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Super-rich have grabbed an increasing share of the world’s income, economists’ study finds Larry Elliott Economics editor Global inequality is as marked as it was in the early 20th century pinnacle of western imperialism after the capture by the super-rich of an increasing share of the world’s income, a new report has shown. A study by a group of economists including Thomas Piketty and Emmanuel Saez said 30 years of the globalisation of trade and finance had widened the gap between rich and poor. Although the World Inequality report found inequalities between nations had declined since the end of the cold war, it said inequality had increased within most countries and had become more pronounced as a result of the global pandemic of the past two years. The wealth gap between rich and poor was even wider than the income divide, the report added, with the boom in asset prices last year resulting in the sharpest increase in billionaires’ wealth on record. The research showed the richest 10% of the global population currently taking 52% of global income, compared with an 8% share for the poorest half. On average, an individual from the top 10% of the global income distribution earned $122,100 (£92,150) a year, whereas an individual from the poorest half of the global income distribution makes $3,920 a year. “Global inequalities seem to be about as great today as they were at the peak of western imperialism in the early 20th century,” the report said. “Indeed, the share of income presently captured by the poorest half of the world’s people is about half what it was in 1820, before the great divergence between western countries and their colonies.” The report – the work of more than 100 researchers from around the world – found income inequality varied between regions, with the Middle East and north Africa (MENA) the most unequal and Europe the least unequal. In Europe, the top 10% income share is about 36%, whereas in MENA it reaches 58%. While some countries – including the US, Russia and India – had experienced “spectacular increases” in inequality, other parts of the world, such as European countries and China, had reported relatively modest rises. Gender income inequality remained high despite a small narrowing of the gap between men and women over the past 30 years. Women’s share of income stood at 30% in 1990 and had risen to nearly 35% by 2020. The report, the work of the World Inequality Lab, which is hosted jointly by the Paris School of Economics and the University of Berkeley, California, said progress in tackling gender inequality had been “very slow” at a global level. The wealth of the 50 richest people on earth had increased by 9% a year between 1995 and 2001, with the wealth of the richest 500 rising by 7% a year. Average wealth grew by 3.2% over the same period. Since 1995 the top 1% took 38% of all additional wealth, whereas the bottom 50% captured just 2% of it. Lucas Chancel, the lead author of the report, said: “The Covid crisis has exacerbated inequalities between the very wealthy and the rest of the population. Yet, in rich countries, government intervention prevented a massive rise in poverty, this was not the case in poor countries. “If there is one lesson to be learned from the global investigation carried out in this report, it is that inequality is always political choice.” {{#ticker}} {{topLeft}} {{bottomLeft}} {{topRight}} {{bottomRight}} {{#goalExceededMarkerPercentage}}{{/goalExceededMarkerPercentage}} {{/ticker}}{{#paragraphs}}{{.}} {{/paragraphs}}{{highlightedText}}{{#choiceCards}}{{/choiceCards}} We will be in touch to remind you to contribute. Look out for a message in your inbox in . If you have any questions about contributing, please contact us. Topics
{{#showContent}} {{#description}}{{/description}}{{#content}}{{#headline}} {{#isComment}}{{/isComment}} {{#showWebPublicationDate}} {{webPublicationDate}}{{/showWebPublicationDate}}{{headline}}{{/headline}}{{/content}}{{/showContent}}{{#showContent}}{{#description}}{{/description}}{{#content}}{{#headline}} {{#isComment}}{{/isComment}} {{#showWebPublicationDate}} {{webPublicationDate}}{{/showWebPublicationDate}}{{headline}}{{/headline}}{{/content}}{{/showContent}}{{#showContent}}{{#description}}{{/description}}{{#content}}{{#headline}} {{#isComment}}{{/isComment}} {{#showWebPublicationDate}} {{webPublicationDate}}{{/showWebPublicationDate}}{{headline}}{{/headline}}{{/content}}{{/showContent}}{{#showContent}}{{#description}}{{/description}}{{#content}}{{#headline}} {{#isComment}}{{/isComment}} {{#showWebPublicationDate}} {{webPublicationDate}}{{/showWebPublicationDate}}{{headline}}{{/headline}}{{/content}}{{/showContent}} Living standards increased markedly during the 20th century. Moreover, recent studies have shown that over about the last thirty years, the majority of the world's poor have achieved income growth faster than in developed countries for the first time in two centuries. But because income differences had become very wide and the developed countries' incomes are still growing, absolute (dollar) income gaps will continue to widen for some time yet. The continued improvements in living standards and the recent reduction of inequality follow the return in the second half of the 20th century to widespread peace, sustained global economic growth, and freer global markets in trade and investment. This provided a favourable global setting for domestic economic reforms in very populous poor countries including China, India and Indonesia, which triggered their strong economic growth. Wider public understanding of this recent progress would benefit from better international statistics, and better statistical practices. Continuing progress against persistent extreme poverty requires the maintenance and improvement of the globalised international environment of the late 20th century (including through further trade liberalisation, especially of rich countries' barriers against poor countries' exports), and peace and economic reform in those countries whose share of global trade has been declining. Summary Nations achieved large advances in life expectancy, nutrition, and education in the 20th century, and in the more equal distribution of them. Less widely noted is that over the last thirty years or so, the majority of the world's poor have begun slowly to catch up with living standards in developed countries for the first time in over two centuries. So far, the convergence is only relative (that is, the average person in a poor country has faster income growth than the average person in a rich country). Absolute (dollar) income gaps are still widening. But catch-up is clearly apparent when correctly measured in terms of the purchasing power of average national income per head. The continued improvements in living standards and the recent reduction of inequality follow the return in the second half of the 20th century to widespread peace, sustained global economic growth, and freer global markets in trade and investment. Other influences include the decline since the late 1970s in the application of central planning and other statist development models. China and India together account for almost 40 per cent of the world's population and both were formerly extremely poor. While they remain very poor, their rapid recent economic progress, consequent on their policy reforms of the last two decades, bulks large in today's improved global inequality statistics. Moreover, many other populous economies including Pakistan, Bangladesh, Indonesia and the other Asian 'tigers' have all experienced strong real per capita GDP growth over the last few decades, notwithstanding the Asian crisis of the late 1990s. The proportion of the world's population in extreme poverty has declined from about