When she was young, Maria Vargas moved from the countryside in northern Brazil to Sacadura Cabral, a poor suburb (favela) of São Paolo. (Melo, 2002) She worked as a maid and in the textiles industry, but was injured and had to provide for herself and her seven children – one of whom died as a four-year-old – by sewing after the death of her husband. Maria is only one of the many faces of poverty.
But poverty is decreasing and the world is gradually becoming a better place to live in: health is improving, school enrolment is increasing and democracy is on the rise. Many people seem to be unaware of this fact. An important reason for the progress that is taking place is the fact that during the last decades of the 20th century, there was a movement towards liberalization and globalization almost everywhere.
A freer world economy
World trade has become considerably freer over time – the median global tariff rate has decreased from 26 percent to 9 percent since 1980. (Gwartney & Lawson, 2009) Today, 80 percent of developing countries’ exports to industrialized countries do not face any tariffs, up from 54 percent in 1998. (UN, 2010, p. 68) Government intervention in agriculture has become less pervasive. An obvious case is China, where agricultural output has increased considerably since liberalization. In other developing countries, the government has historically maintained a monopoly on the purchasing of agricultural produce or regulated food prices, typically as a way of supporting politically powerful urban residents at the expense of farmers. But around 1990, many countries implemented wide-ranging market reforms and abolished the monopolies. (Giuliano & Scalise, 2009, Swinnen et al., 2010) Government intervention in agriculture has declined also in rich countries and subsidies have become lower as a share of farmers’ income, but much remains to be done. (Primdahl & Swaffield, 2010, p. 162, The Economist, 2010)
Macroeconomic policy has improved significantly over the last few decades. Since 1980, the median inflation rate has fallen from 14 to 4 percent. Destructive manipulation of exchange rates of any significant degree is only taking place in three countries today, compared to 50 countries in 1980. During the same period, the number of countries with a top marginal income tax rate exceeding 50 percent shrank from 62 to 9. (Gwartney & Lawson, 2009) Direct government intervention has also decreased, as well as bureaucracy and red tape. The World Bank has documented 1,835 privatizations between 2000 and 2008 at a total value of $453 billion. (World Bank, 2010d) It has become easier to run a business in 153 countries over the last five years. The situation has worsened in only 20 countries. For example, three out of four countries have implemented reforms to make in easier to start a business and six out of ten countries have made it less troublesome to trade across borders. (World Bank, 2010c)
All the indicators of a well-functioning market economy mentioned above can be summarized by an index referred to as economic freedom. A network of think-tanks puts a number on economic freedom in the countries of the world each year. As figure 1 indicates, average economic freedom has increased by one and a half points on a scale of ten since 1980. 87 percent of world population reside in countries that have increased their economic freedom since they were first included in the index.
Figure 1. Population-weighted economic freedom in the world on a scale of ten. Source: Author’s calculations based on Gwartney & Lawson (2009)
Economic theory tells us that more economic freedom should result in faster economic development. Free trade allows countries to specialize in activities that they are good, low taxes give people an incentive to work and invest and private firms with profit motive have greater incentive to rationalize production than state-owned enterprises. This intuition is confirmed by the empirical evidence in figure 2, where GDP per capita in the countries of the world is plotted against economic freedom. Almost half of the variation in income is explained by economic freedom and the relationship is statistically significant. The experiences of similar countries that tried different economic systems – such as North Korea/South Korea, Dominican Republic/Cuba and Finland/Estonia – also imply that economic freedom fosters growth. (Paldam & Gundlach, 2008)
Figure 2. Association between economic freedom and income across countries. Source: Gwartney et al. (2010), Maddison (2010)
However, figure 2 does not prove the existence of a causal relationship between economic freedom and economic growth. In order to show such causality, more advanced statistical methods need to be utilized, also making use of the available historical data on economic freedom. An entire academic literature does exactly this, and the picture that emerges is clear: economic freedom is good for growth. It does not seem likely that there is reverse causality – growth causing higher economic freedom – as the increase in economic freedom precedes the increase in growth. (Berggren, 2003, Doucouliagos & Ulubasoglu, 2006, Justesen, 2008)
Rising incomes – and the poor benefit the most
Figure 3. World GDP per capita with a prognosis. Source: Maddison (2010), IMF (2011)
Figure 3 indicates that the increase in economic freedom has had an impact on growth of world GDP. Growth has been particularly strong since the turn of the millennium. The only decade that compares to the 00s – including the financial crisis – is the 60s post-war boom. But during that period growth was strong mostly because rich countries became richer and diverged from many poor countries. This time it is the poor countries that are growing the most. Asia and Africa grew faster in the 2000s than in the 1960s. For Europe and the Americas, the reverse is the case.
