Courtesy Reuters

Inequality Is No Myth

JOE W. PITTS III is a Dallas-based entrepreneur and former Chief Legal Officer of Nokia, Inc.

David Dollar and Aart Kraay's argument that globalization is a "powerful force for equality" is strange in light of widely accepted empirical evidence that inequality within and between countries has increased over the last 200 years. Although they claim that inequality has leveled off or started to decrease in the last two decades, the evidence on this topic remains unclear. To make their case, Dollar and Kraay rather arbitrarily classify a certain group of nations as "globalizers" and point to a decrease in inequality. However, as Harvard economist Dani Rodrik and others have pointed out, using more objective criteria (such as tariffs) for selecting the globalizers suggests that economic growth peaked in the 1960s and 1970s. Indeed, the latest World Bank report on globalization, of which Dollar was a principal author, backed away from the claim that the most globalized countries were those that had adopted the most protrade policies.

Even if Dollar and Kraay had not made faulty assumptions in choosing their globalizers, their breathtaking conclusion that "greater openness to international trade and investment has ... helped narrow the gap between rich and poor countries rather than widen it" confuses correlation with causation. When average national income is examined, the fact that China and India have had higher growth and relatively fewer poor people distorts the picture because of the size of those two countries. In addition, higher growth in these nations preceded more open trade. Almost everywhere else, growth has slowed or (as in sub-Saharan Africa) reversed. Moreover, as illustrated by rising inequality within China and India, just because growth also raises the incomes of the poor does not mean that it reduces inequality, since the poor start from a radically lower position than the rich. Indeed, if incomes of both the rich and poor increase at a similar rate, inequality is increased, not reduced. Another study published in January by another World Bank economist,

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