Our world is richer than ever before, but it is also marked by enormous inequalities, both within and between countries. The average annual income of someone living in the world’s richest country, Luxembourg, is more than one hundred times larger than that of the average citizen of Sierra Leone, one of the world’s poorest. Such huge differences in living standards should be a matter of great concern, because they reflect serious inequalities in life opportunities.
This calls for a robust policy response at both the national and international levels, so that all countries can achieve the Millennium Development Goals and other agreed development objectives (United Nations, Economic and Social Development Affairs, “2006” iii) .
The process of globalization has not yet closed the income gap between poor and rich countries. On the contrary, the way in which world markets operate has been an important contributing factor to the rise in global income inequality.
Richer countries, for instance, tend to have preferential access to capital markets, to attract more foreign direct investment, and to be more resilient than poorer countries in responding to shifts in global commodity markets.
Efforts to reduce global inequality can promote growth and stability, and can help avert economic and social crises and even political instability. Part of the observed growth divergence is attributable to gaps in public investment in, and spending on, infrastructure and human development in these countries.
Investments in infrastructure and human capital are necessary for growth. i) The need for improved infrastructure An adequate level of infrastructure is a necessary condition for the productivity of firms. It is difficult to imagine an economy without telephones, electricity or a road network. By its very nature, infrastructure is characterized by indivisibilities and countries will need to build up a threshold or minimum level of infrastructure (say, a minimum network of roads) to make a difference for economy-wide productivity growth.
To reach that threshold, countries will need to sustain substantial public investment levels over prolonged periods of time. The failure to do so explains partly why Latin America and sub-Saharan Africa have fallen behind the East Asian countries that have sustained infrastructural investment. East Asian economies invested more in the quality and coverage of physical infrastructure. In sharp contrast, Latin American countries have witnessed a decline in infrastructural investment since the 1980s as a result of increased fiscal austerity.
This has led to significant differences in the quality and availability of infrastructure. Since the 1960s, the road density in Latin America and sub-Saharan Africa has barely increased, while it has tripled in East Asia. Also, the availability of telephone lines in East Asia is twice as great as that in Latin America and 10 times greater than in sub-Saharan Africa. The empirical evidence indicates that lagging infrastructural development could account for as much as one third of the widening income differentials between East Asian and Latin American countries during the 1980s and 1990s.
ii) Human development Some empirical studies suggest that developing countries could catch up with the developed world if only they attained increased levels of human development. The links between growth and human development are complex, however. There are large disparities in indicators of human well-being, such as life expectancy and educational attainment. However, the world has seen more convergence among countries in terms of improvements in health and education outcomes than in terms of improvements in per capita incomes.
The evidence in this report indicates that countries with a successful economic growth performance all had relatively high levels of human development at the beginning of their sustained growth process and showed substantial improvements in education and health as average incomes improved. Conversely, however, not all countries with relatively higher levels of human development managed to achieve high long-term economic growth rates.
Human development is a necessary but not a sufficient condition for sustained economic growth. Lifting other constraints on economic growth and structural change will be necessary to create opportunities for a better-educated population. The dynamic creation of decent and productive employment is the crucial link in this regard. Recently President Bush unveiled a broad proposal to boost US economic competitiveness by injecting more than 136 billion dollars into research and education over the next decade.
The programme would promote the private-sector investment in innovation and strive to make US children better in mathematics and science. The initiative is aimed at strengthening US economic leadership in the face of growing competition from countries like China and India. The President said that “The American economy is pre-eminent — but we cannot afford to be complacent,” (CNN). In fact, no economy can afford to be complacent when it comes to supporting the fundamental cause of education and human development.