equality growth

Why growth without equality may not help the poor

Today I was browsing the latest issue of IPSOS Mori’s Understanding Society bulletin. It features this graph, showing the economic confidence of Middle Eastern citizens over the years leading up to 2011’s wave of revolts.

It’s Egypt’s level of confidence that catches the eye here – a serious decline in confidence in the economy, with two thirds convinced the economy was in poor shape. So what was the economy doing? One might suppose that it was in recession, since the global economy was in distress over that period. In fact, here’s what happened:

So the economy doubled in five years, and two thirds of Egyptians thought the economy wasn’t good? How is that possible? Perhaps this is a clue. This is the percentage of people living in poverty in Egypt, for the same time:

While the economy doubled, the percentage of people living in poverty in Egypt actually rose. No wonder there were riots. (Although it’s the speed that’s the issue here – the UK is really no better, just over a longer time frame)

Two lessons to draw:

1) When politicians insist that growth is the only way to end poverty, it isn’t necessarily true. It can work, but only if the benefits are shared.

2) When foreign policy responses to the Arab Spring turn to economics, be wary of those claiming that Egyptians need more free trade alongside free speech and free elections, as William Hague intones here.

50 comments

  1. Early on in the Egyptian revolution, I read a statistic (that I now can’t source, frustratingly) that during the 30 years of Mubarak’s rule 1981-2011, Egypt’s GDP growth had averaged something like 9 or 10% p.a. while the percent of those on under US$x/day (can’t remember the exact number but it was a low figure) rose from 22% to 40%. I’m glad that you have credible sources here, though they do only show 2005-08/09. My point is that these trends were much longer than that period, and that things got significantly worse for the poor in Egypt in late 2010/early 2011 due to the record food price spike (itself linked to a variety of factors, including extreme weather consistent with climate change).

    So this is a very important point to be making: “trickle down” economic benefits of growth are not automatic, and perhaps require redistributive policies from political authorities.

  2. Looking at the graph above, perhaps the stat I am trying to remember was that the number of people living under the poverty line rose by 40%, ending at 22% of the population being under the poverty line. It is a pity I can’t find that source, since it struck me quite profoundly at the time.

  3. 1. ” When politicians insist that growth is the only way to end poverty, it isn’t necessarily true. It can work, but only if the benefits are shared.”

    We see the fight over this in the US. Half the population pays no taxes and the top earners and job creaters pay the lions share. Placing a larger burden upon them will not solve the problem, in fact it worsens it. The rich are very mobile and will simply move assets and jobs to other places. Every time the US has increased taxes on the rich it loses revenue.

    The evidence is clear regarding the “Sharing” of Wealth.

    “Obama concedes that cutting the capital gains tax actually increased revenues, but says that he’d raise it anyway for the sake of “fairness.” Because hedge fund mangers make too much money.
    It’s amazing that Obama isn’t embarrassed to make such economically illiterate, down-right socialist, comments in public. I mean, he concedes that cutting the capital gains tax has increased revenues but then actually manages to suggest that the tax cuts have lost the government money by invoking the specter of borrowed funds from China.
    The exchange becomes laugh-out-loud funny when Gibson challenges Obama again about the fact that capital gains tax cuts have increased revenue, and Obama tries to change the subject to the housing crisis.” http://sayanythingblog.com/entry/obama_on_capital_gains_tax_lets_tax_the_rich_because_they_make_too_much/ The movie link seem to be broken.

    http://www.youtube.com/watch?v=sbwMPzbzVJM&feature=related Sometimes the “Solutions” have unintended consequences and make things worse.

    Re: England data. “As you can see, a constant rise, and that has ended absolute poverty. The number of people without a roof over their heads and food on the table is very small.”

    I suppose it all depends on your expectations and what you consider adds to your quality of life. Having food and shelter might look quite appealing to those in other nations.

  4. Every time the US has increased taxes on the rich it loses revenue.
    Do you have evidence to back up this claim? It seems to be rejected quite strongly (with numbers to back it up) here and here and here.

    And it is also worth noting that the Bush tax cuts applied to those who were making the most money on the worst financial bubble in history, effectively accelerating the rate at which inequality in the US continues to grow and contributing to the inflation of the bubble that cost tens of millions of jobs round the world.

    As you note, the video link is broken, which means that any attempt to evaluate the claims in the post become difficult, as we have to trust the author’s word on what Obama said.

