wider_0205 - World Institute for Development Economics...

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World Institute for Development Economics Research United Nations University T he world is becoming ‘fl at’ says Thomas Friedman, a New York Times columnist, in his new bestseller The World Is Flat: A Brief History of the Twenty- fi rst Century . A globophile (an enthusiast of globalization), Friedman is urging the US to take note of China and India’s ability to compete on a new, Web-enabled global playing fi eld. The US needs to adjust to the new, fl at world, one in which its longstanding technological and economic dominance is ending. True: In the new global economy, the US may no longer easily dominate. But the world is not, in fact, fl at. Some entire countries and many people in many countries are stuck in deep craters that mar the global landscape. Those of us on the top, with the right education and in the right countries, can easily overlook the injustice and the frustrations they endure, and the problems they pose for the endurance and prosperity of the ‘fl at’ world. The craters are real and deep. Global inequality across countries is high and rising. The US, Europe and Japan are now 100 times richer on average than Ethiopia, Haiti and Nepal, basically because the former have been growing for the last 100 years and the latter have not. That difference across countries was about 9 to 1 at the dawn of the 20 th century. Rapid growth in India and China, two of the world’s biggest and poorest countries, means inequality across the world’s people is beginning to decline. But the decline is from astonishingly high leels. Differences in personal income (comparing the richest 10 per cent of Americans to the poorest 10 per cent of Ethiopians for example) are well above 10,000 to 1, not 100 to 1. Why Inequality Matters Consider why high inequality matters, both within and across countries. It matters especially within developing countries, where people are more likely (and justifi ably) to see in it signs of injustice, insider privilege, and unequal opportunity. They are often right. In developing countries inequality is usually economically destructive; it interacts with underdeveloped markets and ineffective government programs to slow growth – which in turn slows progress in reducing poverty. Economic theory suggests why: weak credit markets and inadequate public education mean only the rich can exploit investment opportunities. Middle income and poor households cannot borrow and miss out on potentially high returns on their own farms and small business ventures for example – often higher returns than the rich are getting on their capital. The most able children of the less rich miss out on the education and skills that would maximize their own economic prospects and their countries’ own growth. Latin America is an unfortunate example –
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wider_0205 - World Institute for Development Economics...

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