Inequality in a global perspective

A couple of weeks ago I posted a video from a new campaign highlighting inequality in Britain. There’s our own situation, and every country is different. There’s also the matter of global inequality, which is different again. I’ve written before about how in-country inequality is tending to get slightly worse, while between-country inequality is improving as poorer countries develop.

There is another angle, which is to look at incomes across the whole world, irrespective of nationality. That’s something that Branko Milanovic attempts to do in a recent paper. He’s the lead economist at the World Bank’s research department, and he argues that there are good reasons to look at global equality in this way. There is an increasing movement of capital, goods and production across borders, in a globalized world. Looking at things in individual nations can miss the overall picture.

A second reason to look at equality globally is that other people’s standard of living in other parts of the world can impact ours. This could be by providing cheap labour that allows us to buy more things, for example – good for us, not so good for them. Then again, that cheap labour moves jobs overseas – good for them, not good for those losing their manufacturing jobs in the West. Factors overseas are playing an increasing role in our lives.

If you treat everyone as global citizens and measure inequality on an individual basis rather than with national averages, you see trends that you wouldn’t see otherwise. The graph below shows how incomes changed between 1988 and 2008, divided by deciles of global wealth distribution.

global-income-change-percen

It’s not a particularly familiar graph, so let me explore a couple of points.

The people on the far left are the very poorest. As you can see, their incomes haven’t shifted in the last twenty years. Globalization hasn’t served those in absolute poverty. But, note that it is only a small periphery that has been completely left behind – the poorest 5% or so, most of whom are in Africa, incidentally. The rest of the poorest third has seen their income increase, and that’s good news.

On the other side of the graph, the people on the far right are the world’s richest – the global 1%. That’s the richest 60 million people in the world. Half of them are American, along with Brits, French, Japanese and a handful of representatives from countries like Brazil and South Africa. This top 1% has enjoyed a good share of global growth, but they are not the only ones, globally, to have benefited.

Interestingly, the richest aren’t the ones who have have benefited most. The deciles that have seen the biggest increase are the 50-60th. “It is there,” says Milanovic, “that we find some 200 million Chinese, 90 million Indians, and about 30 million people each from Indonesia, Brazil and Egypt.” This is the much talked about ‘emerging middle class’ in developing countries.

The losers in this graph are the ones on the middle right, who’ve had less of a share and in some cases even seen their incomes decline. Who are these people? They’re members of a “global upper-middle class”, which includes “many from former Communist countries and Latin America, as well as those citizens of rich countries whose incomes stagnated.” Western readers shouldn’t get hung up on ‘upper middle class’ here. You can be relatively poor in Britain and still classify – see the global rich list.

What do we learn from this perspective on the twenty years of globalization between the fall of the Berlin Wall to the financial crisis? The poor saw their income rise, with the exception of the very bottom. The middle did very well, and the top was split it two.

This is where we are in Britain, the US, and the other mature developed nations – a top 1-5% that saw their incomes rise, and a majority that saw much more modest increases, stagnation of income or even decline.

This kind of big perspective is very helpful. When people say that our current global economy works, they need to be more specific – works for whom? They will always point to China and India as their first examples, but those successes don’t justify the status quo. There are very real problems. The most serious is the exclusion of the poorest. Since they start from such a low base, they would ideally be receiving a far higher proportion of global growth than anyone else, but those who most need an increase in income aren’t getting it at all. That needs to be fixed, and pushing on with things exactly as they are isn’t going to help that bottom 5%.

The other problem is the split in developed countries, highlighted by the Occupy movement, among others. This is not a made-up problem, or a matter of envying the rich. It’s real, it’s not inevitable, and we can do better. If we don’t move to share wealth better in the developed countries, rising inequality will become an increasingly destabilising force in society.

12 Comments on “Inequality in a global perspective”

  1. David Oldroyd October 29, 2013 at 3:13 pm #

    Thanks once again for the introduction and link to a fascinating and well-written article that cearly elaborates in a sophisticated way the changing dynamics of wealth maldistribution. Progressive global taxation of rich countries, as of rich people and corporations is a splendid, if politically unrealisable, idea. If it were feasible, then, like the very rich, there would no doubt be a surge in tax avoidance by nations that mirrored the current practices of the most affluent and powerful targets for redistributing wealth. But perhaps, more importantly, the article fails to raise the question of continuing exponential economic growth, its impact on the planet and its limits. But I suppose that bankers, even those who advocate wealth redistribution, rarely think outside the box of classical economics.