    I am struggling to see the relevance of the clip about Moore. Yes, of course some treatments can be worse than the disease. But that doesn’t mean there isn’t a disease. And given that Moore doesn’t actually suggest any solutions in the clip, then the critique offered is irrelevant.

    Inequality is a major social problem (or perhaps better, is the root cause of all kinds of other social problems), and has become steadily worse in the US over the last few decades (see here and here). It has been regularly cited as one of the underlying causes of the Egyptian revolution (to return to the theme of this post) and a situation in which the rich get richer while the bottom 90% get poorer is not one that is going to continue for too long.

    1. http://www.bing.com/videos/search?q=Obama+On+Capital+Gains+Tax+youtube&docid=933667406753&mid=DA68F7CE321FA454ED23DA68F7CE321FA454ED23&FORM=VIRE2#

      ” It seems to be rejected quite strongly with numbers to back it up.” I’ll see your media talking heads and raise you Data from the Treasury Department.

      And that data says otherwise. http://www.econdataus.com/cgtax05.html When the red line goes up the blue goes down and so on.

      “If the Democrats inherited any deficit, it was the FY 2007 deficit, the last of the Republican budgets. That deficit was the lowest in five years, and the fourth straight decline in deficit spending. After that, Democrats in Congress took control of spending, and that includes Barack Obama, who voted for the budgets. If Obama inherited anything, he inherited it from himself.
      In a nutshell, what Obama is saying is I inherited a deficit that I voted for and then I voted to expand that deficit four-fold since January 20th.”
      http://bsimmons.wordpress.com/2010/05/15/a-real-eye-opener-bush-debt-vs-obama-debt/

  5. PS One of the effects of massive inequality is the corruption of democracy, which was clearly acknowledged in Egypt, but is also the case in the US (see this very interesting lecture, or this video)

    The situation in the UK is very interesting at the moment, given the present moment of possibility thrown open by the widening implications of the News of the World scandal(s). Today, the Prime Minister admitted that he and all politicians were complicit in giving one very rich man far too much power, leading to a corrupt co-dependent system of politics, media and police. Whether anything changes as a result remains to be seen, but the last few days have seen some rare honest admissions about the extent to which the mega-rich pull the political strings. There are things far more important than ensuring constant GDP growth.

    1. In Canada there are laws restricting union and corporate donations in elections. Even limits set on wealthy individuals. http://canadaonline.about.com/od/federalelections/a/contributions.htm I generally agree there can be too much influence from corporations and trade unions ect. I think Canada is setting reasonable limits in this regard.

      The video regarding the Citizens United vs FEC. Glosses over the actual legal opinion in the case. The case was decided on 1st Amendment Constitutional grounds. http://www.youtube.com/watch?v=tJEeKez1Jlw&feature=player_embedded

      1. The video doesn’t gloss over the 1st Amendment grounds for the decision – that is the very point of the video, to argue that corporations ought not be considered people and to suggest that a constitutional amendment may be required to establish that.

        Leonard focuses on big corporations rather than small businesses, NFPs and unions because that is where the lion’s share of the campaign finances after Citizen’s United came from.

        1. The status of Corporations is deeply founded in common law. Corporations are not people. They are Legal Fictions. “They are Legal entities that are created under the laws of a state designed to establish the entity as a separate legal entity having its own privileges and liabilities distinct from those of its members.[1] There are many different forms of corporations, most of which are used to conduct business.” http://en.wikipedia.org/wiki/Corporation

          To remove the legal status of corporations would require a rewriting of a huge number of laws. This corporate status predates the US. Laws seem to be built upon older laws and precedents.

          “Historically, because companies are “artificial persons” created by operation of law, the law prescribed what the company could and could not do.”

          So i think a simple Law restricting corporate donations would sufice. Just like laws prevent corporations from dumping polution in rivers.

          A constitutional amendment requires two thirds of both houses and three quarters of the states. Not an easy thing to pass. She’s trying to pass one that’s not even written yet.

  6. @Amirlach–

    “Half the population pays no taxes”–do property taxes, sales taxes, excise taxes, etc. not count? Your statement is patently false.
    “Every time the US has increased taxes on the rich it loses revenue”–please name the last time the US has increased taxes on the rich. Was it around 1960 or so?

    1. Polaris. The data refers to the Capital Gains taxes vs revenue. It’s even in the title of the link.

      That half the population of the US pays no income tax is a proven fact. Over half of all income taxes are paid by the top 5%. http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

      And actually Regan raised taxes. ” In 1982 Reagan agreed to a substantial tax hike. More followed in 1984 and 1987.”

