Wednesday, March 14, 2001
The Halifax Chronicle Herald

Growth, not government, best friend of the poor

By Brian Lee Crowley

ANTI-GLOBALIZATION protesters are gearing up to wreak havoc again, this time in Quebec City at next month’s Summit of the Americas. Protesters are being trained in resisting arrest and various other techniques that are liable to lead to some pretty tense confrontations. Concern is so great in Ottawa that Pierre Pettigrew, minister for international trade, has sought a meeting with some of the movement’s leaders.

Similar protests have caused confusion and consternation at many international meetings in the past year, including at the World Trade Organization summit in Seattle and at the World Economic Forum annual meeting in Davos, Switzerland.

So, the protesters have muscle, and are keen to use it. But on behalf of what principles are they deploying this impressive effort? And are their criticisms of globalization valid?

One of the key objections to the growth of global markets and trade was summed up by Lori Wallach, one of the leaders of the anti-WTO protests in Seattle. Globalization, she claimed, harmed the poor, preying on the world’s most vulnerable: “While the macroeconomic indicators have often looked good, real wages in many countries have declined, and wage inequality has increased both within and between countries.”

If accurate, that’s a pretty damning indictment of global market capitalism. Unfortunately for Ms. Wallach – but not for the poor – it is just the opposite of the truth.

In fact, a recent study at the World Bank has just shone a spotlight on the relationship between economic growth and the aspirations of the poor worldwide. In Growth is Good for the Poor, authors Aart Kraay and David Dollar demonstrate that a number of popular views about the poverty-growth relationship are baseless fallacies.

For example, the effect of growth on income of the poor is no different in poor countries than in rich ones. Growth is a social tide that lifts all boats, and the poor in both wealthy and impoverished countries get their full share of the fruits of growth. Nor do the incomes of the poor fall harder than those of the better-off during economic crises. Openness to foreign trade, as British Labour Prime Minister Tony Blair rightly celebrated during his recent address to Canada’s Parliament, benefits the poor to the same extent that it benefits the whole economy.

Dollar and Kraay also found that keeping inflation low is “super-pro-poor” because high inflation is more harmful to the income of the poor than to the economy overall.

While there are variations, these trends of growth redounding powerfully to the benefit of society’s weakest members are remarkably robust across cultures, geography and economic cycles. The authors looked at data from 125 countries, reaching back in some cases as much as 40 years.

In fact, if we are guided by the evidence, the globalization protesters have the anti-poor agenda. Their demand is for more and bigger national governments to combat the evils of economic growth and freedom. But Dollar and Kraay found little relationship between, say, public spending on health and education and the incomes of the poor. On the other hand, there is lots of evidence that big government spending harms the interests of the poor, precisely because government that is too large and collects too much in taxes retards growth. When we forgo growth for more government, the poor are harmed as much as anyone.

Consider the work of another researcher, Prof. Robert Lawson. He has shown that when the size of government relative to the size of the economy grows by 10 per cent, there is an annual decline in the rate of growth of the economy of roughly one per cent. Because of the magic of compound interest, a one per cent loss compounded over 30 or 40 years is a stunning loss of national wealth.

Lawson estimates that if total government spending in Canada had stayed at its 1960 level of just under 30 per cent of GDP (instead of rising to a peak of nearly 48 per cent in 1990), the per capita income of Canadians would have been over $15,000 higher in 1998. Given what Dollar and Kraay have shown about how much of that would have flowed to the poor, our big-government policy was strongly anti-poor, as was the massive government-generated inflation of the 1970s and ’80s.

There are other areas where the anti-globalization protesters have a point. For instance, they are quite right: we are witnessing the halting and confused birth of world government, with few institutions to give it democratic legitimacy. But the anti-trade, anti-growth, pro-big-government agenda of the activists will do nothing to exalt the poor whom they profess to defend, and do much to keep them trapped in a dependency from which it can be dauntingly tough to escape.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: [email protected]