China, India, Pakistan, Nigeria, and Vietnam had all moved up from low to middle income. So five of the six most populous low income countries in 1998 were middle income countries in 2010. The only one that did not make it was Bangladesh.
If you are wondering why globalism is good, this should give you a clue. Globalization is rapidly emptying the low income category and that trend will probably continue.
Of course there is still the problem of income distribution within the poor countries, but now these poor countries have some income to distribute.
Furthermore, the redistribution has begun. It has been reported (I believe in 2010) that there have been strikes and/or large increases in pay, in China, Vietnam, and Bangladesh.
Those same low skill labor intensive export industries were key to the rapid growth of the Japan, Hong Kong, Singapore, Taiwan, South Korea, China, Pakistan and Vietnam. It is reasonable to hope these industries will also foster rapid growth in the remaining low income countries.
Up to this point many of those countries could not compete with China and its lethal combination of low wages and relatively high efficiency, but as China's wages rise with its per capita GNI poorer nations will be able to compete for those industries using their lower wages to attract the capitalists. Already the lower level industries are fleeing the coastal areas of China. While China as a whole is officially in the upper middle income range, some coastal areas are much farther advanced, approaching or actually achieving high income status. Some of those coastal industries have been and will continue to move into China's interior, but because of China's rapid growth, the wages in the interior may soon be too high to compete in the lower level, labor intensive industries. Therefore many of the factories are now fleeing China altogether for poorer, lower wage countries, and more will in the future.
The remaining low income countries will enjoy an advantage that China and other countries that previously grew through light industry did not have. While there used to be four or more pairs of hands in the low income countries, many of them anxious to sew t-shirts, for every back in the high income countries that needed to wear a t-shirt, the ratio is now about four backs in the high income nations for every three pairs of hands in the low income nations. With a much smaller supply relative to the demand, wages will tend to rise for the workers and export earnings will rise for the low income countries.
The increased wages will be good from a humanitarian point of view, but in addition to that, the increased export earnings will mean that more capital equipment can be imported, which will further speed economic growth.
Looking further into the future the percentage of world population living in high income countries will rise, which will increase the economic growth of the low income economies even more. Recently, there were about a billion people living in high income countries, there might well be three billion within fifteen years, as China, Brazil, Russia, Mexico, Turkey, and other less populous countries may make it to high income status.
But the very fact that the workers in these countries will be shut out of world markets and therefore not be competing will facilitate the even more rapid growth of those economies where the governments are more reasonable and/or stable. The government of North Korea is bad for its people. It is also bad for South Korea, Japan, and the United States, but Bangladesh may benefit because North Korea is not setting up factories. Bangladesh may get the factories North Korea lost.
But as the more reasonable, open, and stable governments enjoy thriving rapidly growing economies there will be increasing pressure on the remaining governments of low income countries to open up or become stable. In the past even those poor countries that had good policies to facilitate light industry often did not have impressive growth. This allowed unreasonable men to take over those countries. More and more good behavior will be quickly rewarded and therefore good politicians and good policies are more likely to survive.
A nice feature of both light industry and Internet outsourcing is they can be done in a city. The poor nation does not have to provide infrastructure, security, and other services to the vast countryside for these industries to grow. All they need is to set up the conditions in a single place, and the workers can come to that place.
For the poorer low income countries foreign aid is an important part of income. The poorest major country, is the Democratic Republic of Congo. Foreign aid is equal to more than 38% of the income that the country produced in 2011. Foreign aid came to $52 American per person living in the low income countries in 2011, which was equal to a little more than 9% of what they produced. Foreign aid is much less for lower middle income countries, $14 a year. So the more countries are able to help themselves the more aid is available to those that fall behind.
Knowing that these desperately poor nations will soon be less desperate, and are a path to development is good news, but it can also stimulate us to help the temporarily poor in this their time of need. We do not need to be too creative. We do not need to "teach them to fish." They are coming along fine, but they are still very poor and their children are still hungry. We can help them with the reasonable expectation that their children will retire in high income, developed nations.
Finally, humanitarians should encourage the free trade and globalization that is lifting so many, so rapidly out of poverty.
Last updated August 24, 2012
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