three-quarters in 1820 to one-fifth today, and despite some setbacks, that proportion continued to fall slowly over the 1990s. However economic growth in the poorest countries over the 1990s was insufficient, relative to the decade's population increase of 690 million, to reduce the estimated number in extreme poverty, which remains at about 1.2 billion. While there are some reasons to suspect the global poverty count may be too high, and by an increasing margin over time, extreme poverty remains the main international economic challenge for the 21st century. The continuation of outward-looking economic policies can ensure living standards in the developing world continue to grow faster than in the developed world, but good policies are not assured. Moreover, arithmetic dictates that absolute (dollar) differences between average incomes in the rich and poor countries will continue to widen for some time, because the starting point differences are so wide, and because the rich countries will themselves keep growing. Australians concerned with development and poverty issues need to understand that arithmetic reality, and not be discouraged by it, or diverted by it from the support for successful policies. Globalisation's critics frequently attribute to it economic problems that in fact arise from the presence of ethnic and religious fragmentation, civil war, poor governance and corruption; and the absence of social trust, modern institutions, and outward-looking economic policies. These problems have to be remedied principally by the peoples affected. The international diffusion of modern ideas, ideals and institutions are not the problem; they are part of the solution. The challenge is to maintain and improve the policies (in both rich and poor countries) which, in the last quarter of the 20th century, turned the corner in the world's battle against inequality and poverty. The recent achievements in containing poverty and reducing international inequality are not widely recognised. Maintaining public support for effective policies would be assisted by better global statistics and better international statistical practices. Introduction At the start of the new century, it is useful to review briefly the successes and the failures of the 20th century in raising living standards and reducing inequality for the world's poorest. The review carries important lessons for the focus of international economic policy effort in the early 21st century. The real value of goods and services produced in the 20th century was greater than produced cumulatively in all previous human history. Yet about one billion people (almost one-fifth of the world's population) still barely subsist, just as all our forebears did for all but the last few hundred years.1 The global income distribution widened for over 200 years from the dawn of the first industrial revolution, as the gains from technologically-driven productivity growth accrued mostly to the Western European and New World economies, and diffused only slowly to many developing countries. Consequently, the income distribution at the end of the 20th century is wider than at the start. But recent studies have shown that over the last 30 or so years, the majority of the world's poor have begun slowly to catch up with living standards in developed countries for the first time in two centuries.2 In international economics, the most important unfinished business of the 20th century is to build the national policies and institutions that will lift the living standards of the one billion people still suffering persistent, extreme poverty. In developing countries, this will require political support for peace, for sound economic policies and institutions, and for the far-reaching social and economic transformations associated with achieving higher levels of productivity, the key to improved living standards. In developed countries, it requires political support for trade and investment liberalisation to open their markets to developing economies, and to provide bilateral and multilateral aid and technical assistance. And in all countries, it requires political support for the multilateral, rules-based international institutions that provided the economic framework within which much was achieved in the second half of the 20th century. Instead of this necessary political support, it seems to be popularly believed that the return to greater international economic integration in the second half of the 20th century (after the economic dis-integration arising from the Great Depression and the two World Wars) has failed the poor; that they are falling further behind the world's richest countries; and that in some sense, 'globalisation' is to blame. It seems to be believe If the world's poor were indeed failing to become richer, Australians could be less confident that the poor would progressively demand better labour and environmental standards, to mention just two areas of sensitivity in current international debate over the terms on which international trade should take place. Moreover, an erroneous belief that extreme poverty is an insuperable problem can damage community support for bilateral development assistance, and for the vital work of the international financial institutions with the world's poorest countries. If the erroneous belief that international inequality is still worsening is not contested, it can damage confidence in open global markets for trade and investment. History has shown open markets to be the best vehicle for accelerated global and regional growth in income and living standards for the poor, and thereby for improvements in Australia's own security and living standards.
Gains in average world income and living standards The 20th century generated unprecedented real growth in world GDP, with average annual growth for the century as a whole of about 3 per cent per annum. As a result, real global GDP rose at least 19 fold from 1900 to 2000 [IMF (2000) (b) pp 150-151].3 Indicators of income growth in previous centuries are of course fragmentary, but estimates by economic historians suggest that global GDP growth was typically less than 0.2 per cent per annum in the period 1000 to 1500, rising to about 0.3 per cent until 1820. Growth then accelerated remarkably to about 2.1 per cent per annum towards the end of the 19th century, as the first industrial revolution raised productivity in the West [Maddison (2000) p 11]. Strong productivity growth permitted not only the measured rise in GDP over the 20th century, but also a near halving in the industrial economies of annual hours worked per person employed [Crafts (1999) pp 22-23]. World population growth in the 20th century was also unprecedentedly fast, almost quadrupling from 1.6 billion at the start of the century to 6.3 billion at the end. Public health breakthroughs and economic growth caused death rates to fall remarkably almost everywhere, while birth rates initially remained high in the countries where death rates had fallen most recently. While this so-called 'demographic transition' works its way through economies offering better life expectancies, population growth rates typically rise strongly for a protracted period before falling [IMF (2000) (b) pp 151-152].4 Real per capita world GDP rose by a factor of about five over the 20th century. The rate of per capita GDP growth over the century varied markedly, in four distinct phases:
