The great convergence



The chart above comes from Dani Rodrik, who calls this "the great divergence, the other way around". It shows the smoothed average growth rates for developed and developing countries since the 1950s, with developed countries in black and developing countries in bold green. (Unfortunately the chart isn't weighted for population, as far as I can tell. If it was, the uptick would be even more dramatic, with China and India pulling the field up strongly. I may be wrong about this weighting.)

The sharp upwards turn from the late 1980s is startling. I don't think the "Washington Consensus" package of neoliberal macroeconomic reforms is perfect, or even a sufficient set of policies for growth, but it is remarkable that the uptick coincided with this. It also coincides with the end of the Cold War, which shouldn't be underestimated as a factor.

Basic growth theory tells us that, all other things being equal, poor countries should grow more quickly than rich ones as technologies and business practices from the rich countries are applied in the poor ones. But the "all other things being equal" caveat is crucial here, because they never are. Factors like bad policies, corruption, war, weak of rule of law and social strife have all typically held back countries in Asia, Africa and Latin America, preventing the convergence that we would otherwise expect.

Yes, the growth looks shaky, and could be partially bubble-fueled. But if enough developing countries have fixed up some of their governance problems, we might be looking at a very good couple of decades where the global wealth gap finally starts to shrink. And if it does, it'll be because of market-based economic growth, not wealth redistribution. There's a lesson in that for all of us.