Globalization, equality and liberty

Owen Barder asks a good question: what can we do to ensure poor countries reap a greater share of the benefits of globalization?

I agree with his proposals, and with his rejection of another, a Tobin tax.

There’s one thing I’d add – encourage FDI to flow to developing countries.

UNCTAD figures (free reg req) show that last year African countries got only 2.8% of the world’s FDI flows – less than France.

How do we increase FDI to developing economies? One possibility would be to encourage increased economic freedom. In the latest Cato Journal Marshall Stocker shows that improvements in this lead to rising share prices (pdf). The same things that encourage equity investment should also increase FDI.

You might think that encouraging increased economic freedom in poor countries is a “right-wing” agenda.

Not necessarily. It might be that one way to increase economic freedom would be to increase the equality of assets. Doing this would reduce demands for taxation and regulation that harm growth.

An early paper by Guido Tabellini and Torsten Persson, and research at the World Bank, have both found that asset inequality is bad for growth.

Sadly, though, there seems little demand, either in poor or rich countries, for egalitarian freedom.

Comments

[Jim]

"It might be that one way to increase economic freedom would be to increase the equality of assets."

Could you give some examples of ways to increase the equality of assets? I suspect that kind of talk might make economic-freedom-loving Cato Institute types nervous.

[chris]

South Korea might be a good example. Between 1945 and 1953, it instituted a land reform that increased equality; over 90% of families owned land afterwards.
The South Korean economy subsequently grew faster than almost any other - and much faster than the Philippines, which resembled it in many ways except for egalitarian asset ownership.
This report from the Congressional Budget Office (not exactly Che Guevara T-shirt wearers) says that, as a result of the reform "class tensions were largely diffused, eliminating a potential source of political instability" (p9):

http://www.cbo.gov/showdoc.cfm?index=4306&sequence=0

[Jim]

Yes, land reform is what I was thinking of too. I've just started reading some of the (patchy) research on land distribution in Africa, and it seems to be grossly unequal alright. The next question, though, is whether there were factors which made succesful land reform more likely in South Korea back then than in Africa today? Does a low initial inequality of income matter, for example?

[Jim]

Sorry, just to follow that up: Here's Wikipedia on land reform in South Korea;

"In 1945–1950, United States and South Korean authorities carried out a land reform that retained the institution of private property. They confiscated and redistributed all land held by the Japanese colonial government, Japanese companies, and individual Japanese colonists. The Korean government carried out a reform whereby Koreans with large landholdings were obliged to divest most of their land. A new class of independent, family proprietors was created."

Sounds great, but I imagine it's a lot easier if your government is a dictatorship. Though then again Bob Mugabe is getting results at land reform but for some reason his methods are alienating the rest of the world. So I suppose it helps if (a) you're a dictatorship, and (b) you don't simply murder people and grab their land, and (c) you've got the US on your side.