controversy on world income distrubution - reader's letter Robert Wade,

c) The Economist Newspaper Limited, London 2001. All rights reserved. 
Source: ECONOMIST 02/06/2001 

02Jun2001 UK: SIR - Ian Castles (Letters, May 26th) says that world income
distribution has become more equal... 
SIR - Ian Castles (Letters, May 26th) says that world income distribution
has become more equal over the past 25 years. My article ("Winners and
losers", April 28th) shows why one cannot make such an unqualified
statement. Of the many plausible measures, Mr Castles's statement rests on
the one most favourable to the view that inequality is falling. In
particular, he uses PPP exchange rates, which introduce a very substantial
downward bias. If we are interested in distribution from the point of view
of issues such as migration, the marginalisation of developing countries and
capacity to repay foreign debts, we should compare incomes with market
exchange rates. The conclusion is then unambiguous: distribution became much
more unequal over the past quarter-century.
Nancy Birdsall (Letters, May 26th) is right that inequality within
developing countries is probably contributing to low growth. The same
applies to inequality at the world level. America after 1945 realised that
its own growth would be imperilled if it did not redistribute massively to
Europe. Today, transfers from rich countries to poor, and downwards
redistribution within poor countries, are in the collective interests of the
rich countries. Those who say, as you do, that "pulling up the poor still
seems a nobler calling than pulling down the rich", overlook this (Economics
focus, April 28th). Without downwards redistribution, the rich may not
remain rich.
Finally, you say that the world's 600m poorest people saw their share of
world income fall between 1988 and 1993 not because of globalisation but
because of economic isolation. True. But the question is whether this can
best be addressed by "globalising"-that is, by opening their markets,
investing in infrastructure, removing price distortions, strengthening the
rule of law and establishing western-style democracy. Where government
gangsterism prevails, this may be the best that can be hoped for. In more
normal states, government should do much more.
Robert Wade
London School of Economics
London




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