- The Washington Times - Wednesday, May 29, 2002

When President Bush announced a 50 percent increase in the U.S. aid budget for poor countries that would reform their economies, he was taking a smart step toward maintaining an open international economy and disarming the protesters against globalization.

The recent period of globalization, like the half-century before World War I, has seen increased inequality among and within countries. The ratio of incomes of the 20 percent of people in the world living in the richest countries, compared to the 20 percent living in the poorest countries, has increased from 30 to one in 1960 to 74 to one in 1997. By comparison, it increased between 1870 and 1913 from seven to one to 11 to one. Such conditions have political effects as increasing flows of information make people more aware of the inequality. Ironically, if the resulting protests produce protectionism and closure in the global economy, the outcome will hurt poor people.

In part, increases in inequality by country are a straightforward result of rapid economic growth in some but not all parts of the world. They demonstrate that movement out of poverty is possible, although often hindered by political factors as well as resource constraints. Most of the poorest countries in the world whether in Africa or Asia have suffered from misrule, corruption and inept macroeconomic policies. The weakness of their political systems can be blamed in part on colonialism and l9th-century globalization, but the sources of their recent poor performance are more complex. Several countries in East Asia that were equally poor in the 1950s used networks of globalization to greatly increase their wealth and status in the world economy. Even though openness alone is not sufficient to overcome poverty, it is difficult to find any countries that have prospered while closing themselves off from economic globalization, and those that have tried have fared poorly witness Burma and North Korea.

Consideralso China, a poor country that has been growing very rapidly since its leaders decided to open their economy in the 1980s, thus exposing their society to the forces of globalization. China's "human development index" as calculated by the United Nations reflecting life expectancy, educational attainment, and GDP per capita showed dramatic gain. Hundreds of millions of Chinese were made better off by market reforms and globalization. At the same time, hundreds of millions of others, particularly in the Western parts of the country, saw little or no gain. Contrary to protesters' cliches about the rich getting richer while the poor get poorer, some of the Chinese poor became richer. At the same time, domestic inequality may continue to rise, particularly as China exposes inefficient state-owned enterprises to international composition under the terms of its accession to the World Trade Organization.

Will rising inequality create problems for American foreign policy? In the late 19th century, inequality rose in rich countries and fell in poor countries, and a third to a half of the rise in inequality could be attributed to the effects of globalization. Many of these changes were due then to mass migration, which explained about 70 percent of the real wage convergence in the late l9th century. The political consequences of these shifts in inequality are complex, but the economic historian Karl Polanyi argued powerfully in his classic study, "The Great Transformation" that the market forces unleashed by the industrial revolution and globalization in the 19th century not only produced great economic gains, but also great social disruptions and political reactions. There is no automatic relationship between inequality and political reaction, but the former can give rise to the latter. Particularly when inequality is combined with instability, such as financial crises and recessions that throw people out of work, such reactions could eventually lead to restrictions on economic globalization.

Unlike the mass working-class movements of socialism in the 19th and early 20th centuries, the current protests tend to be elite rather than mass movements. While their leaders often claim to speak on behalf of the poor and to represent global civil society, they tend to be relatively well-off self-selected groups from wealthy countries. Some protesters want more international regulation that would intrude on national sovereignty; others want less infringement of sovereignty. But whatever the incoherence of their coalitions, they have been able to capture global attention from media and governments. Their concerns about growing inequality, about cultural homogenization, and about absence of democratic accountability manage to touch responsive chords, even if not yet to ignite a mass movement.

To the extent that the United States wants to see economic globalization continue, we will have to think more clearly about the political responses to such charges and to make clear that we are committed both to open markets and helping to reduce poverty. Mr. Bush's decision on aid was a wise step in that direction.

Joseph S. Nye Jr. is dean of Harvard's Kennedy School of Government and author of "The Paradox of American Power: Why the World's Only Superpower Can't Go It Alone."

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