Archive | October 16, 2013

Global Inequality: Is it getting better or worse?

World Gini Index, 1960-2012

World Gini Index, 1960-2012

I was just thinking back to my rambling post on global inequality from the other day. In it, I mentioned an article from Joe Stiglitz which tackled the problem of growing inequality around the world. Though Stiglitz makes some excellent points and arguments in the article, he mostly referred to growing inequality within countries.

Yes, the elites worldwide are making more money than ever before, while incomes among their less well-to-do countrymen stagnate. As an American, I see this everyday, especially on payday. That this is occurring even in poor countries is hardly a surprise, as the richest in every country are linked to the same global system which disproportionately rewards them.

Developing countries have it worse off, though, as they often don’t have systems in place to effectively tax the wealthiest and reinvest the money to reinvest into the economy. Poor countries are hobbled by bad policy which allows the wealthy to accumulate more and more wealth, which they spend and store abroad. Moreover, poor countries don’t proactively expand access to capital for small and upcoming entrepreneurs and they don’t effectively invest in infrastructure that might help support new ventures.

To me, it’s not the system of global capitalism that’s at fault here, but rather the lack of checks on rent seeking behavior of political elites in developing countries that has allowed this to happen.

But I digress.

The graph on the left is from an excellent report from the Conference Board of Canada, which takes on this specific question: Is inequality becoming better or worse globally. In the report they specifically ask whether inequality between countries is becoming better or worse.

The Gini coefficient is a measure of inequality within groups. It ranges from 0 to 1, 0 being complete equity and 1 being the case where a single person owns all the resources of the area of interest. Among developed countries, equitable Sweden has a Gini of .25, while unequal America has a Gini of .45. Many of the most unequal countries on the earth are in Africa. Angola’s Gini is .58.

The graph above tracks the Gini, or the measure of inequality of Gross Domestic Product between countries, over time. You can see that GDPs around the world were consistently unequal (or at least as unequal as incomes in the United States) until approximately 1982, at which time many of the wealthiest countries of the world started to take off. The Gini starts to come down a bit around 2000, and has been dropping consistently since then.

From 1960 to approximately 2000, economies in Africa were mostly stagnant. I suspect that the decrease in the Gini post 2000 represents some of the growth that we’ve seem throughout Africa since then, along with the rise of India and Brazil.

The world GDP Gini is now approximately .52, or a little more unequal than incomes in the United States or as unequal as incomes in Paraguay, Swaziland or Chile. While I’m encouraged that the number is going down, we clearly still have a lot of work to do.

Some inequality is unavoidable. Some countries simply have more resources available to them, are better are certain industries than others and aren’t mired in intractable social, political or public health problems. However, at present global inequality is at a level that does no one any favors at all. At present rate, we will probably never get back to where we were in 1960, though as GDPs increase overall, life might just end of better for everyone anyway. A high level of inequality, however, means that some states will have disproportionately high political power and some none at all.

SO, Question: Is global inequality getting better or worse? Answer: better, but after years of getting worse.

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