As inequality in the US grows, the rest of the world progesses

Published in The News Tribune, March 27, 2013

Two months ago, economists from around the world converged in San Diego for their annual convention. Dozens presented papers on the hot topic of growing income inequality in the United States.

These papers led to lively and at times heated debates, some of which have subsequently spilled over onto blogs as well as the nation’s opinion pages.

The tendency to focus on the U.S. and our troubling upward trend in inequality is a natural one. But it also misses astonishing progress on the inequality front. Over the last decade, the distribution of income around the world has slowly become more equal. Chalk this up to large numbers of “developing countries” that have, in fact, been developing.

And it’s not just China and India, but Uganda, Turkey, Vietnam, Tunisia, Rwanda, and many other nations across Latin America, Africa, Asia and the Middle East.

The best evidence for this good news comes from the United Nation’s Human Development Report (HDR). Since 1990, this annual report has recorded and commented on measures of key economic and social indicators within countries and across regions.

The just-released 2013 HDR claims that the economic growth now occurring in developing countries dwarfs that which took place during the transformative period 200 years ago we refer to as the Industrial Revolution. HDR’s authors write that “the rise of (developing countries) is unprecedented. Never in history have the living conditions and prospects of so many changed so dramatically and so fast.”

Those are strong words. But this year’s HDR says more than that. Economic growth only tells us that a country had more resources to meet the needs of citizens. It doesn’t tell us if those resources were put to good use. We know that too often they are diverted to military hardware, Parisian spending sprees and presidential jets.

For this reason, the HDR examines not just national income, but also measures of poverty, life expectancy and educational attainment.

On the poverty front, over the last two decades the percent of citizens living in extreme poverty – less than $1.25 a day – has fallen in half. Meanwhile, access within countries to the two key public goods of education and health care has become more equal – in some cases dramatically so. In the span of a decade, some African countries have seen life expectancy increase five years. And most countries have reached the goal of assuring that all children attend elementary school.

A key driver of progress in poor countries has been international trade and the new resources it has created. In fact, rich countries no longer dominate international trade, as more than half of the world’s commerce now originates in nonrich countries.

Another key factor has been a strong state role. The most successful countries have overlooked the advice of experts arguing for free markets and limited government, and instead have looked to Japan and South Korea for inspiration. In both countries, growth relied on intentional state-led policy initiatives.

A final ingredient to success has been nations’ social investments. As noted above, investments in education and health have been especially successful. But countries have also been spending on social protection, social services and strengthening their citizens’ legal rights.

Social investments, it seems, provide the double dividend of promoting a more productive society as well as a fairer one. Easing the potentially destructive forces of social conflict within countries is paying off.

When it comes to growing inequality and stagnant growth, a key debate within our own borders has been the appropriate role for social investments. Should we be investing in education, health, social protection and job creation? Or should this be the era of austerity?

Arguing for the latter, David Brooks of The New York Times says proposals by some for increased social investments are made in a “hermetically sealed (world with) little contact with private-sector job creators. (Proponents) have lost touch with what actually produces growth and prosperity.”

But the HDR concludes that growth strategies cannot succeed without a commitment to equality of opportunity, and that countries that invest in human development have found a key to progress.

Apparently, many developing countries are getting this message. That’s the good news. Better news would be if the U.S. would recognize a message here for us, too.