Chart 1: Four periods of 20th century Source: International Monetary Fund (2000) (a). Not only has aggregate growth been extraordinarily large, but structural change in the advanced economies has been unprecedented too. For example, agriculture, which had been humans' principal occupation since the dawn of civilization, employed about half the labour force in Western Europe at the beginning of the 20th century, but 5 per cent or less at the end. But it would be a poor boast for the 20th century if higher average global income, growing faster than ever before, left a rising proportion of the world's poor untouched. In fact, national growth performances have remained very divergent, and the absolute gaps (that is, the gaps in dollar terms) in per capita GDP have indeed widened.5 Even so, the middle fifty per cent of the world's population had become richer by the end of the 20th century than the richest quarter had been at the start of the century. And even the poorest quarter had grown richer by the end of the century than those in the second richest quarter at the start of the century (Chart 2). Chart 2: Income levels by quartile, 1900 and 2000 Source: International Monetary Fund (2000) (a). Moreover the concentration on measured income alone provides too narrow a comparison. Various 'quality of life' indicators have improved even more strongly than incomes. Life expectancyLife expectancy provides a particularly interesting indicator, as advances in life expectancy capture the influences of advances in knowledge about health, advances in spending on public health measures, better education (including about diet and hygiene) and rising incomes. In 1870, the world's highest life expectancies at birth were in Norway (49.3 years) and Australia (48.0 years). Life expectancy in Japan was 37 years By the mid 1990s, the highest life expectancies in the rich countries of the 1870s had been exceeded by practically every country on earth. The average life expectancy in developing countries was 65 years; in India it was 61.6 years; and only in Angola, Malawi and Mozambique did life expectancies remain lower than the levels in Australia and Norway in the 1870s. Supporting indicators suggest that the quality of life is improving, as well as sheer longevity, for reasons that include economic gains in nutrition, not just public health gains (such as immunisation). For example, child malnutrition rates have declined by a quarter in the last 40 years, with associated improvements in stunting (low height for age - an indicator of long-term malnutrition) and wasting (low weight for height - an indicator of short-term malnutrition). [UNDP (1998) p 19] Rapid progress in extending life expectancies continued through most of the second half of the 20th century, and the inequality in life expectancies across countries declined strongly (Chart 3). However in the 1990s, progress in raising global life expectancies slowed, mostly because AIDS in Africa greatly slowed the rise in life expectancies there,6 and life expectancies actually fell in Eastern Europe and Central Asia in the economic disruptions following the end of central planning and the break-up of the USSR.7 Chart 3: Global average life expectancy, and Gini coefficients Note: The Gini coefficient is a measure of inequality, ranging from 0 to 1. A higher number indicates greater inequality. Source: Melchior, A., Telle, K., and Wiig, H. (2000). EducationThere has also been great improvement in education levels over the 20th century (measured by gross enrolment ratios), and significant narrowing of the gap between rich and poor countries.8 In contrast with the evidence for life expectancy, where advances were spread through most of the 20th century, much of the educational catch-up by poor countries has been only in the last 20 or 30 years, and the catch-up is so far only in relative terms, not yet in absolute terms. (Primary education is now nearly universal in both rich countries and most developing countries except those of sub-Saharan Africa. But the absolute gap in percentages enjoying tertiary education is still widening between rich and poor countries, and remains about constant for secondary education.) The Human Development IndexThe United National Development Program (UNDP) has attempted to integrate indicators of income, life expectancy and education into a single Human Development Index (HDI). The HDI has severe conceptual and practical limitations (see Box 2 for an outline of its construction). But it is widely reported and taps some current views of 'economic development as freedom', in accord with which some basic claims (including health and education) deserve particular weight.9 Although the UNDP has computed the index only back to 1960, Crafts (2000) has extended the estimates back to 1950 for many countries and back to 1870 for some of the industrial countries (including Australia). Progress in the 20th century in terms of the HDI was quite remarkable. In 1870, Australia led the world in the HDI, with a figure of 0.539. By 1995, that figure would only have ranked a country 127th in the world. By 1995 Australia's 1870 HDI figure has been surpassed by all but a few countries such as Haiti, India and Nepal. [Crafts (2000) pp 6-9] Environmental degradation and sustainable developmentIt may be objected that undoubted advances in incomes as measured in national accounts, and in life expectancy, education and other social indicators, have been bought at the cost of damage to environmental capital, so that 'sustainable progress' has been lower than measured progress.
The issue of sustainable development is a complicated topic in its own right, beyond the scope of this paper. It is currently the subject of a major project in the OECD, reporting later this year. But in summary terms, economists see sustainability as being able to at least maintain living standards without reducing the capital stock, which includes not only environmental capital but also physical and knowledge capital. Nordhaus (1995) has argued that over the 20th century, it seems likely that increases in the capital stock from investment, technological progress and education dominated any reductions in environmental capital. So for this reason among others (such as the problems of underestimating actual long-term GDP growth noted above), Crafts (1999) concludes that sustainable income growth over the 20th century, correctly measured, was likely to have been higher than actually measured income growth, not lower. Australian studies of the experience of the APEC economies suggest that, since the early 1980s, natural resource depletion rates have been falling and that 'extended genuine savings' have been rising strongly.10 More generally, the OECD has shown that the quality of environmental protection gets higher as countries get richer [DFAT (2000) pp 47-51]. Trends in income inequality in the 20th century Over the long haul, national per capita income levels must closely relate to national productivity levels, and per capita income growth must be related to productivity growth. So the story of international income inequality trends in the 20th century is essentially the story of international productivity trends. Annual productivity growth rates in advanced countries are typically only 1 or 2 per cent, and even rather short periods of extraordinarily accelerated productivity growth only produce numbers of 3 or 4 per cent. International trends in income growth and inequality are typically the product of compounding over decades or even centuries of these apparently rather small differences in annual productivity growth rates. Is there an appropriate benchmark for international inequality?It is not common to ask what the international distribution of income ought to look like. Unavoidably, that question is in large part subjective, although the obviously wide international range of productivity levels implies that an economically sustainable distribution of income will remain wide for some time (absent sustained international transfers at very much higher levels than are now in prospect). The interest in the international income distribution should perhaps focus more on its trend than its level, as