CAPITALISM'S ACHILLES HEEL Dirty Money and How to

The Global Divide 231
To begin with, little empirical evidence exists showing that economic
growth takes income out of the hands of the poor. This can, however, happen
in particular situations. Earlier I wrote about rural dwellers in Indonesia
being forced off their land to make way for huge palm oil plantations owned
by Suharto and his cronies. Assuming that these plantations are more efficient
than the subsistence farming that they replace, exports go up, growth is
enhanced, and the farmers are out of luck. Same thing happens in Brazil
when rain forests are cleared, tropical woods are exported, and Amazonian
tribes are displaced. In other words, some poor can be made worse off by activities
that contribute to growth. But generally speaking, the economic condition
of growth cannot often be said to cause widening poverty.
Again, if the poor are not worse off, are they somewhat better off, with a
little more income available? In more countries than not, the answer to this
is yes. Growth creates more wage earners, an economic multiplier effect,
more money circulating among the poor. I have no quarrel with a conclusion
that growth is better for the poor than no growth.
Finally, and this is the question that has engaged many development
specialists in recent years, does growth carry the poor along at the same pace
as the rest of their society? Fifty years ago, Simon Kuznets said no. His studies
drew upon a long time series of data available for the United Kingdom,
Germany, and the United States and led to formulation of his famous
Kuznets hypothesis. He found that as these three countries moved from
agrarian to industrialized societies, inequality worsened. Manufacturing was
more productive, factory wages were higher than farm wages, fortunes were
made more quickly, income disparities widened. Then, as more and more
people moved from agrarian to industrial and service activities, the diffusion
of high wages through the economy tended to level out the disparities earlier
created, making those disparities decline as good incomes became more extensively
distributed. Thus, according to his theory, industrialization widened
income gaps at first and corrected these gaps later. Good theory, but most
cognoscenti now think it’s wrong.
While the Kuznets hypothesis earlier sustained many scholars believing
that global growth created global separation, David Dollar and Aart Kraay,
World Bank economists, later argued a different view, that “growth is good
for the poor.” 39 Building on the work of others, they compiled a sample of
almost a thousand observations spread across 137 countries covering some
50 years. Their basic conclusion: “Average incomes of the poorest fifth of