An Unequal Distribution — of Capitalism

September 22, 2003 • Commentary

Twenty percent of the world’s population (we often hear) consumes more than 80 percent of the earth’s resources, while the other 80 percent consume less than 20 percent. Critics of globalization never tire of reminding us of this injustice. Far less often do we hear a proper analysis of the reason for this state of affairs.

The critics make it sound as though the poor are poor because the rich are rich, as if the richest 20 percent had somehow stolen those resources from the other 80 percent. That is wrong. The affluent world has grown fastest since losing its colonies. And the regions the imperialist countries subjugated grew faster after becoming colonies than they had previously. Several of the world’s richest countries — such as Switzerland and the Scandinavian countries — never had any colonies of importance. Others, such as the United States, Canada, Australia, New Zealand, Hong Kong, and Singapore, were colonies themselves. On the other hand, several of the world’s least developed countries — Afghanistan, Liberia, and Nepal, for example — have never been colonies.

The main reason for that 20 percent consuming 80 percent of the resources is that they produce 80 percent of resources. The 80 percent consume only 20 percent because they produce only 20 percent of resources. It is this latter problem we ought to tackle. The problem is that many people are poor, not that certain people are rich.

Critics of capitalism point out that per capita GDP is more than 30 times greater in the world’s 20 richest countries than in the 20 poorest. The critics are right to say that this inequality is due to capitalism — but not for the reasons they think. The difference is due to certain countries having taken the path of capitalism, resulting in fantastic prosperity for their inhabitants, while those choosing to impede ownership, trade, and production have lagged behind. Factors such as climate and natural disasters are not unimportant, but most of the gap can still be put down to certain countries having opted for liberalization and others for control.

The 20 economically most liberal countries in the world have a per capita GDP about 29 times greater than the 20 economically least liberal. If, then, we are serious about closing the North‐​South divide, we should hope with all our hearts that the South will also gain access to a free economy and open markets. Developing countries that have had openness in recent decades have not only grown faster than other developing countries — they have grown faster than the affluent countries too.

The world’s inequality is due to capitalism. Not to capitalism making certain groups poor, but to its making its practitioners wealthy. The uneven distribution of wealth in the world is due to the uneven distribution of capitalism.

Trade and investment flows in the past two decades have come to be more and more evenly distributed among the economies that are relatively open to the rest of the world. It is the really closed economies that, for obvious reasons, are not getting investments and trade.

A quarter of direct international investments between 1988 and 1998 went to developing countries. Since the beginning of the 1980s, investment flows from industrialized to developing countries have risen from $10 billion to $200 billion a year. If we look only at capital flows to the developing world, we find that 85 percent of direct investment there goes to a mere 10 countries, often the most liberalizing. But because those investments have been growing by 12 percent annually in the past three decades, tremendous increases also accrue for countries not included in the top 10.

The affluent countries accounted for 80 percent of world GDP in 1975, a share that has fallen to 70 percent today. As has already been mentioned, poor countries that opted for economic liberalization and free trade have had faster growth than the affluent countries in recent decades. Free trade and economic liberalism, it seems, are a way for developing countries not only to get richer, but also, possibly, to catch up with the wealthier countries.

As U.N. Secretary General Kofi Annan said at a conference held in February 2000, soon after the demonstrations against the World Trade Organization: “The main losers in today’s very unequal world are not those who are too much exposed to globalization. They are those who have been left out.”

About the Author
Johan Norberg

Johan Norberg is a senior fellow at the Cato Institute and a writer who focuses on globalization, entrepreneurship, and individual liberty.