the trend provides an indication of whether productivity growth in poorer countries is sufficiently fast to allow relative and absolute catch-up on higher income levels. Turning the corner?Strict statistical comparison of international inequality over the 20th century is difficult, because reliable national income and household expenditure data for most developing countries are available only since about the mid 1960s. Indeed many of the current developing countries were only created in the second half of the 20th century. When founded in 1945, the United Nations had only 51 member countries; now, it has 189. Nevertheless, for 42 countries for which data are available for the whole 20th century, the IMF estimates inequality was greater in 2000 than in 1900.11 Chart 4 arrays the world population from poorest to richest countries, and shows the cumulative population shares of global income produced, in a so-called Lorenz curve. Perfect equality is represented by the 45-degree line, and inequality is greater the further the Lorenz curve lies from the diagonal. The Gini coefficient is a measure of the area between the diagonal and the Lorenz curve. The coefficient can range between 0 (for a perfectly equal income distribution) and 1; the closer the coefficient is to 1, the more unequal the distribution. The Gini coefficient for the 42 countries shown was 0.40 in 1900 and 0.48 in 2000. However for the last 30 or so years - for which data on 115 countries are available - inequality has been falling. After reaching a peak somewhere in the 1960s, the Gini coefficient has since been decreasing. Note, though, that the Lorenz curves cross at about the point of the poorest 17 per cent of the global population: by all measures, the very poorest 17 per cent have a smaller share of the total global consumption now than previously. Chart 4: Global inequality
Note: In part because the numbers of countries represented in these two diagrams are very different, one can not compare the Gini coefficients between the two diagrams. Sources: Left panel: International Monetary Fund (2000) (b). Right panel: Melchior, A., Telle, K., and Wiig, H. (2000). The message of recently narrowing inequality is a product of quite recent academic research, and is contrary to the message coming out of the multilateral development banks and UN agencies.12 Better understanding these contrasting pictures reveals much about the complexity of measuring international inequality, and suggests a little about the causes of the trends. What is measured by international inequality measures?Although it is common to speak of the global income distribution, the data behind such discussions are almost invariably national averages: national GDPs divided by national populations to yield national per capita averages, rather than international aggregations of the actual distributions of each nation's income across its individuals or households.13 From this basic fact, many statistical confusions and erroneous diagnoses arise. It is possible to compare trends in poverty and inequality by country (so that, say, the experience of China (population 1 billion) and Estonia (population 1 million) have the same weight), or weighted by the number of people in the country; it is possible to convert measures in national currencies at market exchange rates, or at purchasing power parities (discussed further below); and it is possible to compare movements in two countries, or small groups of countries, or all countries.14 All these comparisons may be in a sense 'correct' (that is, accurate counts of something or other), but many of them lead to what statisticians have characterised as 'material errors': that is, they give a fundamentally misleading impression to the user of the statistics of the phenomenon being described (see Box 3).
International inequality and national inequ alityBecause almost all statements about international inequality are based on national average per capita GDPs, it is conceivable that trends in inequality as measured by national averages might be overwhelmed by trends in inequality within countries. (For example if a poor country experienced strong but extremely unevenly-distributed GDP growth, global inequality proxied by national GDPs per capita might narrow, but actual inequality in living standards between the world's individuals might widen.) But considerable research suggests that much the greater part of the movements in world inequality arise between country averages, not within countries. [Schultz (1998); Milanovic (1999); Firebaug (1999); Melchior, Telle and Wiig (2000); Milanovic and Yitshaki (2000)] Moreover, any movements in national inequality are best treated as a separate policy issue from trends in international inequality. National governments influence national income distributions, through their polices of taxing, spending and regulating, and are accountable to their own citizens for those policy choices. If intra-country inequality is widening in a way unacceptable to the country's citizens, the efficient policy responses are likely to be at the national level, and it is not clear what (if anything) the international community could do about it. In contrast, if international inequality is widening, the questions and the policy responses are likely to be different: Is globalisation systematically disadvantaging poor countries, or not? If so, what are the implications for national and multilateral trade and aid policies (particularly in rich countries)? International comparisons of national incomes and poverty linesNational per capita GDPs and national household or individual consumption levels need to be converted to a common currency for international comparisons of inequality levels. Similarly, conversion to a common currency is necessary to estimate the absolute number of the extremely poor relative to some internationally-standardised poverty line, such as the US$1-a-day figure. Different ways of doing this conversion have proven one of the main statistical reasons for conflicting claims about recent trends in inequality. Statisticians have agreed that when the purpose is to compare real incomes or living standards internationally, account should be taken of the differences in prices across countries, to get a better estimate of the actual purchasing power of local incomes. The most extensively developed means to account for global price differences is the use of purchasing power parities (PPPs), which are ratios which allow inter-country comparisons of real GDPs in a common currency (usually the US dollar) that eliminate the effect of different national price levels - see Box 4. The use of PPPs is particularly important for developing countries, as typically the poorer the country, the more its domestic prices diverge from world prices, because more consumption is supplied from home production (ie outside markets), and local markets are in any event frequently more de-linked from international trade. Moreover, developing countries' exchange rates are more frequently subject to administrative control, which can move them further from market-clearing rates. Finally, those exchange rates that are market-determined can be volatile and heavily influenced by capital flows, in ways that do not directly or immediately impact on slow-changing characteristics such as poverty and inequality. The International Monetary Fund (IMF), the OECD and Eurostat invariably use PPPs for living standard comparisons, and the World Bank generally uses them for analytical purposes. However, the practice of the UNDP has been more variable. While it rightly uses PPPs in computing its HDI, many of its recent statements alleging still-rising inequality (such as in its widely-reported annual Human Development Reports) are based on market exchange rate comparisons.
