Benefits and challenges of globalisation

In the 20^th Century, the poorest quarter of the world's population became almost three times richer. Economic development lifted more people out of poverty than ever before and gave them better health and education and better opportunities in life. Gains of this magnitude are unprecedented in human history.

A clear majority of those who were poor as recently as 1970 have got richer, in both absolute and relative terms: over the last 30 years, about 70 per cent of the population of developing countries have experienced sufficiently fast growth in real per capita GDP to converge towards rich countries' levels. Poverty has worsened in some nations, particularly in Africa. But there are major developing countries, particularly in Asia, with large populations that have been growing quite strongly and lifting millions out of poverty.

In our part of the world - East Asia - economic policies which encouraged foreign investment, more open trade, and economic growth, have halved the number of people living in extreme poverty in less than 2 decades. The dispersion of living standards has been slowly narrowing, not widening. The only halt in this process was the Asian economic crisis of 1997-1998. Economic growth is the best poverty-buster yet discovered.

But there have not been many successes in sub-Sahara Africa.

Those countries where poverty is worsening are not those which have participated in free capital flows and foreign investment. On the contrary they are those that have been unable to participate in globalisation because of war, corruption, or maladministration. And their economic institutions are weak. Their share of global trade has actually halved over the last 20 years. They are isolated from global trade opportunities.

This indicator of falling trade shares for the poorest countries is not a sign they are exploited by globalisation, but rather an indicator they are missing out on the opportunities that can be created.

Many of the problems attributed to international trade rules or international institutions such as apparently intractable poverty in the poorest countries, are in fact failures of national policies and institutions. If only things were easy. If only we could defeat poverty by halting the proceedings of the World Trade Organisation. The truth is much more pessimistic than the fantasy that the developed world can fix all the problems of the developing world. Ending war, tribal conflict, corruption, building legal and economic institutions is so much harder.

The greatest victims of the anti-globalisation demonstrators who want to stop more liberal world trade would be the poor. Protectionist policies followed in developed countries would lock the poor out of markets for agriculture and textiles where they could actually develop trade and earnings. It is not open markets and free trade, it is protection that will damage the world's poor.

Economic reform has also brought benefits to Australia. In the 1960s Australia used to trail OECD average annual real per capita income growth by about 1 percentage point. By the 1990s and particularly in the second half of the 1990s Australia's productivity kicked away and we began to lead the OECD annual average per capita income growth by about half a percentage point.

Australia was only one of three OECD countries (together with Ireland and the Netherlands) to have registered markedly stronger trend growth of real GDP per capita over the past decade compared to the 1980s. The same trio also led the OECD in the trend growth of multifactor productivity with gains in Australia particularly strong in the later part of the 1990s.

There was broad bipartisan support for economic reform until Labor went into opposition. Since then Labor has had some success in the politics of opposing economic reform. But it has been unable to come up with any alternative program.

So if these economic developments are pulling people out of poverty, if they have led to rising living standards in our own country, why is there so much disquiet? Why has globalisation become a dirty word?