      So did HW Bush Re: the famous “Read my lips” quote. http://en.wikipedia.org/wiki/No_new_taxes Made fun of in the Capital One commercial, a viking is shown making a speech and saying “Read my lips: no new axes!”

      You are correct in that there are other taxes and payroll deductions that do count as taxes. The point is the American tax system is progressive and high earners do pay alot more.

      The Bush Tax Cuts did raise revenues.

      “Americans did respond to the tax cuts. There was more investment, more hiring by businesses, and a stronger stock market. When we compare the taxes paid under the old system with those paid after the Bush tax cuts, the rich are now actually paying a higher proportion of income taxes. The latest IRS data show an increase of more than $100 billion in tax payments from the wealthy by 2005 alone. The number of tax filers who claimed taxable income of more than $1 million increased from approximately 180,000 in 2003 to over 300,000 in 2005. The total taxes paid by these millionaire households rose by about 80 percent in two years, from $132 billion to $236 billion.”

      The data is clear that lower tax rates raised revenues and higher taxes brought in less revenues. And Obama was well aware of this when he made the comments about raising taxes in the interest of “Fairness”.

  7. This is a bizarre situation the US apparently wishes to live with, of growing inequality and a complete political intransigence towards it. It simply isn’t true that the US can’t raise taxes. Incidentally, tax plays a part in Egypt’s problems. In 2004 the top rate of tax was cut from 42% to 20%, the same as the poorest.

    Taxes aren’t the only way to deal with the problem. Japan is a very equal country and doesn’t have high taxation. Instead, it limits the growth of inequality in the first place by not letting the salaries of the richest run too far ahead of the poorest.

    All of this is explored in great detail in the book The Spirit Level.
    http://makewealthhistory.org/2009/07/23/the-spirit-level-by-richard-wilkinson-and-kate-pickett/

    1. Of course the “Could” raise taxes. The data shows this will have a negative impact on revenues. The “Bizarre” US tax system is already very redistrabutive with the wealthy paying the majority of taxes.

      Japan has huge debt problems. Not really a great example. When you mandate equality of outcomes you get a standard of living like North Korea. http://www.paulnoll.com/Korea/History/Korean-night.html When there’s unrest in North Korea after dark does anybody see it?

      Jeremy could you explain what exactly you are advocating for? You claim not to be a socialist yet you seem to have a strong redistrabutive theme in your posts.

      How exactly do you suppose to succesfully create equality of outcomes in a manner that has not been tried and failed before?

      1. Amirlach you’re parading your ignorance here if you think that valuing equality leads to north korea, or that progressive taxation is socialist, or that every attempt to create a more equal society has failed.
        I believe that equality is a public good and leads to happier and more stable societies, but I don’t believe in absolute equality. There has to be room for innovation and for people to excel, and absolute equality is dehumanising and unworkable. It’s best done without taxation, by avoiding inequality in the first place. If you’re starting with inequality already, land reform and progressive taxation are useful tools. I also support banking reform and alternatives to the corporation, where workers have a stake in the companies they work for.
        If you want to see what I’m talking about, don’t think north korea, think continental Europe, or better yet, scandinavia. The Nordic Model of democracy is the most progressive as far as I can see.

        1. The Europe? The Nordic model? They are expecting future generations to pay for present day happiness and equality.

          Some of them are close to Greece and Portugal in unsustainable debt levels. The Euro zone is on a “Bail till you fail” course. http://www.thealphanews.com/news-articles/the-economy/economic-collapse/542-bail-till-you-fail-euro-collapse-programmed- Greece, Portugal, Spain… And who’s next?

          Think of the grandchildren.

          1. Ireland – 1,312% – External debt (as % of GDP): 1,312% – Gross external debt: $2.32 trillion – 2009 GDP (est): $176.9 billion

          2. United Kingdom – 425.9% – External debt (as % of GDP): 425.9% – Gross external debt: $9.15 trillion – 2009 GDP (est): $2.15 trillion

          3. Switzerland – 382.2% – External debt (as % of GDP): 382.2% – Gross external debt: $1.21 trillion (2009 Q3) – 2009 GDP (est): $317 billion

          4. Netherlands – 376.6% – External debt (as % of GDP): 376.6% – Gross external debt: $2.46 trillion (2009 Q3) – 2009 GDP (est): $654.9 billion