Since the exchange rates of poorer countries have tended to depreciate over time (especially in recent years in comparison with the appreciating US dollar), it is possible to present a misleading picture of still-widening inequality by use of comparisons based on market exchange rates. The systematic difference between exchange rate comparisons erroneously showing widening inequality in living standards, and PPP comparisons correctly showing narrowing inequality, are summarised in Chart 5.15 Chart 5: Gini coefficients in different studies Source: Melchior, A., Telle, K., and Wigg, H. (2000) Various arguments are offered for continuing to use exchange rate comparisons of living standards, such as the timely availability of accurate exchange rates, their common use for other everyday purposes, and widespread public understanding of them. But the convenient use of a conceptually wrong measure cannot be defended. PPPs are of poorer statistical quality for developing countries than for developed economies, and the improvement of PPP data has languished in recent years. Following mounting recent criticism from the international statistical community, there is now a proposal to seek better funding of the International Comparison Program, which generates global PPPs. Such improvements should be supported by all interested in developing efficient anti-poverty polices based on a correct measurement and analysis of trends in inequality and in persistent extreme poverty. Other statistical disputes in claims about inequality trendsWhile the choice of PPPs or exchange rates for international comparisons is one of the main statistical grounds for disputed claim
'Divergence, big time' from slow compounding of productivity differencesFrom the dawn of human history to the mid-18th century, the world was a much more equal place than today. Productivity levels across the world were very low and fairly uniform. `...the differences between the standards of living of the average peasant in the Yangzi delta, the average peasant in the Rhine valley, the average peasant in the Nile valley, and the average peasant in the Ganges delta were small: a factor of two at most. Malthusian population pressure kept populations high enough to push average standards of living worldwide close to subsistence, and more natural resources or better technology showed up much more in higher population densities than in higher standards of living.' [DeLong, (2001)] The Industrial Revolution in the UK from about 1760 to 1830 lifted real per capita GDP growth rates by a factor of 4 or 5. But the ensuing annual average per capita growth rates over 1820 to 1870 still averaged less than 1.5 per cent. Even the inexorable compounding of that growth in the UK (and in the Western European countries and the US, which successfully deployed the same technologies) made very little observable difference for at least 75 years. As recently as 1820, global disparities in national average incomes had only risen to three, and three-quarters of the world's population lived below the then-equivalent of today's US$1-a-day poverty line [World Bank (2000) (b) p 45]. `...so slow was the pace of change that people, or at least aristocratic intellectuals, could think of their predecessors of a thousand years before as effectively their contemporaries. Marcus Tullius Cicero [106 to 43 BC] a Roman aristocrat and politician, might have felt more or less at home in the company of Thomas Jefferson [1743 to 1826]. The plows were better in Jefferson's time. Sailing ships were much improved. But these might have been insufficient to create a sense of a qualitative change in the order of life for the elite. And being a slave of Jefferson was probably a lot like being a slave of Cicero.' [DeLong, (1998)] Indeed, the shape of the international income distribution at the end of the 20th century still bears the influence of the dawn of the first industrial revolution in the mid 18th century. This is because the initial, passing surge of productivity growth in the West led gradually to sustainably higher incomes, out of which more savings funded more investment in a virtuous circle of continued higher growth, compounded for 250 years. The early 20th century saw an almost equally dramatic acceleration of productivity growth from about 1913 to 1972, from the deployment of further major technological breakthroughs of the late 19th century.17 This 'second industrial revolution' started in the US but spread back to the same countries that were early diffusers of the first industrial revolution's technologies. It had been theorised by earlier generations of growth specialists that, given free trade and capital flows, high savings and relatively low returns to marginal investment in richer countries would lead to capital flows and investment at higher return in poorer countries and gradual 'unconditional convergence' in living standards. Within the OECD membership and among the regions of western European countries, the US and Japan (which all shared advanced institutions and broadly pro-capitalist values), such convergence is indeed observable through the second half of the 20th century. And some formerly less developed countries (such as Japan, Korea, Singapore, Hong Kong and Taiwan) did catch up with or even overtake living standards in the countries that originally benefited from the industrial revolutions. But from about the middle of the 18th century until the last quarter of the 20th century, most poor countries were not catching up. Thus at the end of the 20th century, the picture compared to the mid 18th century is (in the title of one influential analysis) 'divergence, big time'. [Pritchett (1997)] The narrowing inequality of the last thirty years has not been sufficient to overcome the widening inequality of the preceding 220 years. Possible reasons that have been identified for the 220 year divergence include the need for poor countries to enjoy peace, the rule of law, functioning economic institutions and a stable economic environment if they are to generate, attract and productively use savings and investment (either domestic or foreign). The effects of central planning on global income equalityOne important influence on income divergence over the first 70 years of the 20th century that is surprisingly little-mentioned is the failure of the century's biggest economic experiment, central planning. From 1917 to 1989, up to one-third of the world's population organised their economies by central planning, and many more (particularly in decolonising Africa and Asia) were influenced to follow related statist development models. Economists have estimated that the initial effects of central planning in Russia and China were positive on measured GDP growth (though perhaps less so on citizens' actual living standards) [Boltho and Toniolo (1999), Table 7]. However once the early gains from capital deepening with established industrial technologies were exhausted, the central planning problems of allocative inefficiency, weak innovation and perverse incentives progressively detracted from economic performance. The adverse consequences of central planning and other statist development models were important in limiting economic performance in much of the world around the third quarter of the 20th century. Recent analysis makes a telling criticism of the inward looking development models most de-colonising countries borrowed from central planning in that era: `The postwar trade that was liberalized the most was in fact intra-OECD trade, not trade between the OECD and the rest. From the very beginning in the 1940s, the General Agreement on Tariffs and Trade explicitly excused low-income countries from the need to dismantle their import barriers and exchange controls. This permission pro The lost growth under central planning in the third quarter of the 20th century continues to be important for the level of national incomes and the evolution of national income distributions in the formerly centrally planned economies. Looking ahead, income distributions that were extremely compressed under