Farewell to development's old divides

NEW YORK -- The notion of a divide between the rich north and the poor and developing south has long been a central concept among economists and policymakers. From 1950 to 1980, the north accounted for almost 80% of global GDP but only 22% of its population, and the south accounted for the remainder of global population and 20% global income. But the north-south divide is now obsolete. The dynamic process of globalization has resulted in unprecedented levels of growth and interdependence. However, while this has blurred the old division, new ones have emerged, splintering today's world into four inter-connected tiers.

The first tier comprises the affluent countries, notably the United States, European nations, Australia, and Japan - with a combined population of around one billion and per capita incomes ranging from $79,000 (Luxembourg) to $16,000 (Republic of Korea). For the past 50 years, these affluent countries have dominated the global economy, producing four-fifths of its economic output. However, in recent years, a new set of economies has emerged that is contesting the affluent countries' economic dominance.

These emerging economies - call them the Globalizers - constitute a second tier of about 30 poor and middle-income countries (including China and India), with per capita GDP growth rates of 3.5% or more, and a total population of 3.2 billion, or roughly 50% of the world's population. These countries have experienced unprecedented levels of sustained economic growth that may well enable them to replace the "Affluents" as engines of the world economy.

The Globalizers are a large and diverse group of countries - in size, geography, culture, and history - that have learned how to integrate optimally with, and leverage, the global economy to catalyze their development. A third tier is made up of roughly 50 middle-income countries with a combined population of 1.1 billion. They are also home to many of the world's critical natural resources, possessing around 60% of proven oil reserves. But these "Rentiers" have not been able to translate the rents of their natural resource wealth into sustained economic growth.

The fourth tier comprises countries that are lagging behind - the world's poorest economies, with more than a billion people. They continue to stagnate or decline economically. Mostly located in sub-Saharan Africa, these "Laggards" are largely isolated from the global economy, and they face crucial development challenges.

This emerging four-tier world presents three key challenges. First, we need to increase our efforts to ensure that the Laggards are no longer left behind. This requires policy changes as well as more generous and more effective aid. If one considers the issue of aid flows, one finds that though development aid rose in 2005 to $107 billion, most of the increase was geared towards "special circumstances," such as debt forgiveness and for Iraq and Afghanistan. The sad truth is that development aid to Africa has decreased from $49 per person in 1980 to $38 per person in 2005. The true development needs of Laggard countries and other parts of the world are not being met, despite the rhetoric of scaling up aid.

Second, the old powers need to accommodate the rise of Globalizer economies - particularly China and India - by reforming our international order. The Affluents will continue to be major global players, but as the Globalizers' relative economic power rises, they will demand a greater role in international affairs. Most Affluents seem unprepared for this change, but such demands will need to be accommodated.

Finally, while the Globalizers have lifted millions of people out of poverty and reduced global inequality, this has not resulted in a more equal world, because star economies like India and China are experiencing a rise in domestic inequity. Whether it is coastal versus inland or rural versus urban, these countries must tackle the widening disparities, because high inequality may well threaten their very ability to continue growing as they have.

If we are to create a more equitable world, then traditional levers of development such as trade, investment, aid, and migration need to be scaled up comprehensively and coherently, and global institutions must be reformed. This would improve our ability to address global challenges and better our prospects for building a more equitable world. Otherwise, we might bid farewell to old development divides only to welcome new ones.

(James Wolfensohn, a former President of the World Bank, is President of Wolfensohn and Company.) Copyright: Project Syndicate/Europe's World, 2007. Exclusive to The Sunday Times.