          5. Belgium – 328.7% – External debt (as % of GDP): 328.7% – Gross external debt: $1.25 trillion – 2009 GDP (est): $381 billion

          6. Denmark – 316% – External debt (as % of GDP): 316% – Gross external debt: $627.6 billion – 2009 GDP (est): $198.6 billion

          7. Sweden – 264.3% – External debt (as % of GDP): 264.3% – Gross external debt: $881.5 billion – 2009 GDP (est): $333.5 billion

          8. Austria – 256.2% – External debt (as % of GDP): 256.2% – Gross external debt: $827.9 billion – 2009 GDP (est): $323.1 billion

          9. France – 248% – External debt (as % of GDP): 248% – Gross external debt: $5.23 trillion (2009 Q3) – 2009 GDP (est): $2.11 trillion

          10. Portugal – 235.9% – External debt (as % of GDP): 235.9% – Gross external debt: $548.45 billion – 2009 GDP (est): $232.4 billion

          11. Hong Kong – 223.1% – External debt (as % of GDP): 223.1% – Gross external debt: $672.9 billion – 2009 GDP (est): $301.6 billion

          12. Finland – 220.2% – External debt (as % of GDP): 220.2% – Gross external debt: $402.24 billion – 2009 GDP (est): $182.6 billion

          13. Norway – 202.6% – External debt (as % of GDP): 202.6% – Gross external debt: $553.4 billion – 2009 GDP (est): $273.1 billion

          14. Spain – 186.1% – External debt (as % of GDP): 186.1% – Gross external debt: $2.55 trillion (2009 Q3) – 2009 GDP (est): $1.37 trillion

          15. Germany – 182.5% – External debt (as % of GDP): 182.5% – Gross external debt: $5.13 trillion – 2009 GDP (est): $2.81 trillion

          16. Greece – 170.5% – External debt (as % of GDP): 170.5% – Gross external debt: $581.68 billion – 2009 GDP (est): $341 billion

          17. Italy – 147.4% – External debt (as % of GDP): 147.4% – Gross external debt: $2.594 trillion (2009 Q3) – 2009 GDP (est): $1.76 trillion

          18. Australia – 124.3% – External debt (as % of GDP): 124.3% – Gross external debt: $1.025 trillion (2009 Q2) – 2009 GDP (est): $824.3 billion

          19. Hungary – 121.9% – External debt (as % of GDP): 121.9% – Gross external debt: $225.56 billion (2009 Q2) – 2009 GDP (est): $184.9 billion

          20. United States – 96.5% – External debt (as % of GDP): 96.5% – Gross external debt: $13.77 trillion (2009 Q3) – 2009 GDP (est): $14.26 trillion

          1. I knew you’d bring up debt and the euro, you have a pavlovian reaction to the word ‘europe’. It doesn’t render the social democrat tradition irrelevant.

          1. Sorry, that’s subscriber content I don’t have access to.

            But whatever it says, I’m not claiming any country is perfect. I’m just saying you can prioritise greater equality without being socialist.

          2. “I knew you’d bring up debt and the euro, you have a pavlovian reaction to the word ‘europe’. It doesn’t render the social democrat tradition irrelevant.”

            You seen to have “pavlovian” aversion to reality. The social democratic tradition is making itself irrelevant by blissfully ignoring the fact it’s not working. The simple fact is they cannot keep spending more than they take in forever.

            The dominoes are falling. The Germans will not be willing to keep working longer and harder so the Greeks can retire at 50 with huge pensions. Somethings gotta give.

            Let me put it in terms of “Peak Oil”. They are consuming more Tax Dollars(Oil) than they are Finding. Raising taxes(Drilling) is only a temporary solution as they can never increase taxes(Oil Production) enough to offset the interest payments and rising costs of an ageing population. Ever higher taxes also stifle the economy, which lowers tax revenues further.

            You say i’m a Peak Oil denier. I say your a Peak Debt denier. Whats the “Alternative” to Deficiet Spending? Have you a plan to “Transition” away from Tax and Spend economics?

          3. I have all kinds of ideas for running a fair economy without debt. Read some the economics archives and you’ll find them.

