According to the mainstream liberal argument in most developed countries, public policy should try to increase social justice by evening up opportunities—equity—but should not try too hard to reduce income inequality. The exception is at the bottom: public policy should try to eliminate extreme poverty. For the rest, income inequality is the price that has to be paid for a dynamic and flexible economy.
In the liberal perspective, equity and efficiency turn out to be complements; the key to both is free markets and competition. Applied to the international economy, this approach says that aid may be appropriate for the poorest countries, but for others, what matters is open trade, open investment, and free capital movement, so that the country’s producers have a level playing field with producers elsewhere. Insofar as the world adopts liberal market policies, growth in the poorer countries will be higher than otherwise, and high enough for many of them, over time, to catch up with living standards in the rich countries.
Martin Wolf, in Why Globalisation Works, puts it this way: “What the successful countries all share is a move towards the market economy, one in which private property rights, free enterprise and competition increasingly took the place of state ownership, planning and protection. They chose, however haltingly, the path of economic liberalisation and international integration. This is the heart of the matter. All else is commentary.”
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