Tag Archive | global inequality

Branko Milanovic weighs in on global inequality

Which isn’t suprising, given that’s what he does for a living. The NYT this morning had an interesting interview with Milanovic this morning, where he discussed issues of inequality both within and between countries, globalization, national policy and the simultaneous rise of a global economic elite and growing populism around the world.

The context here is that while inequality is rising in wealthy countries like the United States, on a global level, inequality in incomes and lifestyles is shrinking quickly, most due to the rise of China and India.

Inequality calculated among all individuals in the world, as if they were part of one single nation, has been edging slightly downward over the past 10 to 15 years, mostly thanks to very high growth rates in China and India. These relatively poor giants (particularly India) have pulled quite a lot of people out of poverty and into something that can be called “the global middle class.”

That is the key factor behind the decline of global inequality: The distance between their incomes and the rather stagnant incomes of the middle class in rich countries has diminished. Yet global inequality is still extremely high by the standards of any single country. It is, for example, significantly higher than inequality in South Africa, which is the most unequal country in the world.

Obviously, we still have work to do. Many African countries, due to an unfortunate poor hand of geography, internal ethnic struggles and an unforgivable failure of government still sit in the same mess they sat in around the time of independence. For these countries, the future continues to look bleak.

The contrast is between a globalized economy that largely determines our employment and income level, and political systems that remain national. This contrast was not nearly as strong before the 1980s, when national economies were not as interdependent and capital could not flow easily across the borders. Then, countries could more or less design the economic policies that suited them. Today this is no longer the case.

The danger is that these dynamics could lead to populism — a sort of a Luddite reaction against globalization — or to plutocratic rule. We can already see some hints of the latter. Rule of the rich would ensure the continuation of globalization, but it would deprive political democracy of any meaning. If I wanted to be somewhat melodramatic, I would have said that the challenge is to navigate between the Scylla of populism, which would do away with globalization, and the Charybdis of plutocracy. Our defining challenge is how to maintain both globalization and meaningful national democratic systems.

I fear the erosion of political rights of low and middle class citizens that has occurred in the context of rising inequality. I believe that I fear populism and it’s myopic focus on short term solutions to complex problems even more. A response to rising inequality in the US or Europe is not to close the borders or embark on destructive protectionist policies which benefit only a small minority of people.

My feeling is that domestic (US) inequality is best handled through re-distributional policies such as income subsidies, the provision of health care and investments in education and infrastructure. International inequality should be attacked through a combined effort to increase opportunities of movement of people to areas which present economic opportunities, through the encouragement of policies of good governance which reduce onerous and bureaucratic restrictions on economic development within developing countries, an increase in access to capital by individuals and policies which encourage the granting of true democratic rights and protection for citizens, something we don’t see a whole lot of in African countries. Looking at this, I’m realizing the solutions to inequality in in wealthy countries seem much easier to implement.

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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