Will the world eventually come to an equilibrium where all nations will be developed and everyone will be out of poverty?

My answer on Quora:

In the United States, the preamble to the nation’s constitution begins with “We the people of the United States, in order to form a more perfect union…”

The idea of “a more perfect union” underpins the ultimate goal of the nation as defined from its inception: to become more perfect with every generation, law, or passing day. Perfect does not exist. But becoming more perfect is possible.

Such is the state of the world, and the world economy. Will the world ever achieve a perfect harmony of political, economic, military and social affairs? I do not suppose so, but I believe it can become more perfect.

In economic theory, convergence between rich and poor nations is expected. Capital ought to flow to where economic needs are higher and thus the benefits to investment are higher. It follows, then, that capital ought to flow from where it is abundant to where it is scarce. In other words, from rich to poor nations. It further follows, then, that the inflow of capital and investment into poor nations would drive faster economic growth and thus drive convergence with the rich nations until rates of return around the world are equal, all else held equal.

A major paradox of the global economy in practice, however, is that capital often flows uphill, from poor to rich nations. This does not mean economic theory is wrong in this case. Rather, it means that in the real world, there are a number of frictions (and human prejudices), that distort the allocation of economic resources in a global economy. Such distortions can include weak or undeveloped national financial markets, inadequate national infrastructure, high legal or political risk, uncertain macroeconomic policy frameworks, imperfect information, etc. These distortions are possible to alleviate. They are what societies and policies ought to strive for in becoming more perfect.

There are also real energy and natural resource constraints. Not every nation can pursue the same development path. Not every nation can industrialize the same way Western nations have in the nineteenth and twentieth centuries, for example. This does not mean that other nations cannot settle into robust trajectories of economic growth, however, unless they follow the same path as the West.

In the end, a more perfect world is always possible. We know how to get there, broadly speaking. Our biggest barriers are our own selves, collectively.

 

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