But the conventional way to compute world GDP growth may not give a fair picture of economic development for most people in the world as the rich countries dominate when average growth is calculated. (Collier, 2007) If the populations of the countries are used as weights rather than GDP, a different picture of average GDP growth emerges. Annual growth remained within the band 2.4–3 percent during every decade of the second half of the 20th century. During the 00s, growth was 4.3 percent. Never before have so many people experienced as fast economic development as during the first decade of the 21st century. (Author’s calculations based on Maddison, 2010)
This development has consequences for world income inequality. There are many different ways of calculating inequality, but a majority of the studies in this area conclude that the world Gini coefficient – the most common measure of inequality – fell during the 1990s and probably also during the 1980s. Within-country inequality has risen while between-country inequality has declined. And since the big inequalities in the world are between rich and poor countries, total inequality has decreased. (Anand & Segal, 2008)
Economic growth is by far the best way to fight poverty. The countries with the highest income growth are also the countries were the incomes of the poor grow the most. (Dollar & Kraay, 2002, Adams, 2004) Strong growth over the last three decades has lifted almost a billion people out of extreme poverty – when consumption falls short of a dollar per day, inflation adjusted. As a share of world population that represents a decline from 42 to 21 percent between 1981 and 2005. The World Bank predicts that poverty will continue to fall to 11 percent in 2020.
But even this might be understating the fall in poverty rates. Two economists in the United States claim that the household surveys used by the World Bank to estimate poverty are biased as the increase of consumption in the surveys is lower than the income increase implied by the national accounts. The reason could be that rich people are less able to recall everything they have consumed. The economists therefore estimate that poverty has declined by almost two thirds since 1981, rather than halved as the World Bank data suggests. (Pinkovskiy & Sala-i-Martin, 2009)
Figure 4. World extreme poverty and hunger. Sources: Chen & Ravallion (2010), World Bank (2010b), FAO (2010b)
Higher incomes allow people to purchase more and better food. Daily calorie intake rose from 2,200 per person in the 1960s to 2,800 in 2007. People consume 37 percent more fruit and 56 percent more vegetables today compared to twenty years ago. Protein intake has also increased – by ten grams per person and day since the 1980s. Contributing to this is the fact that meat consumption rose by a third and fish consumption by a fourth during the same period. (According to production statistics from FAO, 2010a) The share of people who get so few calories that they are classified as undernourished has halved since the 1970s, but undernourishment has not fallen by very much over the last two decades and increased temporarily in 2009 (see figure 4). Still, the undernourishment among children fell from 31 percent to 26 percent in developing countries between 1990 and 2008. (UN, 2010) Improved nutrition is an important explanation of the Flynn effect – the substantial increase of average IQ test scores over time. (Boix & Stokes, 2003)
Democracy is on the rise
Economic growth has positive effect also in the political arena; there is a clear association between economic development and democracy. Dictatorships are more likely to democratize the richer they are and democracies are less likely to collapse the richer they are. There is an exception, however: if national income increases due to oil, the country becomes less democratic on average, not more. The oil curse, as this phenomenon is called, is probably caused by the concentration of power generated by oil money, giving politicians the opportunity to buy political support. (Ross, 2001, Asleksen, 2010)
Researchers have noted that countries that are richer than a certain level of income are almost guaranteed to be democracies. (Gilley, 2008) A look at the list of the countries with a GDP per capita exceeding 15,000 dollars confirms this. Of the 56 countries on this list, 45 are democracies. (IMF, 2011) Ten of the eleven nondemocracies are oil exporters. The only country that is neither a democracy nor an oil exporter is Singapore. An important test of this theory takes place in the late 2010s when China is likely to surpass 15,000 dollars.
Figure 5. Share of world population in democracies, nondemocracies and countries without data. Source: Author’s calculations based on CIDCM (2008)
Bearing in mind that the world has become considerably richer, it is not surprising that democracy is reaching an increasing number of countries. Figure 5 shows that a wave of democratization started in the 1980s.
More than half of world population now live in democracies. Some of the countries that were part of this wave of democratization are listed in table 1.
Table 1. Some of the countries that democratized over the last 30 years. Source: CIDCM (2008) and others
The human rights situation is also improving. During 2010, 23 countries carried out executions; during the 1990s, more than 30 countries performed executions each year. (Amnesty, 2011) The latest country to abolish capital punishment is Gabon. At the same time, the rights of sexual minorities are progressing. Since 2009, same-sex marriage has been introduced in Sweden, Iowa, Vermont, New Hampshire, Portugal, Iceland, Argentina and New York.