          4. Jeremy: sorry about that. I was responding specifically to your comment, “The Nordic Model of democracy is the most progressive as far as I can see.” The trouble is that that’s a common misconception. The article I tried to link to was about Sweden, a country that no longer prioritises greater equality. Here are some extracts:

            “… for the left, Sweden demonstrates that all that they dream of is possible … The main trouble is that, when Sweden was as close as it ever has been to being a socialist welfare state, it went bust. … Why? Because Sweden found, like Britain, that if you pay people to be unemployed, take early retirement or be sick, you get a gradually increasing number of people who claim the relevant benefits. And if you have sky-high taxes, people don’t work as hard, or they cheat, or they leave.

            “The country woke up from the dream and had to face reality. … To put it bluntly, Sweden is not a socialist, welfare state paradise of equals because it is not socialist; its welfare state is in some ways tougher than ours; it is not a paradise; nor are the Swedes as equal as assumed. … They saw how socialism and over-generous welfare statism were causing potential disasters. And they reacted. One almost gets a feeling there that this is a democracy that is actually grown-up.

            “Yes, we have some things to learn from Sweden. But it is not how to be a socialist paradise. It is, rather, how to react when the idea of a socialist paradise is shown to be fatally flawed.”

          5. Thanks, that’s more or less what I was expecting from the Spectator – hardly sympathetic to what Sweden was trying to do. What’s interesting with this kind of comment is that the whole world is in the same boat, and everyone’s interpreting it through their own philosophy. A more left leaning publication could write exactly the same words about the US: “Yes, we have some things to learn from America. But it is not how to be a capitalist paradise. It is, rather, how to react when the idea of a capitalist paradise is shown to be fatally flawed.”

            The debt crisis that’s overtaken countries of all persuasions is to do with living beyond our means, and we’ve done that in large part because the economy has to keep growing. The easiest way to do that is not to build productivity, but to borrow 2020’s productivity and spend it now. My contention is that growth economics is the problem here, and that the old left/right dichotomy is an anachronistic irrelevance if both sides refuse to address the fundamental problem.

          6. Jeremy: don’t you read the material I post? Read my extracts from that Speccie piece again and you’ll see they are very sympathetic to what Sweden has been trying to do for the past several years. In any case, I posted this specifically in view of your assertion that “The Nordic Model of democracy is the most progressive”. It seems being “progressive” hasn’t worked too well – so, if that’s the best there is, it doesn’t say much for it.

            Your US analogy would be accurate only if the US had decided that capitalism didn’t work after all and that a new approach was needed. It hasn’t.

            As for the debt crisis, that wasn’t brought about “because the economy has to keep growing” but because, when real growth could not be achieved, politicians turned to artificial growth made possible by unsustainable borrowing – as you correctly say “not to build productivity, but to borrow 2020′s productivity and spend it now”. The substantial (and real) growth of the so-called developing economies (based on real productivity) illustrates plainly that such growth, far from being a “problem”, is massively beneficial.

          7. The Swedish crisis of the 1990s was largely a housing bubble driven by loose credit. Sound familiar?

            Except rather than bailing the banks out with cash, the Swedish government took stocks, and ended up losing no money over the long run.

          8. “List of sovereign states by public debt (debt as % of GDP”

            “Public debt should not be confused with external debt, which reflects the foreign currency liabilities of both the private and public sector and must be financed out of foreign exchange earnings.”

            http://en.wikipedia.org/wiki/Debt_per_capita

            Per Capita Debt. %GDP

            USA $45,000. 95% of GDP.

            Norway $455,000 538% GDP

            Finland $69,000 155% GDP

            Denmark $101,000 180% GDP

            Sweden $91,500 187% GDP

            But the undisputed winner is?

            Luxembourg $3,746,535 3443% GDP

            Looks like Italy is the next in the Euro Zone to need a bailout. http://www.eubusiness.com/news-eu/greece-finance.aph

            Italy $36,841 108% GDP

            Greece $47,636 174% GDP

          9. I’m no expert, but I would have thought that if you were going to work out how much trouble a country is in financially, then the current account balance is at least as important than the overall level of external debt. If you have high debt but high earnings, then that is less of a worry that even moderate debt with low (or negative) earnings. Numbers are in billion USD (IMF, 2007).
            Norway 60.230 (5th)
            Sweden 21.680 (16th)
            Denmark 14.350 (21st)
            Finland 4.696 (33rd)
            All have comfortably positive CABs.
            USA –561.000 (191th)

            Of course this is still only part of the picture, but I find it quite odd that you would consider Norway to be debt trouble when it has a sovereign wealth fund worth over USD500 billion.

            I am not at all making light of debt problems in much of Europe, but my understanding is that the Nordic countries are generally in a relatively good position (except Iceland). Norway seems to be in a very enviable position.