    • Jeremy October 29, 2013 at 3:54 pm #

      That’s a step too far for a World Bank researcher perhaps, but that’s an important question. As far as I’m concerned, the richer countries don’t need to grow any further, and in an ideal world, that graph would point steeply downwards so that the poorest were getting a much bigger share of growth than the richest – but I don’t know how that could be done.

  2. DevonChap October 29, 2013 at 9:08 pm #

    its a bit rich to say the poorest won’t benefit from the growth of the global economy. Just because it hasn’t got to them yet doesn’t mean it won’t. Its like saying in 1850 that the industrial revolution has failed because hasn’t raised the income of Germans and Japanese. It got to them soon enough. So you can’t just say this isn’t going to help them.

    Granted those who have not yet been lifted are going to be harder to lift than others have been recently but that is more because the countries they live in are dysfunctional. That isn’t the fault of the global economy. Unless you are planning a neo-colonial round of invasions its going to be up to those countries to sort themselves out. Obviously we should support them as they reform but we can’t make them.

    • Jeremy October 30, 2013 at 10:51 am #

      That’s partly true, and some African countries have begun to move very recently. This study ends in 2008, so that movement won’t have been reflected.

      But, and my point in the comment above, is that it’s not really enough to say that the poorest are getting some crumbs here and there, so the system must be working. Those who need it most ought to be getting a bigger share. After all, if you double the income of someone on $2 a day, you’d make a much bigger difference to that person’s life than doubling my salary.

      It’s also worth remembering the bigger picture. We got the benefits of cheap energy while we developed, something latercomers won’t have. There’s also climate change to deal with too. It’s not so simple to say that if we press on as we are, the end of poverty is inevitable.

      • DevonChap October 30, 2013 at 3:12 pm #

        But it doesn’t follow that there is another way to end poverty without pressing on as we are. We have a way that we know roughly works and in time is pretty likely to end poverty. We have lots of examples of what doesn’t work. What we don’t have is another way we know that works as well or better.

        • Jeremy October 30, 2013 at 3:43 pm #

          I don’t want a whole other system, and neither does the World Bank. I just want it to work better for those who need it most.

          • DevonChap October 30, 2013 at 9:32 pm #

            It works better than anything else for those who need it most. No ought about it.

          • Jeremy October 31, 2013 at 10:32 am #

            I think the graph above shows nothing of the sort, but then you and I often look at the same data and see different things.

            It’s worth mentioning that standard of living for many people in Africa went backwards during the era covered here, so it’s really not as simple as waiting your turn.

          • DevonChap October 31, 2013 at 6:00 pm #

            No, you have to get your country ready. As countries got out of their Cold War dependencies and actually started following the Washington Consensus they found their economies stopped contracting and started growing. Those who went backwards were doing so because of political upheaval or idiotic economic policies.

            You never seem to celebrate the greatest advance in human welfare in history. You only seem to carp and assert that things somehow should be even better when they have never been so good.

  3. Jeremy November 1, 2013 at 3:03 pm #

    I celebrate good things all the time. You don’t comment on those posts. The way I see it, something that has only really worked for two thirds of the world’s population clearly needs a little tweaking. I’m not anti-globalization, I think it’s been a fine thing. I just think we can do better. And, incidentally, one of the ways we can do better is by living up to our free market rhetoric and sweeping away some of the things that privilege the richest countries in the world, things like agricultural subsidies.

    We’ve argued before about what policies lie behind the world’s best development stories, and you don’t bother to read the things I link to, so let’s agree to disagree.

    • DevonChap November 2, 2013 at 10:31 am #

      I do read the thing you link to, I just don’t happen to agree with them or the spin you put on them.

      I rarely comment on posts I agree with because I hate blogs that are all about the author wanting congratulatory pats on the back. “What an excellent post! Aren’t you wonderful for agreeing with me.” Its so boring. Maybe that is what you want.

      • Jeremy November 2, 2013 at 11:46 am #

        I don’t mind whether you agree with me or not, but I reject the idea that all I’m interested in is carping. Those of us who have been served might think that it’s working, but I grew up in one of the world’s poorest countries and I’ve seen both sides of globalization. I know how good it can be, and what it looks like when it passes you by.

        If my train gets me 25 miles of my 30 mile journey, I wouldn’t call that a successful commute. If a restaurant serves 8 out of 10 customers and forgets the other two, that’s not a functioning service. So I reserve the right to abstain from applauding globalization just yet.

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