CAMBRIDGE: The divisions of income between the world’s rich and the poor are wider than at any time in world history. Rich countries, eager not to be held accountable for poverty in the rest of the world, hold the view that the poor have only themselves to blame for their condition. The theory goes that if poor countries simply adopt the right policies, and if they follow the advice of rich countries via institutions such as the IMF and the World Bank, all will be right. This strategy is doomed to fail, however, because it misunderstands many of the root causes of impoverishment. Perhaps the most urgent item on the world agenda is a more realistic view of the global development challenge.
Here are the facts. According to 1997 classifications of the World Bank for countries with populations more than 1 million people, there are 26 high-income economies in the world, with an average income per person (in 1995) of $24,930, and a combined population of 902 million people. At the same time, there are 107 low-and-middle-income economies in the world, with an average income per person of $1,090, and a combined population of 4.8 billion people, or 84 percent of the world’s population. The gap is actually a bit narrower than this, since the dollar price of goods is lower in poorer countries, so that each dollar of income buys more than in rich countries. Once we take into account the purchasing power of dollars, the gap in incomes is approximately seven times between the rich and the poor countries.
Some poor countries have achieved rapid progress, and have narrowed the gap with the rich countries, at least to some extent. Fortunately, the two largest countries, India and China both fall within that category. If we leave out India and China, however, the rest of the developing world — on average — is falling further and further behind the rich countries. Indeed, between 1985-95, the low-income economies other than China and India had average annual decline of 1.4 percent per year in GDP per person, while the rich countries had average annual growth of 1.9 percent per year. The middle-income countries had a decline of 0.7 percent per year. Thus, the gap widened between the rich and the poor in most of the world. And now with the collapse of several fast growing emerging-market economies in the past year, the gap between rich and poor is widening still further.
Why don’t the poor countries grow more rapidly? The World Bank and the IMF have been peddling their cures for decades, but nothing seems to work. Each failure, in fact, brings new complaints against the poor countries themselves. The most popular charge is that it is all a matter of "bad governance," Washington’s code word for corruption. This theory is dubious for several reasons. First, in most cases, poverty breeds poor governance at least as much as poor governance breeding poverty. Thus, the Washington diagnosis often confuses cause and effect. Second, and even more important, many very well-meaning governments in the developing world, in places ranging from Bolivia to Kyrgyzstan, have had a very hard time generating sufficient economic growth. It’s not just a matter of will power or policy choices.