7. How can ethical market economies be encouraged to help reduce the gap between rich and poor?
A strategicplan for a global partnership between rich and poor should use the strength offree markets and rules based on global ethics to reduce the disparities. Theworld economy grew 4.9% in 2007 to $66 trillion (IMF’s new PPP weights) or $55trillion (official exchange rates). As population is growing at 1.16% per year,world income per capita increased just under 4%. At this rate, world povertywill be cut by more than half between 2000 and 2015, except for sub-SaharanAfrica.
Althoughdeveloping countries grew about 8%, producing more than 40% of the world’seconomy, income disparities are still enormous. The number of people living on$1 or less per day continues to fall, but the number living on $2 per day hasgrown to nearly half the world. ILO reports that families of an estimated 487million workers live on less than $1 per person per day, and 1.3 billion (43.5%of all workers) have under $2 per day. Economic inequality within countries asmeasured by the Gini coefficient has increased in the vast majority ofcountries over the past two decades. About 30% of the developing world iseither unemployed or underemployed.
Internationaltrade continues to grow faster than the overall economy. Foreign directinvestment grew to an estimated $1.5 trillion in 2007, an increase of 16% todeveloping countries and 41% to transition economies. Although overseasdevelopment assistance grew 2.4% in 2007, the 2005 G8 commitments for ODA arebehind schedule. Remittances are three times more than ODA and could beaugmented by connecting tele-volunteers overseas with the development process backhome.
The hightech–low wage conditions of China and India will make it very difficult forother developing countries to compete; hence, developing countries shouldrethink their export-led growth strategies. In addition to improvedagricultural and industrial productivity investments for domestic markets,technical assistance to leapfrog into new activities via tele-education andtele-work should be coupled with microcredit mechanisms for people to seekmarkets rather than non-existent jobs. The WTO has agreed to eliminateagriculture export subsidies by 2013, which cost developing countries $72billion per year, according to UNDP estimates. This, plus improved fair trade,increased economic freedom, and successful Doha Round negotiations, is expectedto boost growth in developing countries substantially. Half the $200 billion incarbon emissions trading income should go to the developing world.
Ethicalmarket economies require a “level playing field” guaranteed by an honestjudicial system and by governments that provide political stability, a chanceto participate in local development decisions, business incentives to complywith social and environmental goals, fair trade, a healthy investment climate,and access to land, capital, and information. The Index of Economic Freedom andthe Corruption Perceptions Index show that reducing corruption and increasingfreedom correlates with improved economic development. Affordable food and fuelprices will also help reduce poverty.
Challenge 7will be addressed seriously when market economy abuses and corruption bycompanies and governments are intensively prosecuted and when the developmentgap—by all definitions—declines in 8 out of 10 years.
Africa:Africa has grown over 5% for the fifth straight year, averaging 5.4% over thepast 10 years. Booming commodity markets helped it grow 6.2% in 2007, and tradewith China grew to $73.3 billion in 2007. China’s loans to Africa outgrew theWorld Bank’s and others, making China a dominant player in Africa’s growth.Nevertheless, high birth rates, an infrastructure gap, high indirect costs,corruption, armed conflicts, poor governance, environmental degradation,climate change, poor health conditions, and lack of education continue toimpede Africa’s development. The New Partnership for Africa’s Development helpsfocus national and international cooperation to promote private-sectoractivity, support infrastructure development, improve ICT, diversify productionand exports, foster environmental stewardship, encourage small businesses, andfight corruption. Government budgets should be tied to local self-help, as inEgypt; cultures should become more scientifically and entrepreneuriallyoriented.
Asia andOceania: China became the world’s second largest economy (at PPP) during 2007,and its annual $1,221 billion in exports passed the U.S. But its increasingwater and energy shortages, widening rural-urban income gaps (the wealthiest10% of Chinese hold 45% of urban wealth), migration of 18 million peopleannually from rural to urban regions, and worsening environmental conditionsput unprecedented strain on resources and stability. Asia produces about athird of the world’s output, has two-thirds of the world’s poor, and confrontsproblems similar to China’s. ASEAN plans to accelerate integration among itsmembers and to establish an ASEAN Community by 2015. The keys to economicgrowth in the Middle East are greater economic freedom, resolution of theIsraeli-Palestinian conflict, the rule of law, increased literacy, genderequality, and small business development.
Europe:Russia has the fastest-growing economy in Europe at 8.1% in 2007. EU’s 27member states increased their investment in non-member states by 53% in 2007over 2006. The combination of aging population, shrinking middle class in somecountries, and expensive public services is not sustainable without increasingnumbers of immigrants and more tele-entrepreneurs among the retired Europeans.EU enlargement continues to expand ethical markets and harmonize legal systems,yet the rich-poor gaps widen, social services are cut, and work migrates tolower-wage countries. In southeastern Europe and the former Soviet republics,despite record FDI of $98 billion and economic growth of 8.5%, unemploymentpersists at 8.5%, and rampant corruption and internal tensions continue.
LatinAmerica: The region grew 5.6% in 2007 and FDI reached $126 billion, withinflows for Brazil, Chile, and Mexico doubling, but it has the largestrich-poor gap in the world, and poverty households headed by women increased to36%. To reduce the rich-poor gap, distribution of the means of production andland tenure should change, including larger participation of lower-incomepeople in all phases of development projects. The new Union of South AmericanNations and its Bank of the South intend to strengthen regional integration,fight organized crime and corruption, and improve social standards.
NorthAmerica: The U.S. negative balance of trade continues at historic highs—helpingemployment overseas but threatening its economy at home, while its debt is over$9.4 trillion, promising future inflation. The income gap in the U.S. continuesto widen: the richest 1% holds almost $17 trillion, $2 trillion more than thebottom 90%. In Canada, as a result of strong economic growth, the income of thepoorer segment grew 5.6% in 2006, while that of the richest remained stable,shrinking the income gap.
Figure 5.Share of people living on less than $1 a day (%)
Source: Global Monitoring Report 2008, World Bank-IMF