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.
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.