        2. Inequality-adjusted human development index (UNDP, 2010)
          • Norway 0.876 (1st)
          • Sweden 0.824 (3rd)
          • Iceland 0.811 (9th)
          • Denmark 0.810 (10th)
          • Finland 0.806 (11th)
          • United States 0.799 (12th)

          Inequality: Ratio of top 10% income to bottom 10% income (UNDP 2007/08):
          • Finland 5.6
          • Norway 6.1
          • Sweden 6.2
          • Denmark 8.1
          • USA 15.9

          Intergeneration economic mobility (OECD, 2007). Lower score indicates less correlation between children and parents economic situation and so greater economic mobility:
          • Denmark 0.15
          • Norway 0.18
          • Sweden 0.28
          • USA 0.48

          Unemployment (most recent stats I could find, none more than 6 months out of date)
          • Norway 3.4%
          • Denmark 7.0%
          • Sweden 7.9%
          • Finland 8.0%
          • USA 9.1%

          Infant mortality rate (under 5 years), World Bank, 2009:
          • Sweden 2.8/1000
          • Iceland 3.0/1000
          • Finland 3.2/1000
          • Norway 3.3/1000
          • Denmark 4.0/1000
          • USA 7.8/1000

          Press Freedom Index (Reporters Without Borders, 2010)
          • Finland 0 (1st)
          • Iceland 0 (1st)
          • Norway 0 (1st)
          • Sweden 0 (1st)
          • Denmark 2.5 (11th)
          • USA 6.75 (20th)

          Motor vehicle deaths per 100,000 people p.a.
          • USA 15.5
          • Denmark 9.4
          • Finland 8.6
          • Norway 8.7
          • Sweden 5.6

          Incarceration rates per 100,000:
          • Iceland 55 (190th)
          • Finland 60 (183rd)
          • Denmark 71 (168th)
          • Norway 71 (168th)
          • Sweden 78 (160th)
          • USA 743 (1st)

          Intentional homocide rates per 100,000 (2009/10):
          • USA 5.5
          • Finland 2.5
          • Sweden 0.89
          • Denmark 0.85
          • Norway 0.6
          • Iceland 0

          CO2 emissions per capita (tonnes) IEA, 2008:
          • USA 18.3
          • Finland 10.6
          • Denmark 8.8
          • Norway 7.9
          • Iceland 6.9
          • Sweden 5.0

          Internet access (users per 1,000 people) ITU, 2011:
          • Sweden 903
          • Norway 894
          • Denmark 859
          • Finland 839
          • USA 786

          Corruption Perception Index (Transparency International, 2010):
          • Denmark 9.3 (1st)
          • Finland 9.2 (4th)
          • Sweden 9.2 (4th)
          • Norway 8.6 (10th)
          • Iceland 8.5 (11th)
          • USA 7.1 (22nd)

          HPI, 2009 (a meta-index of other stats combining reported happiness, economic development and ecological sustainability):
          • Sweden 48
          • Finland 47.2
          • Norway 40.4
          • Iceland 38.1
          • Denmark 35.5
          • USA 30.7

          PS I note that of the Nordic countries only Finland is part of the Eurozone.

          1. You might be right, it seems it’s more about ability to repay the debt than total numbers. And the US is rapidly approaching the point where people no longer belive it can service it’s debt.

            “Luxembourg Prime Minister Juncker, who heads the group of eurozone finance ministers, said that the problems which have forced Greece, Ireland and Portugal to seek emergency bailouts from the EU and the IMF could also hit, “due to their high levels of debt, Belgium and Italy, even before Spain,” which has been touted as the next in line for possible help.”

  8. The concept that “growth without equality is worthless” is demonstrably false. Take China and India. Both have grown massively in recent years and in both cases a small proportion of their populations have become wealthier – some people much wealthier. Both today have a prosperous and growing middle class. As a result, the gap between rich and poor has widened. Nonetheless, in both countries, outcomes for the poorest people have improved markedly and on a huge scale and are continuing to improve. Economic growth has resulted in better healthcare, better education, improved food availability, etc. – applicable to all sections of society. And it’s the prosperous and growing middle class that, in particular, is making the overall transformation possible. Is this “worthless”? I don’t think so.