central planning by both the virtual elimination of private income from capital and the egalitarian administration of the wage distribution, could now be expected to widen. `A mechanism that mobilizes scarce resources for simple aims in a primitive economy, becomes progressively less efficient as the economy's degree of sophistication increases. ... Had planning been scrapped in the 1950s in Russia and in the 1960s in China, today's judgement might well be a good deal more favourable.' [Boltho and Toniolo (1999), p 11] The persistence of extreme poverty While the global income distribution is now narrowing in relative terms as a result of successes such as (but not limited to) India and China, the poorest 17 per cent nonetheless produce a smaller share of the world's output than they did 30 years ago (Chart 4). The number in extreme poverty has been roughly stable at about 1.2 billion over the 1990s (Table 1). Since the world population grows by about 70 million a year (mostly in poor countries), to merely keep the absolute number of extremely poor constant has itself been an achievement, albeit not one with which the world should rest satisfied. Because of this growth in the denominator, the proportion of the developing world's population in extreme poverty has fallen from 29 per cent at the start of the 1990s to 24 per cent at the end of the decade. [World Bank (2000) (b) p 23] Income poverty relative to the US$1 a day measureAfter the decade of the 1990s when real GDP growth in the low and middle income countries averaged 3.3 per cent a year, why has the estimated number in extreme poverty not fallen? Does the failure of the number to fall provide `fuel for the argument that economic growth does little to reduce poverty'? [Deaton (2000)] Are the estimates right? Is globalisation to blame, or are there other reasons? Has the same group of countries been permanently mired in extreme poverty, over the period of recent improvement, or is it a changing group? Answers to the foregoing questions requires examination of the specific country cases of persistent extreme poverty, rather than generalisations about the developing world as a whole. First, it is worth noting that the number of poor below the $1-a-day line is very `sticky' because in Sub-Saharan Africa (home to about 290 million of the extremely poor), many are in fact significantly below that poverty line [Chen and Ravallion (2000) p 13]. So quite a lot of pro-poor growth would still not initially lift many above that line. Realistically, there is likely to be slow progress in reduction of the Sub-Saharan poverty numbers for this reason alone, even after the policy and institutional preconditions for growth are met. Second, the Asian crisis at the end of the 1990s probably had a noticeable effect on the trend in numbers in poverty. While the actual incidence of poverty in East Asia rose by less than half a percentage point with the crisis, if instead measured against the counter-factual of what might have happened had the crisis not occurred, some 20 million people remained in the ranks of the extremely poor who might otherwise have graduated to higher income ranks. `So this assessment of the counter-factual suggests that we would have seen a continuing decrease in the number of poor in the developing world after 1993 [when the number fell from 1.3 billion to 1.2 billion] if not for the Asian crisis.' [Chen and Ravallion (2000) p 11] Table 1: Income poverty by region, selected years, 1987-98
(a) Preliminary. Note: The poverty line is $1.08 a day at 1993 PPP. Poverty estimates are based on income or consumption data from the countries in each region for which at least one survey was available during 1985-98. Where survey years do not coincide with the years in the table, the estimates were adjusted using the closest available survey and applying the consumption growth rate from national accounts. Using the assumption that the sample of countries covered by surveys is representative of the region as a whole, the number of poor people was then estimated by region. This assumption is obviously less robust in the regions with the lowest survey coverage. For further details on data and methodology see Chen and Ravallion (2000). Source: [World Bank (2000) (b) p 23]. Statistical issues in the US$1-a-day estimatesThere are also some reasons to doubt the accuracy of the data on people living below the US$1-a-day poverty line, and to suspect that there is an overestimation which is rising over time. The estimate requires conversion of the US$1-a-day amount into local currencies by PPPs, and then the estimation from national household consumption or income surveys of how many individuals live below the local currency equivalent of that poverty line. So the process builds in all the uncertainties arising from limitations in the PPP numbers for poor countries. Researchers have noted that these PPP problems drive large churning over time in poverty numbers for individual countries, which cannot be reconciled with real changes observed 'on the ground' (such as rates of real per capita GDP growth in local currencies, or observed rises in consumption of foodstuffs, etc). [Deaton (2000) pp 4-5]. Another potentially serious problem is that the national sample surveys of household consumption or income estimate consumption to be growing noticeably slower than per capita consumption in the national accounts of those same countries. This tendency is prevalent around the developing world, and particularly marked in India, China and Latin America. The picture in India warrants particular comment. India alone accounts for about one-third of the world's 1.2 billion in extreme poverty, more than any other country. It has a strong statistical service, and a high academic interest in its poverty measures [World Bank (2000) (b) p 26, Box 1.8].
One prominent Indian development economist, T.N. Srinivasan, concludes that: `Under the circumstances aggregate poverty estimates are of limited, essentially propagandistic rather than analytical value.' [Srinivasan (2000) p 15] This paper does not raise these measurement issues in order to question the seriousness of the poverty problem. Obviously, those perhaps erroneously counted as living below the US$1-a-day poverty line are not rich: they are very poor, rather than extremely poor. But the success of economic growth in the late 20th century in raising extremely poor people to the ranks of the very poor is not trivial, either to the people concerned or to the analysis of what is happening to global poverty and inequality, and of discerning what policies work best to reduce poverty. As in the case of inequality statistics, there is clearly a strong argument in the area of poverty numbers for greatly improving international statistical practice, so as to better understand and analyse what is going on. Movement in the ranks of the world's poorest countriesRecent papers from the United Nations [UNDP (1999) p 38] and the World Bank [World Bank (2000) (b) p 51] have featured charts showing static or negative real GDP per capita growth in the poorest group of countries over recent decades. Chart 6 reproduces a recent World Bank representation of this approach. Chart 6: `Widening gaps between rich and poor countries account for much of the increase in worldwide income inequality across individuals over the past 40 years' Note: Population weighted averages of per capita GDP in the indicated groups, based on a sample of 123 countries with complete data on per capital GDP over the period 1960-95. China is excluded (by the World Bank) from the poore Source: [World Bank (2000) (b) Box 3.3 p 51] However, these comparisons are not based on unchanged samples of rich and poor countries through time. In particular, the group of 20 poorest countries has been a constantly changing one. The number of countries in the world has more than tripled since 1945, providing a steady supply of new states, most with weak economic institutions and many impoverished from wars, a fact that is disguised in group comparisons. This leads to a pessimistic impression of