2000s - when Mason’s figures show growth as particularly marked. But even here Kliman dissents, arguing that “for the period since 2000, World Bank figures indicate that growth of real GDP per capita accelerated only minimally.” According to Kliman, world GDP per capita stood at 1.3% between 1990 and 2000 and at 1.6% between 2000 and 2008. Far from earth shattering and nothing like the 3.2% global growth that occurred in the decade between 1960 and 1970.

You can balk at the notion of using GDP growth as a surrogate for people’s average incomes. GDP growth per capita (per person) does reflect the reality better than bare GDP figures, as the UK’s experience shows, but it is far from perfect. If GDP represents national income, it offers no clue as to who, within the nation, receives that income. So a country with modest GDP, could be internally egalitarian and effective at reducing poverty. Left-leaning Latin American countries such as Uruguay, Bolivia, Venezuela and Ecuador may fall into this category. But GDP still gives a broad indication of how rich a country’s inhabitants are.

You might also have suspicions about the insights of an avowed anti-capitalist like Kliman. Consider then those of Ha-Joon Chang, an ‘institutional economist’ who believes capitalism to be the “best economic system humanity has invented”. According to Chang per capita income growth in the developing world stood at 3% in the 1960s and ‘70s. But it fell by nearly half, to 1.7%, for the two decades from 1980. Income growth did rise in the 2000s, says Chang, bringing the growth rate up to 2.6% for the entire 1980 to 2009 period. This is still, though, below the pre-1980s record, and much of that growth has depended on the commodity boom which Chinese economic growth hugely stimulated. With the Chinese slowdown, the commodity boom has ebbed as well. The South African economy, the 2nd largest in Africa, is ‘in crisis’, the government there admits.

The growth rate for particular regions illustrates a downward trend, hardly commensurate with the greatest spurt of development in human history. Latin America, notes Chang, grew 3.1% in per capita terms in the 1960s and ‘70s. But between 1980 and 2009 at a rate of barely one-third that level – 1.1%. Per capita income growth in Sub-Saharan Africa was 1.6% in the 1960s and ‘70s but only reached 0.2% between 1980 and 2009. For many years in the 1980s and ‘90s African growth, under the tutelage of destructive Structural Adjustment Programmes, was actually negative. According to the NGO, Global Justice Now, in 2008 there were 562 million people living on less than $2 a day in Sub-Saharan Africa, a figure almost double 1981’s 288 million. The overall population of Africa has also increased since the early ‘80s, “but even proportionally, there has been almost no improvement in poverty rates in sub-Saharan Africa since 1981,” the NGO says.

Paul Mason claims that during the post-war boom capitalism suppressed the development of the global south and that “unequal trade relationships forced much of Latin America, all of Africa and most of Asia to adopt development models that led to super-profits for Western companies and poverty at home.” The coming of globalisation “changed all that”.

This is only partly true. Exploitation by the West intensified in the 1980s and ‘90s, and globalisation, for most countries, has not really remedied that disadvantage. So while some large non-western countries, specifically China and India, have grown spectacularly (although poverty reduction is much more marked in China), the great ‘global reshuffle’ is much less profound for most of the world’s population.


  1. Here is an interesting addition to the article which indicates that poverty reduction founded on an economic boom up to 2005/6 (when the World Bank's poverty figures were collected) has not been sustained:

    To quote:

    "In 1993, 23% of the Brazilian population lived in extreme poverty, meaning that their income was insufficient for the minimum number of calories required for healthy survival. By 2009, this figure had fallen to 8.4% – still unacceptable, of course, but a dramatic reduction nonetheless. The period from 2003 to 2011 saw 39.6 million Brazilians join the ranks of the so-called new middle class."

    But in Brazil this economic boom, based on oil, has ground to a halt. In general, most of the economic booms of the early 2000s, founded on commodity export, like oil or coal, have gone the same way

  2. This is another article which finds that, if you remove China from the poverty statistics, things look remarkably less rosy:

    And China's internal policies have been very different to those practiced in the rest of the world - state banks, industrial policy etc