Global Inequality: Is it getting better or worse?
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.
I really have no idea what to write about…… but I’ll ramble about worldwide economic inequality for a while
If I don’t do this regularly, my lackluster skills become even more lackluster.
The NYT today (is it even useful for me to talk about the NYT when people can just read it themselves?) featured an op-ed from Economist Joe Stiglitz. Stiglitz, one might remember, wrote an excellent book on the 2008 financial crash. In it, he detailed point by point all the events that led to the worst economic crisis the US had seen since the Depression. “Freefall” is like “Inside Job” for people who read books.
Stiglitz has long been concerned about the growing divide between rich and poor in the US, so much so, that he wrote another great book “The Price of Inequality.,” mostly focusing on domestic issues. Policies which encourage loose markets disproportionately favor the wealthy, creating economic imbalances which marginalize the poor even further. While free market advocates claim that loosening markets liberates the citizenry from government, in fact, by freeing markets, politics shape the market itself, to the advantage of those who hold power. The market, then, becomes as tyrannical as all of those bed time baddies American right wingers keep warning us about. It’s worth noting that in the US, we allowed investment bankers to write banking policy for much of the run up to the crash.
We know that inequality is on the rise in the United States, but Stiglitz argues that America, as a global financial powerhouse, has encouraged a worldwide trend toward financial loosening, exacerbating economic disparities in other countries as well.
…widening income and wealth inequality in America is part of a trend seen across the Western world. A 2011 study by the Organization for Economic Cooperation and Development found that income inequality first started to rise in the late ’70s and early ’80s in America and Britain (and also in Israel). The trend became more widespread starting in the late ’80s. Within the last decade, income inequality grew even in traditionally egalitarian countries like Germany, Sweden and Denmark. With a few exceptions — France, Japan, Spain — the top 10 percent of earners in most advanced economies raced ahead, while the bottom 10 percent fell further behind.
I took issue with his listing Japan as an exception. Though Japan’s widening divide between rich and poor may not be as dramatic as in the US, Japanese people on the bottom rungs have watched their incomes fall over time. A slow down of the economy and the deflation era has disproportionately impacted low wage earners there.
Excessive financialization — which helps explain Britain’s dubious status as the second-most-unequal country, after the United States, among the world’s most advanced economies — also helps explain the soaring inequality. In many countries, weak corporate governance and eroding social cohesion have led to increasing gaps between the pay of chief executives and that of ordinary workers — not yet approaching the 500-to-1 level for America’s biggest companies (as estimated by the International Labor Organization) but still greater than pre-recession levels. (Japan, which has curbed executive pay, is a notable exception.) American innovations in rent-seeking — enriching oneself not by making the size of the economic pie bigger but by manipulating the system to seize a larger slice — have gone global.
He is entirely correct here. Just about every facet of life has been morphed into a commodifiable good worthy of investment and trade on financial markets. This has long impacted agricultural products and created a trend of increasing prices and violent price swings that do little to raise the lives of the international poor.
African countries, lacking the stabilizing effect of steady manufacturing sectors like those in Asia, depend almost entirely on the resource market. Though they experience significant growth when worldwide prices go up (as has been the case for the past decade), a sudden drop in the price of commodities can quickly wipe out last year’s gains. This is similar to the situation of very poor households in the US. One might have plenty of work this week, but be fired the next. Planning for the future is impossible one isn’t sure whether one will have the cash to eat next week.
I’d like to see a comparison of worldwide trends of inequality. Though it is true that African economies were left in the dust until the early 2000’s, and the continent is in a period of excellent growth at the moment, I’m wondering whether the pace of growth is slower than what it would be without loose international commodity markets and financialization.
Of course, one might also argue the the loosening of markets around 2000 is what caused the current trend in growth.
OK, I wrote something. Thanks.
Some readings for today. I need to break these into categories. I must appear insane. What are y’all reading?
- UN Warns of Rising Unemployment. I’m not sure where these people live. The article claims that 197 mil. people worldwide are unemployed. Assuming that half the world is of working age, this means that the worldwide unemployment rate is only a cool 5.6%? (NYT)
- Joe Stiglitz writes a great piece on how rising American inequality is stifling post-economic-crisis growth. (NYT)
- Which prompted this response from fellow economist Paul Krugman who says that it’s (partially) not. (NYT)
- The reader outrage to which prompted Krugman to respond to his own response. (NYT)
- Japan is finally taking on the Republican Party’s health care plan. Old people should just “hurry up and die” according to finance minister Taro Aso to save the government a few bucks. (Worldcrunch)
- Obama’s Liberal Definition of Rights. The Obama inaugural speech shamelessly codified what it means to be a Liberal in 21st Century America. That’s my opinion, not the one expressed in the article, but I thought of it having read this article. (Bloomberg)
- Why Americans aren’t interested in electric cars. Personally, I’m interested, but broke. (Fiscal Times)
- Four African countries get free access to the EU market, 3 of which are islands and one of which is Zimbabwe. Could they have picked a worse government to deal with? (EP News)
- Economics Journals: More articles submitted, less articles published. (Vox)
- Diabetes’ drugs hard to get in Malawi. As people live longer, chronic disease is going to present ever greater challenges. (Nyasa Times)