long-term development trends, by introducing a `failure bias' into analysis (ie the emphasis is placed on whichever 20 countries are the worst GDP performers at the time, rather than on tracking a constant group of poor countries, many of which have commenced GDP growth and thereby lifted themselves out of the poorest 20). In an attempt to grapple with this problem, the World Bank has excluded China from its figures for 1960 in Chart 6, but the issue is broader than just this one large example of successful growth. Table 2 provides one listing of the world's 20 poorest countries in 1975, 1980, 1985, 1990, 1995 and 1999 using a purchasing power parity series provided by the World Bank. Different PPP series (such as the Penn World Table series) might produce a somewhat different listing, and it would be undesirable to build arguments related to precise rankings on lists such as in Table 2. This paper restricts itself to several broad points, which are likely to be supported in other possible PPP comparisons. In total over the 24 years and at the six observation points, 31 different countries have been in the group. Eight countries that were originally in the poorest 20 in 1975 achieved sufficiently strong growth in GDP per capita to leave the ranks of the poorest 20 by 1999: China, India, Pakistan, Bangladesh, Nepal, Dominica, Lesotho and Indonesia. The poorest 20 countries in 1975 had a combined population then of 1.9 billion and represented 47.6 per cent of the world's population at that time. The poorest 20 countries in 1999 had a combined population of 434 million and a share of the world population of 7.3 per cent. The 20 poorest countries used to be a mix of African, South Asian and East Asian countries with one Caribbean country (Dominica). Today, 19 of the poorest 20 are in sub-Saharan Africa; the Republic of Yemen is the twentieth. Table 2: Twenty poorest countries: 1975 to 1999
A few more countries stayed in the poorest 20 over 24 years than graduated from the group, but still it is striking that a large minority of countries did succeed in growing fast enough to make extraordinary progress against poverty. Moreover, the original growth prospects for some of these countries were seen thirty or forty years ago to be just as bleak as the growth prospects today for sub-Saharan African countries. For example, for the period 1913 to 1950, both China and India are estimated to have suffered declines in real per capita GDP of 0.3 per cent a year, and even in the following quarter-century, their positive growth rates were much less than their recent growth rates. [Crafts (1999), Table 2] But now, `As best as we can estimate, India's real GDP per capita at constant prices has grown at an average of four per cent per year over the past two decades - a pace at which per capita income doubles every eighteen years. As best as we can estimate, China's real GDP per capita at constant prices has grown at an average of seven per cent per year over the past two decades - a pace at which per capita income doubles every decade. ... Nearly two and a half b Over the last quarter century, what policies and domestic institutions separated those countries that have lifted themselves out of Table 2 from those for whom extreme poverty persists, or has even worsened? One analytically suggestive grouping of the set of the countries from Table 2 is as follows:
The most significant factors differentiating among the groups are involvement in conflict and political instability coupled with weak trade growth (Groups B and C), contrasting with increasing openness in the economy and peace in Group A countries.
These all represent severe problems, but they are not the problems of 'globalisation' in general or closer international economic integration in particular. Chart 7 shows that African trade (exports plus imports as a share of world trade) has been slightly declining as a share of world trade, with the exception of the transient increase in its share driven by the contraction during the 1997-1998 Asian crisis of imports in the crisis-affected countries. It is one of the ironies of the last few years that globalisation's critics attribute to it economic problems that in fact arise from ethnic and religious fragmentation, civil war, corruption, and the absence of modern institutions and social trust. These problems have existed from the dawn of civilisation, and are countered by the international diffusion of those modern ideas, ideals and institutions that have evolved to most successfully deal with them. Chart 7: Declining African share of world trade Source: IMF staff estimates, updating [International Monetary Fund (2000) (a)]. Wars and `tropical underdevelopment': causes or effects?Civil unrest and wars have been common in many of today's 20 poorest countries. More broadly, `Today, nearly all wars occur not between countries, but within them. Of the 27 substantial armed conflicts that took place in 1999, 25 were civil wars. These wars also took place within relatively poor countries. Of the 40 poorest countries in the world, 24 are either in the midst of war or have recently emerged from it. A fifth of all Africans live in countries ravaged by armed conflict.' [Wolf, (2001)] Africa is the most conflict ridden region on earth, and the only region in which the number of armed conflicts has been on the increase.22 But as with many correlations in economics, the question is causality, if any: does civil strife cause poverty, or does poverty cause civil strife, or are both caused by other factors? Recent research suggests the picture is complex, with wars perhaps as much a consequence of the nature of African poverty, as its cause. The global pattern of civil wars suggest that countries are particularly vulnerable to civil war when they are poor (so the opportunity costs of going to war are low), have weak governments (unable to finance a predominant military force to crush rebels), have heavy dependency on resource exports (both taxable by governments and lootable by rebels), and have a dominant ethnic or religious group, but also a large ethnic or religious minority permanently excluded from proportionate influence on government. (Highly diverse societies are not so prone to civil war, apparently because of the difficulty of maintaining a rebel alliance among many small minority groups.) Finally, having had one civil war disposes to others: successive wars are frequently about the terms of settlement of earlier wars. [Collier Ethnic or religious divisions constitute a particular challenge for implementing good economic policies, as there is low communal trust; keen competition for government pay-offs; high corruption; competition among ethnic or religious groups to over-exploit natural resources and so reap economic rents before the other group can; little preparedness by any government to make public investments beyond its own ethnic or religious support base; under-investment in education (because the government invests only in the education of the preferred group, religion or sex); a tendency for public offices to be either monopolised by the dominant group, or parceled out among groups on a quota basis (which creates damaging policy biases as each arm of the bureaucracy conducts policy to benefit its own ethnic support base and tax the others'); and a tendency for each group `... to 'free ride' on inflation stabilization, trade opening, privatization or another (sic) costly policy reform, hoping that the costs will be borne by the group that initiates reform.' [Easterly (2001) p 5] If, as Collier and Hoeffler suggest, part of sub-Saharan Africa's problem is not that it is unusually disposed to violence, but that it is unusually poor in ways that lower the opportunity costs of violence, it is useful to ask why other formerly very poor and similarly ethnically or religiously fragmented countries in South Asia and East Asia graduated out of the list of the poorest 20 countries, while Sub-Saharan African countries have not?23 Recent research suggests that good quality institutions are particularly valuable in cases of