The rise in the number of democracies is a good thing in itself, but it can also have positive effects in other areas. It is now generally accepted that two democracies have never waged war against one another in world history. The possible exceptions to this empirical rule are marginal cases where it is disputed whether the countries involved were democracies or whether the conflict was in fact a war. (Russett, 1993, Ray, 1998, Wayman, 2002) Democratic regimes do not murder their own people, either. (Rummel, 2009) The reasons for the democratic peace may be that those in power are kept responsible by the public for costly wars, that governments who respect the rights of their own citizens also respect the rights of foreigners or that democracies perceive other democracies to be legitimate. (Doyle, 2005)
The progress of democracy is in all likelihood an important explanation of the declining frequency of war. Between 2002 and 2007, annual battle deaths are estimated to have been three per million people. That is a fall by 95 percent compared to the Cold War average. According to Harvard psychologist Steven Pinker, this is a part of a trend of declining violence that stretches over long time periods. (Pinker, 2007)
Figure 6. World battle deaths (conservative estimate). Source: HSRP (2010)
Better health for women, children and everybody else
The situation of women has improved dramatically over the last few decades. The proportion of women that marry before the age of 18 has decreased in most countries, as has the share that is forced to go through genital mutilation. Women’s own acceptance of men’s violence against their wives is also on the decline. (Unicef, 2011) In addition, women’s work outside the home is increasing. (UN, 2010, p. 22) The number of births attended by skilled personnel is rising and maternal mortality has decreased by over a third since 1990. The trend is similar for child mortality: since 1970, it has halved in Africa, declined by two thirds in India and by five sixths in China. Globally, child mortality has fallen by 57 percent.
Figure 7. World life expectancy. Source: World Bank (2011)
Life expectancy continues to increase – it is now 69 years. Life expectancy reaches record-high levels every year even in sub-Saharan Africa; it has increased by three years since 1990, despite the devastating impact of the aids epidemic on some countries. Most improvement has taken place in Asia, however: Indonesia has raised its life expectancy from 41 years to 71 years since 1960 and Vietnam has enjoyed an increase from 57 years to 75 years since 1980. (World Bank, 2011)
Increased chances of survival enable people to have fewer children, as parents face less uncertainty about whether their descendants will survive to adulthood and care for them during old age. Except for sub-Saharan Africa and a few other countries, the normal number of children is now one, two or three. The falling number of children causes world population growth, expressed in percent, to continue to fall – a trend that started in the 1960s. The UN predicts world population to increase at a decreasing rate during the 21st century, stabilizing around ten billion towards the end of the century. This is bad news for those of us who like people. However, it is good news for children that grow up in small families were parents can invest more in each child. (UN, 2011)
An important explanation of declining child mortality is progress in the struggle against malaria, a disease that mostly affects children in Africa. The proportion of African households who own an insecticide-treated bednet is estimated to have increased from 3 percent to 42 percent over ten years. During the same period, malaria deaths declined by a fifth. (WHO, 2010, p. 20 and 61) There is also progress in the fight against aids. The number of new infections is on decline since the mid-1990s and deaths peaked in 2006. (UN, 2010, p. 40)
The world is also becoming a safer place. During the years 2000–2010, there were 17 documented fatalities per million people per year in disasters such as droughts, epidemics, floods and earthquakes. That is less than any decade in the 20th century, despite the 2004 Indian Ocean tsunami and the 2010 Haiti earthquake. The death rate was 305 per million during the first half of the 20th century and 38 per million during the second half. (CRED, 2011)
Education, education, education
World literacy has been increasing for a long time (see figure 8). And the positive trend will continue: more than nine out of ten children attend elementary school in almost every part of the world. The only exception is sub-Saharan Africa, where 76 percent of children go to school. This is still an increase from 58 percent in 1999. Participation in tertiary education has increased by 50 percent over the same period. (World Bank, 2011) Children in developing countries are now educated for 10.4 years on average (up from 9.1 years in 1999) and children in developed countries are educated for 15.8 years (up from 15.2 in 1999). (World Bank, 2010a) Parallel to increasing school enrolment, child labour is declining. It is believed to have halved during the second half of the 20th century. The trend continues into the 2000s: the share of 5–14-year-olds who work fell from 16 percent in 2000 to 13 percent in 2008. (Basu, 1999, p. 1087, ILO, 2010, p. 8)
Figure 8. World literacy. Source: Unesco (2008)
The growth of cities is contributing to social progress. There are fewer malnourished children in cities than in rural areas in every region. The proportion of children not attending school is twice as high on the countryside as in urban areas. Male-female disparity in school enrolment is also lower in cities. (UN, 2010, p. 14) For these reasons, it is a fact to be welcomed that the share of world population who live in cities has climbed from a third in the 1960s to about half today. It is especially hopeful to note that African urbanization is progressing at high pace. (World Bank, 2011) In addition, fewer city dwellers reside in slum areas. A third of urban population in developing countries is classified as slum dwellers, down from 46 percent twenty years ago. (UN (2010), p. 64. A small part of the decrease is due to a change of definition.)
