For all its ills, western capitalism has brought about an unprecedented increase in living conditions

There is plenty to protest about in the behaviour of the International Monetary Fund and the World Bank.

As Jeffrey Sachs has argued (Personal View, September 26), the two institutions have become too much of a debt-collecting agency for western nations. Moreover, the World Bank directs many of its loans to creditworthy countries that could borrow in the market. It should become instead a direct grant development agency.

The Group of 24 emerging countries has a good case for saying that the transparency which is demanded of them should equally apply to New York-based hedge funds. But what irritates me most is the way that the Bank, like the governments that finance it, gives the benefit of the doubt to brutal dictatorships such as the government of China even when projects involve displacing millions of unwilling peasants.

Having said all this, it would be hypocritical to pretend to side with the protesters in Prague in a new rainbow coalition stretching from ultra free-market opponents of all international governmental institutions to out-and-out opponents of market capitalism.

Whatever one thinks of particular institutions and governments, the fact remains that the form of capitalism that has developed in the 50-plus years since the second world war has brought a bigger rise in worldwide living standards than anything seen before in the history of mankind. The first part of the period saw the freeing of trade and payments. The second part saw the rise of world capital markets on a scale not seen since 1914.

One can argue about the timing of some policies - for example, whether capital account liberalisation might have come too early for some countries. But the main thrust of the opponents of globalisation is to say that the whole development has been wrong.

The clearest rebuttal can be found in some information conveniently collected together in the winter 2000 issue of the Journal of Economic Perspectives, published by the American Economic Association (2014 Broadway, Suite 305, Nashville, TN).

Richard Easterlin shows there growth rates since 1950. There is also a column giving the ratio of per capita gross domestic product at the end of the period to that at the beginning. This reveals that in the developed countries income per head in 1995 was three times as high as in 1950. The Prague protesters may be surprised to learn that a ratio of almost three also applies to the less developed areas, with 80 per cent of the world's population.

Sub-Saharan Africa, containing 11 per cent of world population, did not share in this prosperity. Here output per head at the end of the period was only 1.2 times as high as it had been in the beginning. This may have been due to bad luck, natural disasters or the way in which this part of the world has been governed. But it can hardly reflect on the international economic system, given what has happened elsewhere.

Of course GDP per head can be a misleading guide to welfare; but Professor Easterlin does have a close look at other indicators. Life expectancy, for instance, increased by more than 20 years in the less developed areas and even by 12 years in sub-Saharan Africa. Another index is adult literacy rates, which grew from 40 to 70 per cent in the less developed areas.

In the same issue of the Journal there is a fascinating attempt by Robert Lucas to look behind the growth numbers and speculate on what they might portend for the 21st century. He starts with the stylised fact that income per head in most of the world in about 1800 was in the neighbourhood of $600 at present dollar values. This is about the level that today brings out the anti-globalisation protesters. But it is also the level at which the now advanced countries began; and if countries such as China and India are prevented from competing on the basis of their most favourable temporary asset - namely cheap labour - their whole development will be delayed.

To be precise, if a "decent wage" could be enforced in the emerging countries, then employment in their industries would be much smaller and a higher proportion of their population would be crowded into the subsistence or primitive agricultural sectors. Parity with the industrial west, instead of being approached by the end of the present century, could be postponed for a good many generations.

But to come back to Professor Lucas: he assumes that one country takes off at a growth rate per head which averages about 2 per cent a year. This is followed by a series of further take-offs like a succession of rockets. His model cannot tell us which specific countries will take off at any particular time. But it does say that the probability of any country getting into a growth orbit depends on the distance between its own income levels and those of the leaders. Moreover, once a lagging country does get into orbit, it will temporarily grow faster than the leaders until it eventually catches up with them.

He mentions three possible reasons for this catch-up. One is that knowledge produced anywhere benefits everyone everywhere. The second is that the governments in the previously unsuccessful countries can adopt the institutions and policies of the successful ones. Third - and highly relevant to globalisation - relatively high wages in the successful economies can lead to capital flows to emerging ones.

With these few stylised facts and bits of arithmetic, Professor Lucas is able to come to some forceful conclusions. "Sooner or later everyone will join the industrial revolution, all economies will grow at a rate common to the wealthiest economies and percentage differences in income levels will disappear." As growth gets under way in the pioneering countries the income gap between leaders and laggards ("the degree of inequality", if you insist) increases, reaching a maximum around the end of the 20th century. But as more and more countries achieve developed status income gaps start to narrow. Eventually we end up with most societies being roughly equal in income levels, as they were in 1800, but of course at much higher levels.

This story does not tell us much about the policies and institutions that produced growth. And it admittedly skates over short-term reverses and fluctuations due to wars, depressions or misgovernment. But it nevertheless gives an idea of what science and technology can deliver if only human institutions will allow them to do so.

There is nothing inevitable about the process; and well-intentioned protest movements, which are radical about the wrong things, could bring this development down to a crawl. If only compassion could be combined with wisdom!