How valid is the claim that the twentieth century experience of economic development was ‘Divergence: Big Time’?

 Before we answer the above question we have to define our terms. Convergence means the closing of the gap between two variables, Divergence means the widening of the gap between the two.

If we are going to evaluate whether or not the world has seen “Divergence, Big Time” we are going to have to work out which variables are worth examining.

The most common one used is GDP per capita, so we can start there. GDP per capita is the final value of the goods and services produced in a country divided by the number of people in that country. This is a rough and ready metric on income within a predefined area.

  • Advantages
    • It is easy to measure.
    • We have good data for nearly all now developed countries going back to around 1870.
    • We have reasonably good data for most developing countries today going back to the immediate post war period.
    • It is the best measure we have of how good a society is at producing things which fulfil people’s material needs.
  • Limitations
    • It does not describe the distribution of income. Equatorial Guinea has vast oil wealth, but most of it has not reached the average citizen, many of whom still live in absolute poverty.
    • It does not capture other measurements of wellbeing. This brings us to…

There are other metrics worth using. For example, the UN has developed the Human Development Index, which looks at a broader range of metrics than just income. It combines three measures.

  • Life expectancy at birth.
  • Adult literacy rate (given a 2/3 weighting in this measure) & a combined primary, secondary, and tertiary gross enrolment ratio (given a 1/3 weighting).
  • Standard of living, as indicated by the natural logarithm of gross domestic product per capita at purchasing power parity.
    • Advantages – More things matter than just income. Very often income is used as a proxy for improvi2ng outcomes like life expectancy and literacy (richer people live longer, and read more) therefore a measure like HDI shows gets directly to those important metrics.
    • Limitations – It can lead to downplaying the importance of income. HDI is Subject to diminishing returns. Literacy can only reach 100%, life expectancy 70/80 whereas there is a less well defined upper limit on income. HDI ignores the power which citizens of wealthy nations enjoy by virtue of being citizens of wealthy nations.

There are also other metrics which can be used equally legitimately.

  • War deaths per capita – dying in war is unpleasant. Has the tendency to die in war become more egalitarian or less? War deaths per capita is the least encouraging measure. The world remained a warlike place in the developing world throughout the end of the 20th C.
  • Free press – No substantial famine has ever occurred in a country with a relatively free press. I haven’t found anything conclusive but there remain significant differences in various part of the world on press freedom. India has a rigorous free press whereas China does not. According to http://en.rsf.org/ so far this year:
    • 25 Journalists killed
    • 2 media assistants killed
    • 157 journalists imprisoned
    • 9 media assistants imprisoned
    • 112 netizens imprisoned
  • Extreme poverty – have the number of people in extreme poverty in poor countries converged on the rate for rich countries (0%). Yes – lots of the movement has been from China and India. The Millennium Development goal to half 1990 level is on target to be reached.

What are poor countries being asked to converge on? This table from Lant Pritchett shows the bunching up of wealthy countries at the top of the income scale. There has been Convergence, Big Time, for the countries that have made it.

 

Pritchett also gives us figures to suggest that we have seen divergence, big time, since the begninning of the industrial revolution. Since the 1950s it is argued we have at best seen stagnation if not outright regression.

  1910 1950 1992
Gini coefficient 0.61 0.64 0.66
Mean world income (PPP at 1992 prices, $) 1450 1806 2801
Extreme poverty (headcount %) 66 55 24
Number of extreme poor (million) 1128 1376 1294
% of world inequality explained by between-country inequality (based on Theil index) 37 60 60

Maddison shows that the long term and continuing pattern in income is one of divergence. In 1000 AD Western Europe and Africa had roughly equal GDP per capita ($400), but by 1998 Africa had reached the income Europe had in the early 19th C whereas Europe’s income was now 13 times that. Since 1950 inequality has not so much continued to diverge as stagnate.

However, there have been other works which suggest that the world’s fortunes have not been massively divergent.

Xavier Sala-i-Martin (2005) Rather than the “divergence, big time” famously described by Pritchett [1997], we find that individual incomes have followed a process of “convergence, period!”

http://www.columbia.edu/~xs23/papers/pdfs/World_Income_Distribution_QJE.pdf

Large poor countries became somewhat less poor, having a massive effect in terms of convergence. Inequality between countries has increased and has inequality within countries. However, if a large country becomes more unequal while growing fast enough world inequality can indeed fall. This, Sala-i-Martin argues, is what has happened in China (and to a lesser extent India) and is why we have seen “Convergence, Period.”

So the picture for income is unclear, what about non-income related measures of welfare?

In almost everything that matters we have seen some degree of convergence. Health, education, rights and infrastructure have been converging and have been converging for some time.

Looking at the data they show us that it takes one tenth of the income that it did in 1870 to live the same amount of time. Life expectancy for countries with a GDP per capita today of $300 have the same life expectancy as countries of 1870 with a GDP per capita income of $3000. Life expectancy has also become far more egalitarian than it was in 1870.

Although Sala-I-Martin argues we have seen income convergence world wide, it has been very uneven. The convergence of HDI is much more broad based.

We have to ask then, if it is not income that has driven convergence in HDI, what is? There could be large returns to small increases in income for the very poorest people. A little extra food can hugely improve the immune system for example.

But that is not all… Mozambique saw it’s per capita income decline over the period 1950-99 but its life expectancy, literacy and primary enrolment all increased.

Public Health… Better immunisation plays a role. Some of these reforms are self-reinforcing, Increase in primary enrollment and literacy have helped the efficacy of other public health. Urban mortality is lower than rural mortality.

Economic policy is hard. Public Health theory is much easier. ORT saves over a million children’s lives a year and it is just a sugar/salt solution. Washing hands. Globalisation of knowledge appears more benign than globalisation of production.

Has the world seen Divergence, Big Time?

It depends both on your datasets, on what weighting you give to different countries and whether you are interested in income or other indicators.

Divergence, Big Time

  • World wide trends versus trends in China and India. Martin Wolf argues that World Trends without China is like Hamlet without the Prince but China’s history and progress is very different to that of the world in general.
  • China’s size means that when it does something stupid or clever it has global ramifications. But it is not necessarily accurate to say it represents global patterns.

The twentieth century experience of economic development has been wildly divergent, regardless of what these aggregate figures tell you.

  • The iron curtain in NE Asia and E Europe
  • Africa has been attempting to build states for a lot of the 20th C, the prologue to economic development
  • Poverty was an Asian phenomenon, but it has now become and African phenomenon. While parts of Asia have begun to converge on the wealthy world, Africa’s prospects continue to diverge (although there has been recent progress riding on surging demand for raw material from Asia).

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Welcome to Global History @ LSE

This is the blog of a student taking the Global History MSc at the London School of Economics.

I am studying part time from October 2010 to September 2012 and I will be posting my lecture notes, seminar notes, reading notes and essays online.

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LecturesLecture in the New Theatre, c1981 by LSE Library.

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