NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Monday, June 30, 2008

The World Bank recently revisited its “dollar a day” global poverty yardstick and came to a startling conclusion: It was wrong when it said some 250 million people in China had escaped from severe poverty between 1990 and 2004.

Instead, by its latest count, some 407 million Chinese citizens rose out of poverty during those 14 years – roughly one-third of the entire population of the most populous country on the planet!

This upward shift is being repeated around the world with amazing implications for society. The Brookings Institution recently forecast that one billion people would join the ranks of this rising middle class by 2020.

This is cause for global celebration: The world’s riches are being opened to all of its citizens, who in turn are contributing new value and advances that will propel the world economy to greater heights of shared prosperity.

Why, after centuries of human endeavor, is this amazing transformation happening now?

Because we have moved decisively from what we called “globalization” into a new era of global inter-connectedness, where not just goods but information and ideas flow across borders constantly and (for the most part) freely as near universal access to Internet-enabled communications moves closer to reality.

This is the world of “Global 2.0,” and it is transforming our economies, our businesses and how billions of people live. We are all part of this change that has the potential to win the war on global poverty and deprivation in our lifetimes.

Globalization at first meant a rigid, world assembly line where the West provided ideas and innovation that were then exported for retooling through cheap labor in the developing world.

Over the past decade, globalization has morphed from a simple race to the lowest costs into a force that is weaving all of us more tightly together. The power of free trade, adoption of information technology and the explosion of talent and innovation on a distributed, global scale are creating one of the largest economic transformations in history.

These fundamental forces are radically shifting the patterns of business and society with regard to national and cultural identities – a key factor in rising standards of living.

At its heart, Global 2.0 means abandoning the notion of centralized control over the high-value aspects of production, adopting instead a worldsourcing network of innovation, where ideas can come from anywhere, as pools of talent emerge to meet market needs.

The world’s more forward-thinking businesses are adapting rapidly to this idea, and the new centers of innovation they are creating are fueling economic growth on an unprecedented scale around the world.

The result is to lift millions of people out of poverty – creating enormous new markets for business, and giving rise to an increasingly sophisticated and educated, global middle class.

Of course, change brings uncertainty, and with uncertainty comes resistance. The rise of a greatly expanded middle class, whose members come from unfamiliar nations and cultures, is also raising questions over whether we can afford to support this kind of increased demand on a worldwide scale.

The media and the blogosphere are filled with assertions – some bordering on fear mongering – that attribute everything from the price of food to the price of gasoline to the demands of the developing world.

Even if this were the case, it is difficult to accept that we should deny others a chance at prosperity because it may challenge our own comfort. As the evolution of the global economy delivers millions of people from poverty, we should recall what the first wave of a global industrial economy did for the masses of the impoverished in Europe and the United States in the last century.

But the very idea that we need to fear the global rise of living standards is flawed, because it assumes that everything else stays the same. It insists we are playing some sort of zero-sum game, and that for the developing world to rise, those in the West must fall.

There’s no denying that we’ll see increased competition for some of the world’s bounty, and that there are limits to certain commodities. But we are not living, contrary to fashionable pessimism, in a world of unending scarcity.

And that is because of the greatest strength to arise from this new prosperity and interconnectedness: an incredible engine of innovation that continuously drives costs down and performance up.

No one believed you could cut automobile emissions without dramatically impacting performance, yet today’s cars have better performance than they did in the 1960s while tailpipe emissions have dropped an amazing 99 percent.

The personal computer, forecast in 1982 to plateau at 5,000 users, today has surpassed 1 billion installed and will reach the 2 billion mark in under seven years – accompanied by thousand-fold improvements in price and performance!

As education and ideas flow more freely, the resulting innovation unlocks new possibilities, as it has in each step toward modernization. Once something in one part of the world becomes a best practice, it is almost magically adopted immediately everywhere, providing many more people a chance to innovate from that point forward.

It brings incredible opportunities for business as vast markets emerge, enriching those on both sides of each transaction and creating, rather than draining, wealth. Better and better communications lead to increased competition for innovative alternatives to those commodities that have limits, as well as more efficient ways to use them. It offers more to the world, not just a redistribution of what already exists.

This future will arrive just as fast as we remove the stumbling blocks – be they trade protection, restrictions on the flow of people or restrictions on the flow of ideas.

Refuting Malthus, poverty is receding at a rate unsurpassed in history; and the power of the emerging dreamers, thinkers, tinkerers and innovators worldwide have only just now begun to transform our world. It is not, as some believe, a case of whether we can afford a global middle class. For both moral and economic reasons, we simply can’t afford not to.