Gifts from rich highlight plight of world's poor

By Ana Nicolaci da Costa Wed Nov 29, 11:04 AM ET

LONDON (Reuters) -
Huge gifts to charity from U.S. billionaire
Warren Buffett and others have won widespread praise, but some say the same economic process that helped earn those fortunes is leaving billions more in dire poverty.

Buffett pledged to give away a mammoth $37 billion of his fortune -- more than most African countries'
GDP estimates for this year -- the bulk of which will go to the Bill and Melinda Gates Foundation.

But the size of the gift also highlights growing inequality in the distribution of wealth, even as world economic output doubled in the last 10 years.

"The way we have proceeded with globalization has exacerbated the inequalities because it has been very asymmetric," said Joseph Stiglitz, a Nobel prize-winning economist and professor at Columbia University in New York. "Capital moves more freely than labor and that means that the bargaining position of workers is disadvantaged relative to capital."

Analysts say the huge numbers of workers coming into the market through globalization in China and India have driven down wages in rich countries by making their workforce compete with much cheaper labor elsewhere.

At the same time, the upside for wages in poor countries is capped by an infinite pool of labor to choose from.

This helps explain the numbers in the 2005 U.N. Human Development Report, which show the richest 50 individuals in the world have a combined income greater than that of the poorest 416 million and that the unequal distribution of income worsened within many countries in the last 20 years.

CULPRITS

To be sure, unfettered economic growth is not solely to blame for growing inequality.

Corrupt national governments help to keep nearly half of Africa's people below the poverty line and inequality rampant in Latin America despite two decades of economic reforms.

Yet even emerging economic powerhouses such as India and China -- whose impressive growth rates have helped lift thousands out of poverty -- are still haunted by widening wealth gaps.

While China's economy expanded nearly 10 percent a year from 2001 to 2003, the average income for the poorest 10 percent of the country's households fell 2.5 percent, according to an analysis by the
World Bank.

Meanwhile, the Gini index, a measure of wealth inequality, was 63 in rural India and 66 in urban India in 2002. The closer the index is to 100, the greater is the inequality. The corresponding figures for China were 39 and 47 respectively.

Behind this trend, a push toward smaller government has left officials without the means to care for society's most vulnerable, according to some critics.

"I think the primary responsibility for ensuring that growth benefits the poor is national government, but they have been very poorly advised over the last 25 years by the World Bank and the IMF and other institutions," said Duncan Green, head of research at charity Oxfam.

"For example, advice to open up their markets to trade and investment when all the successful economies like Korea and Taiwan have actually been very cautious about liberalizing and have done it quite slowly."

(NOT SO) ADVANCED ECONOMIES

Advanced economies too are plagued by inequalities which make parts of their population vulnerable to external shocks and natural disasters, as shown by the aftermath of Hurricane Katrina in the United States.

Although a 2005
European Union report concluded Europe was pretty equitable, it said earnings inequalities had increased in the 1990s in countries like Britain, Poland and Denmark. Even in socially-conscious Germany, the gap between rich and poor has grown since 1998, according to a 2005 government report.

But the gaps are especially wide in the world's largest economy and biggest champion of the free market.

The average U.S. chief executive earned 821 times as much as a minimum wage worker, the highest gap ever, according to a study published by the Economic Policy Institute think tank in June.

Analysts have also said an overriding concern with raw economic growth measures, at the heart of widely accepted business-friendly economic policies, risked widening wealth gaps.

"Our political system and the very conservative ideology that says somehow the way to boost the economy is by reducing the taxes for the very wealthy, that system has increased enormously the inequalities in our society," said Pablo Eisenberg, senior fellow at Georgetown University's Public Policy Institute.

(additional reporting by David Cutler)