Urbanization is contributing to improved access to water. The proportion of people with access to safe water has increased from 77 percent to 87 percent since 1990. Two thirds of the increase consisted of expanding coverage of running water, while the remaining third consisted of protected wells and other improved water sources. A little more than half of world population now have running water in the home. During the same period, the share with access to improved sanitation facilities that prevent human contact with human excreta increased from 52 percent to 61 percent. (World Bank, 2011, WHO, 2006)
80 percent have a TV
The proportion of people with access to electricity in their homes has risen from 49 percent to 79 percent since 1970. (IEA, 2002, IEA, 2010) Four out of five households own a television, an increase from three out of four in 2003. There are 76 mobile subscriptions per 100 people. That is twice the number of five years ago. Three out of ten people are internet users – also twice the number of five years ago. People in developing countries already make up the majority of internet users and those regions are where most future growth will take place. (ITU, 2011a) Progress is helped by privatizations and increased competition. 126 countries have privatized their national telephone companies. The share of countries with a competitive market for information and communication services has increased from a third to two thirds over ten years. (ITU, 2011b)
A rising number of people have access to an automobile, expanding opportunities to recreation and commuting. There were 8 cars per 100 people in 1990. By 2005, the number had increased to 10. It is estimated that there will be 14 cars per 100 people in 2020. (Chamon et al., 2008) This trend will of course have an impact on the environment in general and on global warming in particular, but it should be noted that the concentration of carbon dioxide in the atmosphere increased from 300 ppm to 370 ppm during the 20th century. At the same time, the average temperature of Earth increased by 0.6 degrees and sea level rose by 20 centimetres. But the world became a better place from practically all points of view during this period. If fossil fuels had not been used, progress would probably not have been as fast. The costs of global warming must therefore be weighed against the cost of emission abatement, and simply pointing to environmental factors is not a legitimate argument against the thesis that the state of the world is improving dramatically over time.
Some environmental indicators deteriorate in a country’s initial industrialization phase but subsequently improve as the country becomes richer. During the last few years, methane and sulphur dioxide emissions, as well as per capita carbon dioxide and nitrogen oxides emissions, have declined in rich countries. It should therefore be expected that the environment of today’s poor countries will improve as incomes grow and people raise their valuation of the environment.
Some aspects of the environment are already improving on a global level, for example air quality. The concentration of particles in urban air fell by 42 percent between 1990 and 2008. Africa saw the largest decline. (World Bank, 2011) The concentration of CFC-11 – a Freon that contributes to ozone depletion – in the atmosphere peaked in 1994 and has decreased by seven percent since then. (WRI, 2007)
The meta-good news
Another positive trend is that more and more people seem to be aware of the fact that the state of the world is improving. The interest for global development issues has increased and most people appear to realize that economic growth and a market economy is the only way to achieve sustainable development. It was shown in an experiment that individuals who live in globalized countries or are in contact with foreigners cared more about people in other countries when asked about how a pool of resources should be distributed. Perhaps this is an explanation of the fact that the volume of non-governmental aid from the OECD to developing countries more than doubled between 2002 and 2009. (Buchan et al., 2009, OECD, 2011)
Migration is rising, especially with developed countries as the destination. This might be a result of more liberal policies – immigration to the United States has increased considerably since the 1965 immigration reform. Emigration often yields significant incomes when guest workers abroad remit money to family members back home. In 2009, migrant workers across the world sent home more than 400 billion dollars to their families. As a share of world GDP, this is twice the levels of the 1980s and 90s. (IOM, 2010)
In all likelihood, people’s standard of living will continue to improve. Life expectancy is believed to increase by three years between now and 2020. Extreme poverty is estimated to decline by six percentage points over the same period. This is possible because of continued economic growth. China, India, Indonesia, Vietnam, Ethiopia and Tanzania are among the countries expected to growth the most – all by more than five percent annually. (Inflation-adjusted GDP per capita growth according to IMF, 2011)
Maria Vargas has experienced most of the improvements of the last few decades. Brazil’s favelas now have running water and electricity and almost everyone has a television. All of Maria’s sons attend school and aim to proceed to university. They work when they do not study and have each bought a car. And in contrast to Maria, her children have grown up in a democracy. Maria’s life story is in many ways typical – she is one of billions of parents who know that their children will live a better life than they did.
This article was originally published as “Globaliseringens triumf” in Cooper, Eva (ed.), Globaliseringens triumf? (Stockholm: Timbro)
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The rise of global capitalism since 1980 has been the central factor in the massive rise in global quality of life. In this article, Jacob Lundberg explains why more liberalized global markets have meant richer and freer people.