Journal Issue

Is global inequality rising?

International Monetary Fund. External Relations Dept.
Published Date:
January 2002
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Growth matters. For Surjit Bhalla (Oxus Research and Investments), there was no argument. The evidence was conclusive. The pro-market policies pursued in many developing countries—particularly in Asia—over the past 20 years have generated impressive growth and the most dramatic fall in poverty rates seen in history. Inequality of incomes among people, though not necessarily among countries, has declined, he said (see interview, page 335). And what that tells us, he concluded, is that country policies should be focused on generating growth.

Growth alone is not enough. But even in countries such as India that have seen huge reductions in poverty there are states, such as Bihar, where poverty remains entrenched. This should temper any expectation, emphasized Martin Ravallion (World Bank), that growth alone can transform economies and societies. What experience is telling us, he said, is that a given amount of growth can translate into different amounts of poverty reductions in different countries or regions. The Bank’s focus on pro-poor growth is an attempt to understand why such differences arise and which policy choices can help squeeze the most poverty reduction out of a given amount of growth.

But what produces pro-poor growth? John Cavanaugh (Institute for Policy Studies) argued that the experience of countries under World Bank-IMF policies belied the rhetoric of pro-poor growth and caring about the poor. What has happened to Mexico, he said, is a good example of why the left opposes the typical Bank-IMF policy prescriptions. Mexico has pursued, perhaps more than any other emerging market country in the western hemisphere, a pro-market and free trade orientation—particularly through the North American Free Trade Agreement. While these policies have brought in investment and led to growth, they have also been associated with increased poverty and greater income inequality.

And even the growth that is generated is not all to the good, Cavanaugh said, because it is often associated with an abuse of workers’ rights, displacement of the poor from their homes and traditional livelihoods, and environmental degradation. Instead of the Mexican model, he preferred the more limited and careful engagement with the global economy that countries such as China and India have pursued.

But Sahay took issue with Cavanaugh’s characterization of China’s and India’s policies, noting that these countries, like Mexico, have moved toward more market-oriented policies and free trade. Admittedly, they have done so in a more measured way, she said, but it remains a subject of debate whether their chosen speed was the optimal one.

In concluding remarks, Sahay added that despite the panelists’ sharp disagreement on many matters, there was one policy that they could all support: greater access for developing country products to industrial country markets.

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