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That Silly Inequality DebateAuthor(s): Nancy BirdsallSource: Foreign Policy, No. 130 (May - Jun., 2002), pp. 92+94Published by: Washingtonpost.Newsweek Interactive, LLCStable URL: http://www.jstor.org/stable/3183496 .

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Global Newsstand

That Silly Inequality Debate By Nancy Birdsall

M Finance & Development, December 2001, Vol. 38, No. 4, Washington, D.C.

Most analyses and studies of trends in global income inequality usu-

ally end up on one side or another of a rather silly debate. In one camp we find the globalists, who invari- ably see the last 15 or 20 ascen- dant years of market-driven inte- gration of economies as the cause of declining global inequality (and poverty) and improving levels of human welfare. This view is shared by most mainstream economists,

Robert Hunter Wade nicely explains how easy it is for people to disagree on the facts in his recent opinion essay "The Rising Inequal- ity of World Income Distribution," appearing in Finance & Develop- ment, an IMF quarterly magazine. A professor of political economy at the London School of Economics, Wade uses recent trends in global inequality to judge whether glob- alization (along with market-ori- ented reforms such as trade liber- alization and privatization) has helped or hurt the world's poor.

Wade shows that any conclu- sions about global inequality depend

In reality, globalization is not the key factor

explaining changes in international inequality,.

heads of state, ministers of finance, and officials of the United Nations, World Bank, and International Monetary Fund (IMF). On the opposite side are the antiglobalists, who regard the extension of inter- national markets and corporate and financial interests as the cause of increasing global inequality (and poverty) and declining levels of human welfare. This view prevails among social justice activists in the developed and developing world, some members of faith-based groups, and a small subset of the economics profession.

on how analysts measure inequality and the question they wish to ask. He points out that, by several meas- ures, global inequality has actually increased within many countries, across countries, and across people if everyone's income is converted into U.S. dollars without considering differences in local purchasing power. Indeed, of the eight possible measures he lists, Wade concludes that "seven of the eight show vary- ing degrees of increasing inequali- ty" over the past two decades. He blames this rising inequality on dif- fering rates of population growth between rich and poor countries, the fall in non-oil commodity prices, excessive debt, and the pressures of technological change.

However, by the measure that best reflects people's true welfare (i.e., the measure based on lining up all households in the world according to their income, stan- dardized for their local purchasing power), inequality is probably not rising. Indeed, in a 2001 study using this approach, World Bank economist Branko Milanovic found a small increase in inequality between the late 1980s and the early 1990s, but not one that is statistically robust (a caveat Wade overlooks). And though inequality of average incomes across coun- tries has increased, that is mostly because today's richest economies have had such strong growth, leav- ing the poorest countries that have hardly grown at all further and fur- ther behind. But the recent growth success of India and China-two of the most populous nations in the world-means that finally, in absolute terms, the number of peo- ple living below the World Bank's absolute poverty line of $1 a day actually fell during the 1990s.

Ultimately, no amount of tech- nical analysis of trends in inequal- ity will help us decide whether we ought to be globalists or antiglob- alists. In reality, globalization is not the key factor explaining changes in international inequali- ty, and more or less globalization will not accelerate or halt the underlying trends. What really matters to both finance ministers and social activists is the terrible gap in average incomes between rich and poor countries and the

growing gaps in income across

people within countries such as

Nancy Birdsall is the president and

cofounder of the Center for Global

Development in Washington, D.C.

92 FOREIGN POLICY

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Global Newsstand

China, Mexico, South Africa, and Thailand. What really matters to citizens in poor nations are the corruption and waste that too often undermine their countries'

growth prospects and their own children's opportunities. And what should really matter to citizens in the rich economies of Europe and North America is the impact of

their countries' trade, immigra- tion, and finance policies on the prospects of their neighbors in Africa, South Asia, and the poor- est parts of Latin America. [H[

India Flexes Its Muscles By Alexander Evans

SSAPRA India Bulletin, December 2001, New Delhi

SHerald, January 2002, Karachi

t's official. Aggressive diplo- macy works for India. Exas- perated by a decade of Paki-

stani support for Islamist rebels in Kashmir, India has used the war on terror in Afghanistan and the suicide attack on India's parliament building on December 13, 2001, to give fresh impetus to a nation- alist foreign policy. While the In- dian public differs from its lead- ers, rating national security low on its list of electoral priorities, Indian diplomats have extracted major concessions from Pakistan by directly threatening war.

In the December 2001 issue of the SAPRA India Bulletin, a secu-

rity journal published by a New Delhi think tank, former Indian intelligence officer B. Raman reflected upon the impact of the Indian parliament attack. Raman complained that historically India has reacted passively to Pakistan's use of terrorism as a "low-cost covert weapon against us." He instead called for a proactive yet flexible policy, including diplo- matic measures such as severe restrictions on bilateral trade. He

advised against a hard-line approach, arguing that leaping too quickly toward military options shows a failure of imagination.

But the Indian government took a different tack. It drew on U.S. rhetoric following the September 2001 terror attacks in the United States and demanded Pakistan take action against the two militant groups allegedly responsible for the December assault. India quickly mobilized land and air forces and

Your time is up: Pakistani President Gen. Pervez Musharraf (left) and Indian Prime Minister Atal Bihari Vajpayee in January 2002.

initiated a massive military buildup on the border with Pakistan. It also withdrew its high commissioner to Pakistan, cut diplomatic missions to Pakistan by half, and barred Paki- stani planes from Indian airspace.

By late December, Pakistani offi- cials expected an Indian attack. As Pakistani journalist Zaffar Abbas recounts in the Karachi-based monthly magazine Herald, Pakistan President Gen. Pervez Musharraf alerted U.S. Secretary of State

Colin Powell that Indian military action was imminent, thus sparking intense diplomatic activity by Powell and U.S. Presi- dent George W. Bush. The United States pressed India and Pakistan for restraint, but Indian restraint carried a price tag: Islamabad must take visible action against insur- gents in Kashmir. On January 12, 2002, a somber Musharraf yielded to India's demands when he appeared before his citizens on live tele- vision to publicly ban five Pakistan-based Islamist militant groups. He also out-

Q- LL D 0 z 0

Alexander Evans is a research associate at the Centre for Defence Studies at King's College London.

94 FOREIGN POLICY

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