    There’s nothing new about this. Mankind’s history has been one of economic growth initially enriching a few but bringing improved living standards for more and more people. Thus, since 1900, despite a 400 percent increase in population, technological innovation (prompted by increased wealth) has increased per capita food production by 50 percent – and it’s still increasing. And more freedom, more justice, an improved environment and, yes, more equality (political if not economic) have been the consequence – not the driver – of these improvements. As I have said here before, all this happens, not by “making wealth history”, but by making more people wealthier. And it has nothing to do with “trickle down” or redistribution.

    Incidentally, the Egyptian revolution was (and is – it’s far from over) a middle class revolution – remember “the Facebook revolution”? About 60% of Egypt’s population is very poor and, of these, about 50% are illiterate. They’re not interested in electronic social networks.

    1. This article from the current Economist illustrates how, with increased affluence, a consumer culture is growing rapidly in China:

      http://www.economist.com/node/18928514?story_id=18928514&fsrc=nlw%7Chig%7C07-07-2011%7Ceditors_highlights

      An extract:

      “By some forecasts China will be the second-largest consumer market in the world by 2015, not far behind America. Chinese people already buy more cars than people in any other country: 13.5m last year to Americans’ 11.6m. China is on its way to becoming the biggest luxury-goods market. The central government made an increase in domestic consumption one of the priorities of its latest five-year plan.”

      And, as I noted above, the boom is spreading from the affluent middle class to the poorer rural areas:

      ” … both firms [P&G and Unilever] are preparing for a “second consumer revolution” among the 665m Chinese who live in rural areas. The income gap between China’s coastal cities and rustic interior is still six-to-one [how’s that for inequality?], but rural incomes are rising and 665m heads could use a whole lot of shampoo.”

    2. And both China and India have huge social problems as a result of that inequality. See the regular riots in China or the much-neglected Naxalite insurgency in India. If they continue to ignore those problems and the growing disenfranchisement of a poorer underclass, then they will see the same kind of unrest as the Middle East. Because to those at the bottom of the pile, those glowing growth figures are indeed worthless. China and India should learn from countries that have pursued pro-poor growth policies, such as South Korea or Vietnam.

      It isn’t true that history has always been about trickle-down economics. There have been moments of enlightenment and/or revolution where people have demanded greater equality. Equality improved dramatically from the 1930s right through to the early 80s in the US and the UK. In the last ten years we’ve undone that completely and we’re right back where we started. I think that’s a huge mistake and we will pay the price for it. You may disagree.

      And I’ve explained the Make Wealth History title to you more times than I care to count and I’m not doing it again. I’m not against growth in poor countries, but there is good growth and bad growth. Rapid growth that topples the government and puts the economy into recession counts as bad growth in my book.

    3. “About 60% of Egypt’s population is very poor and, of these, about 50% are illiterate.”

      This might be a very large factor in the reason why the growth of the nation is not helping alot of people. With literacy comes the skills needed for meaningfull employment.

  9. I disagree. The unrest in China and India does not result from their booming economies. That success has lifted (and is continuing to lift) hundreds of millions of people out of abject poverty – i.e. “the bottom of the pile” which has most certainly benefitted. The UN reported last year that China’s growth has “generated the most rapid decline in absolute poverty ever witnessed” and is already achieving “the goal of halving the number of people in extreme poverty by 2015 set by the UN as one of eight Millennium Development Goals.” It’s absurd to describe that as “worthless”. And there’s not the slightest sign that China’s or India’s governments are likely to be toppled.

    And the unrest in the Middle East – especially Egypt – has been largely fuelled by the middle classes’ (the “Facebook revolution”) increasing dissatisfaction with the ruling dictatorships. Those at the bottom of the pile may, or may not, benefit. Time will tell: these revolutions are far from complete and military regimes do not give up easily.

    As for Vietnam, see this: http://makewealthhistory.org/2011/07/08/remembering-what-matters/#comment-11444

    1. This is a very familar conversation Robin, and I don’t know how many times we need to have it. Lifting people out of poverty is what growth should be doing, instead of fattening those who are already rich. It’s this rapid, useless growth that I oppose.

      Interesting coincidence that you and I both cite Vietnam at the same time for different reasons, but they’re still an interesting example of development that’s prioritised the poor. And it’s because we need to make ecological space for that kind of development that we need to hold back growth in countries that are already developed.

      1. You have completely misunderstood my point. It’s this: in China (and India) a booming economy (created as a result of the efforts of enterprising middle class people) has (a) made the middle classes rather more prosperous (not – except for a very tiny minority – fattened “those who are already rich”) and (b) in the process, lifted hundreds of millions of people out of abject poverty. Without (a), (b) would not have happened. It most certainly was not “useless”.

