Getting rich together

By Cameron Carswell | 11 August 2005

There is a myth that the status of the richer countries of the world has somehow come at the expense of the poorer ones, and that the only way for the poorer nations to climb the ladder is for massive transfers of wealth to occur. When a rich country trades with a poor one, the rich one gets richer, the other gets poorer. There is, according to this view, a fixed quantity of wealth.

Yet there are countries such as India and China who, while still having less income per capita terms than more developed nations, have seen many granted release from poverty thanks to economic growth. Such development and the associated poverty reduction has not come as a result of massive government transfers of wealth, nor has it resulted from such countries somehow plundering resources from poorer nations.

Rather the development of China occurred due to a simple combination of a move toward free markets coupled with an opening of the country to foreign trade and investment. In short, China embraced globalization rather than trying to fence the world out, engaging in a massive programme of unilateral liberalization.

Over the period in which foreign trade in China massively increased, per capita incomes followed suit. In 1978 it is estimated that 260 million Chinese citizens lived below the poverty line, and by 1994 the number of people afflicted had fallen to below 80 million. The opening of markets to foreign trade and investment has led to an unprecedented level of growth for China, catapulting it up the table of world's richest nations.

This serves as a reminder that those countries that accept the globalization process can expect to be rewarded with higher living standards and rates of economic growth, and illustrates the fact that a country can create wealth, and such gains do not come at the expense of other nations.