Starring Dave Nicholson, an SID MA Candidate – in other words, a classmate of mine, who I think is absolutely brilliant (pronounced in British accent). The text below is one of the topics of our “discussion boards” based on a couple of recent studies on the above referenced subject:
Bob Sutcliffe. (2004).World inequality and globalization. Oxford Review of Economic Policy, Vol 20, No 1.
Dollar, David and Aart Kraay (2002) Growth is Good for the Poor, Journal of Economic Growth, Vol. 4.
As what seems to be the typical outcome in economics, the answer to the question of the growths impact on inequality seems to be....all together now....it depends. Bob Sutcliffe studied various methods of measuring inequality and found that different indicators could be used to generate different results. Without a reliable measure of inequality, the impact of growth is really tough to judge with any certainty, and therefore the impact of globalization is equally tough to measure. The only thing Sutcliffe can conclude is that inequality is very high right now, using the word “futile” to describe attempts to quantify it properly. If nothing else I admire his honesty.
In another study, Dollar and Kray seem to try really hard to obtain some correlation between current popular pro-poor policies and reduction in inequality (This observation is based on the fact that I understand little to nothing of what they actually did, but it sounds both impressive and time consuming). The conclusion they draw is that pure economic growth is the only thing that can be reliably attributed to increasing the income of the poorest 20% (don't tell Amartya Sen anyone!) They admit that this doesn't imply that nothing else has an impact, but merely that the contributions made by various policy and institutional factors may be too complicated to recognize in their “simple” study.
Trying to read their study led to the feeling that we were going round in circles; such a broad study was unlikely to identify singular important factors. I thought the Washington Consensus experience had taught us that the search for a blue print answer for all countries was “futile”, and that localized factors were always relevant in policy creation. Overall, we can conclude that we don't really know. Dejarvous anyone? Equiproportionately so.
The bottom line is – we don’t know, or at least, the attempts of such broad-based, cross-country studies to measure even a more complex correlation between growth, poverty and inequality leaves us with inconclusive results. Fried-pork, anyone?
For clarifications – Amartya Sen, a philosopher and economist who teaches, as said in Heller parlance, right down the road at Harvard. A Nobel Prize winner for economics in 1998, he’s famous, among many other works, for his book Development As Freedom – a self-explaining title that sees the true means towards development in enhancing freedoms and capabilities of people, whereas growth in itself does not necessarily contribute towards the end goal.
Washington Consensus – a set of ten market-oriented, neo-liberal policies that came out from Washington based institutions (World Bank and IMF) in 1989-1990, that were aimed at reducing the role of government and placed the emphasis on the markets to promote development. It was broadly implemented in a number of developing countries and yielded pretty miserable results. One of the lessons among the many from this particular experience was that there are, after all, no blueprint solutions to development that can be transferred from one country to another.