        And, in any case, what do you think is the driver of Vietnam’s growth – the fastest in Southeast Asia? Well, like China’s, it stems from a switch from agriculture to industry, now 40% of the economy. Government policy encouraged industrial expansion which has been led by clothing exports to the USA. And who do you think is making that expansion happen? Er … Vietnam’s growing and increasingly prosperous middle class. Just as in China and India.

  10. Robin, you’re off on a pointless tangent. I was writing about Egypt, and from that extrapolating the principle that growth without equality doesn’t work for the poorest in society. I’m not out to dismiss the economic transitions of the developing world.

    1. I suggest you revisit your headline: “Why growth without equality is worthless”. I used China and India as prime examples of the falsity of that statement. Which they – and the rest of the developing world – plainly are. And it’s the developing world that’s the engine of current world economic growth.

      I pointed out also that Egypt is another example of your misunderstanding. But, this time, for a very different reason. Egypt is not an example of a growing economy greedily leaving the poor behind while benefitting the rich middle class and thereby triggering a revolution of the disadvantaged. It’s true that Egypt’s economy has grown in recent years and that, unlike Southeast Asia, the poorest have seen little benefit. But it was not they – the poorest in society – who made the revolution. It was the growing Western-oriented middle class – the Facebook and Twitter users. A tiny percentage of the population who have been beneficiaries of economic growth. Their reason was hostility to the dictatorship of Mubarak and the generals. And they may even have failed: Mubarak may have gone but the generals are still in power. OK elections are promised. But the new political parties are hopelessly fractured and the real alternative power – Islam (to which most of the poorest people are loyal) – may well triumph. It’s early days: the Arab Spring could yet turn sour.

      “Pointless tangent”? I don’t think so.

      1. I disagree with your analysis, not least because tiny percentages don’t cause revolutions, and because the role of social networks is likely being overplayed.

        But I can see your point on my choice of title, and I’ll change it for you.

        1. In fact it’s almost always tiny minorities – small groups of activists far smaller than the wider population – that bring about revolution. Think, for example, of the handful of MPs, politicians and army officers who started the English revolution in 1641, the reaction of a few citizens of Boston to the massacre or riot (depending on your viewpoint) in 1770, the Paris “street” that stormed the Bastille in 1789 … and so on. In all these cases, the bulk of the population knew little, probably nothing, about what was happening. Likewise in Cairo in February it was the networked, educated, relatively well-off, articulate young who, fed up with the dictatorship and repressions of Mubarak and the generals, rioted in Tahrir Square in February, with substantial support from junior army officers – the many millions of desperately poor, intensely religious agrarian peasants were barely involved at all.

          I cannot disagree with your revised title. I would observe however that, although wealth without equality may not always help the poor, the general rule is that it does. Egypt is perhaps an exception that proves the rule in that it experienced economic growth and the poor didn’t benefit. What’s interesting there, however, is that it those creating the (as yet incomplete) revolution were members of a middle class that did benefit from economic growth. So, contrary to your contention, it was not the increase of people living in poverty that caused the riots. What the demonstrators in Tahir Square were (and are) demanding was in particular the end of dictatorship, the end of repression and the introduction of democracy.

          Here’s a quotation from the BBC last Friday:

          “Tens of thousands of protesters have rallied in Cairo to press for speedier reforms from the Egyptian government. Many activists are angry at the slow pace of change since President Hosni Mubarak’s fall on 11 February. They particularly want to see Mr Mubarak and his officials put on trial more quickly. They also accuse the military government of failing to adequately try those accused of killing and injuring protesters during the January and February uprising, and want an end to military trials of civilian protesters.

          “Nothing has changed,” one protester, Mohammed Abul Makarem, 18, said. “Change takes time, but there are reforms we can do now.” One opposition leader, Tarek al-Kholy went further, telling state TV: “We want the cleansing of all state institutions of former regime members, including the universities and judiciary. We want a reform of the interior ministry”.”

          None of that sounds to me like poor people demanding a share of economic growth.

    1. Thanks.

      I said that the middle class that brought about the revolution was (unlike the poor) a beneficiary of economic growth, thereby illustrating the falsity of your assertion that an increased percentage of people experiencing poverty was the cause of the riots. I didn’t say anything about them – or Egyptians in general – being “so happy with the growth”. So what’s the point of your question?

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