Globalization and Inequality

Globalization is a good thing. The largest countries in the world, China and India are seeing rising incomes, purchasing power, and opportunities to large segments of their population. But there are also a lot of people being left behind, and we need to strive to improve the lives of as many people as possible. We need to find better ways to deliver the benefits of free trade, perhaps through harnessing a fraction our collective purchase power to support companies who favor the Triple Bottom Line approach. I do not support the anti-globalization/anti free-trade movement: I think free trade is good, but we can definitely improve the system at the edges.

Consider the case of the world's hottest economy, China. As Stephen Roach points out, the vast majority who live in the countryside are increasily getting left behind. Hat tip to Brad Setser.

China remains very much a tale of two economies -- a booming development model at work in the increasingly urbanized coastal part of the nation in stark juxtaposition with relatively stagnant economic conditions persisting in the rural central and western portions of the country. While fully 560 million urban Chinese are now participating in the economy’s rapid development dynamic, that still leaves a rural population of some 745 million on the outside looking in. Interestingly enough, the accelerating trend of rural-to-urban migration has done little to arrest the inequalities of the Chinese income distribution over the past 15 years. This is somewhat surprising in that urban per capita incomes in China (US$1,531 in the top 35 cities in 2004) are slightly more than three times those in rural areas ($488). But the increase in China’s overall Gini Index from 35 in 1990 to 45 in 2003 not only reflects the impacts of an ever-widening income disparity between coastal China and the rest of the nation, but it is also a function of the increased divergence in the distribution of urban incomes. On this latter point, a recent report of China’s Academy of Social Sciences notes that average incomes in the bottom quintile of urban Chinese workers are less than 5% of average incomes in the upper quintile.