A Mole at the World Bank? Truth-Telling between the Lines

The Financial Times headline read “Rapidly Swelling Middle Class is Key to World Bank’s Global Optimism.” Nonsense, I thought. The World Bank is up to its old tricks again, making a silk purse out of a sow’s ear.

It seemed just another case of how to lie with statistics. Stress the doubling of the middle class in the world’s population by 2030, and bury the fact that 84% of the world’s population won’t be middle class. In fact, the overwhelming majority of humanity will be far from it. In 2030, half a billion persons will still be living on a dollar or less a day, and 1.8 billion will still be living on less than 2 dollars a day, according to the Bank. Against the Bank’s estimate that 1.2 billion persons in poor countries will be middle class, the claim of a “rapidly swelling middle class,” admittedly the Financial Times’ characterization of the Bank’s Global Economic Prospects 2007, issued on December 13, rings a bit hollow. The poor we shall still have with us, and in abundance, it appears, if we wait for the world’s new middle class to bring about a more just society.

The news gets worse. Economic growth through 2030 will only slightly close the income gap between rich and poor countries. For every positive economic stride taken by poor countries, for every climb on the income ladder made by this new middle class in poor countries, rich countries and most importantly their rich citizens, take two steps forward. By 2030, the rich will have increased their proportion of the world’s income from 58% in 2000 to 69%. Thus far, massive industrialization in poor countries has not really shifted the economic balance of power. “Five decades of development have done little to bring the average incomes of developing countries closer to those of OECD (rich) countries,” says the Bank, practically in an outburst of unusual clarity.

Moreover, inequality inside poor countries is likely to worsen. This has been happening in rich countries since the seventies. In poor countries, the new middle class will be pulling away from everyone else, working class and poor alike.

Still another cloud noted by the Bank itself casts a shadow over its sunny optimism. Between now and 2030, the world economic growth rate will stagnate at 3%, a point lower than the period between 2004 and 2006, and significantly lower than the 4.5% rate that created the rich country middle class between 1960 and 1980. Developing countries will grow at a 4% rate, a point above the world rate, but the increment must outrace any population growth while motoring an economic catch-up rate to rich countries much greater than heretofore seen. The remarkable rise of China, as well as its remarkable size, disguises the probable fates of other poor countries that will not grow at China’s astronomical rates. Their improvements will be in increments too small to pull up incomes generally.

Just a case of the glass half-empty, my interpretation, versus the half-full glass interpretation presented by the World Bank? Perhaps, there is no gainsaying anything else. In the long run, as Keynes said, we will all be dead and thus won’t know anyway.

But something else has crept into the World Bank’s analysis. As an inveterate reader of their voluminous annual reports and annual outlooks for the past decade and more, I think I have read in this latest Economic Outlook 2007 something new. It seems that the Bank is ready to argue, albeit buried on page 83 of the new report that rising income inequality gets in the way of eliminating poverty. In code, they put it this way: “Rising inequality is worrisome because there is an inverse relationship between inequality and poverty reduction.” In other words, as economic inequality increases in a society, fewer people escape poverty. The Bank’s model of the relationship between inequality and poverty reduction shows that in 40 poor countries with higher income inequality, poverty reduction stagnates or declines, while in 40 other poor countries, poverty does decline with rising inequality. Where poverty declines, however, the increments are small. The Bank concludes:
“”In addition to a contemporaneous reduction n poverty that may be expected from lowering inequality, policies that promote a more equal distribution of income are likely to enable the economy to realize greater poverty reduction from future growth.” (85)

What happened to the trickle-down theory? Isn’t economic growth enough? Is something more than a safety net now deemed necessary? The new middle class won’t bring greater well-being to poor countries? As Claude Rains said to Bogie: “ I am shocked! Shocked!”

More shocking still: Can the World Bank be suggesting income redistribution? Are they admitting that equality is better for economies and people as well than simply economic growth and an outpouring of free enterprise?

Imagine: There is a mole in World Bank – and on Wolfowitz’s, how do you say, “watch.” Someone has smuggled a bit of truth into the Bank. Equality is better: it does a better job of eliminating poverty and improves the prospects for greater economic growth. According this time to the World Bank.

Faced with these facts, you might now think that the relationship between poverty and economic inequality is almost intuitive. But then again, if you are an American reader, a European reader, or that new middle class person in a poor country, you probably don’t wonder how your fate (no less than mine) is tied inextricably with the fate of all the poor people who surround you in your everyday life. Isn’t it unlikely that all of them are down on their luck, and you perchance are not?

In my next column two weeks from now, I will talk about the redistribution that the World Bank hints at could occur, and to the advantage of poor people around the world. I will also talk about why people in rich countries find it difficult to accept the virtues of doing something to bring about worldwide economic equality.