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Boston Review: Effect of Inequality on Globalization

Author: Nancy Birdsall
March/April 2007

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In the Boston Review, Nancy Birdsall discusses the effect of economic inequality on development promotion and globalization.

Excerpt: "Textbook economics describes a tradeoff between growth and equality. Increasing inequality (as in China today) seems to be a natural outcome of the early stages of development, for example as the shift from low-productivity subsistence agriculture to high-productivity manufacturing brings income gains for some people but not for others. In addition, inequality is likely to enhance growth by concentrating income among the rich, who save and invest more. Moreover, inequality reflects a system that rewards hard work, innovation, and productive risk-taking—which ultimately ensures higher output and productivity, and thus higher average income and rates of growth. These inequality-related incentives are the backbone of the argument against tax-financed redistribution: such transfers undermine individual responsibility and the work ethic and thus slow growth."

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