high ethnic or religious fragmentation, by creating 'rules of the game' that reduce the economic and political problems mentioned above. The institutions necessary to achieve these outcomes include the rule of law, freedom from expropriation, freedom from government repudiation of contracts, and bureaucratic quality. Strikingly, these institutional strengths are those likely both to protect minority political rights, and to be supportive of economic activity. Initial research suggests that such institutional strengths not only increase economic performance, but also reduce the risks of civil war and genocide. [Easterly (2001)] This line of argument still leaves a profound political problem: how to build such institutions where they are lacking? Obviously the necessary constitutional improvements have to be implemented by the communities and governments concerned; they cannot be simply wished on them by well-intentioned foreigners. Implementation of the necessary reforms will not be easy, but the increasing concentration of persistent extreme poverty among the countries of sub-Saharan Africa appears to have its roots in problems that are unrelated to globalisation or increased international economic integration. Correction requires the implementation of those political and economic values and institutions that are the hallmark of modernity and economic success and are prevalent elsewhere in the world, but still underdeveloped in much of Sub-Saharan Africa. The probably slow narrowing of absolute income gapsEven with the continuation of good policies, wide differences in starting-point productivity and living standards, together with the inexorable arithmetic of compound growth, dictate that absolute differences in average national per capita GDPs will continue to widen for some years. The turbulence and extraordinary progress of the 20th century counsels caution in attempting to foresee the 21st century. Yet those interested in how current, very wide income gaps between rich and poor countries might be narrowed, are driven to look at distant horizons. The world's current inequality in living standards compounded over some 220 years, and it will take decades to reduce it significantly. Today, populous poor countries such as India and China have real per capita GDP levels of about one-tenth those of rich countries, compared at PPPs. Without in any way offering a forecast, Charts 8 and 9 illustrate with hypothetical numbers what would happen to a pair of countries at current per capita income levels of $25,000 and $2,500, growing steadily at 2 per cent per annum and 5 per cent per annum respectively. Under these assumptions, the relative income gap declines continuously because of the poorer country's faster per capita growth rate, but it would take about 50 years before the absolute (dollar) income gap between the two countries would start to decline. The remaining gap would then be eliminated quite quickly over just the next 30 or so years. The extrapolation is in a sense unrealistic. Different peoples value material and non-material objectives differently. Growth is seldom steady over very long periods. Productivity differences are unlikely ever to disappear completely (witness today's OECD members). And very rich countries may come to value future growth less highly than they do today. (In the illustration given, the country with real per capita incomes today of $25,000 would have per capita incomes around $175,000 by the end of this century if it sustained 2 per cent per annum growth.) Nevertheless, the exercise does forewarn that while the age of diverging income growth between the rich and poor might now be past, the age of rising absolute income differences is not. But the important objective is not some abstract and implausible global goal of future equality of per capita national incomes, but the practical goals that the extremely poor should be able to live decently, sustainably and with rising living standards through the dignity of their own efforts; that the world's peoples ought to be able to make their own choices about their economic and non-economic priorities; and that the global economic environment provide the framework and the assistance necessary for the world's poorest to become much richer within the space of a few decades. Chart 8: Relative and absolute convergence of GDP per capita: hypothetical rich and poor countries Chart 9: Differences in per capita income between high-income Conclusions The 20th century has seen unprecedented improvements in living standards, including for the poorest fifth of the world's population. In 1820, three-quarters of a century after the dawn of the first industrial revolution, about three-quarters of the world's population still lived on less than the then-equivalent of US$1-a-day. Today, the proportion below that poverty line is down to one-fifth. Although real living standards rose in the 20th century for even the poorest fifth of the world's population, living standards in richer countries grew faster still over the century as a whole. The global income distribution continued to widen for about the first three quarters of the 20th century, before beginning to narrow over the last quarter-century for the first time since the initial industrial revolution, a quarter of a millennium ago. While the income distribution was still wider at the end of the century than at the start, the world may have 'turned the corner' towards narrowing global income inequality. But turning the corner is one thing; staying the course is another. Further reductions in extreme poverty and narrowing of the international income distribution are not automatic: they will require the maintenance and extension of the policies that proved successful in the last half of the 20th centu
All these policies require public support based on understanding that the policies have paid dividends in the latter part of the 20th century - a support that is presently lacking in many quarters of protest against globalisation. This study emphasises the continuing, primary responsibility of good national policies to improve living standards, even in an age of globalisation. Increased international economic integration is not the cause of persistent extreme poverty, but rather the lack of good national governance, sound national institutions and - in both rich and poor countries - good national policies. The popular but erroneous belief that international inequality is still widening because of globalisation is very prominent among globalisation's critics. That belief is based on a focus on the very poorest countries alone (which is understandable but inappropriate, since their problems arise mostly from failures of domestic policy and institutions), and a confusing use of inappropriate statistics, still prevalent among some international organisations. One useful corrective to scepticism about the benefits of integrated global markets in trade and investment would be better statistics on the real trends in poverty and inequality, and better international practice in presenting the statistical evidence. Box 6 provides one set of suggestions for a concerted international work program. In the words of economic historian and productivity specialist Bradford DeLong, `...now it is much harder to argue that the world economy is permanently bound to produce slower economic growth in poor countries than in rich countries... The success of Indian and Chinese growth over the past two decades makes the failure of economic growth to take hold in other very poor countries even more heartbreaking. Most of their people have not yet found a place on the escalator that leads to modernity. But cast your mind back a generation and remember how poorly India's and China's economic growth prospects were then viewed. It should be no more difficult to spark economic growth in the next generation for this final group of about one billion people who have not shared significantly in world economic growth.' [DeLong (2001)]
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The estimates of numbers in extreme poverty (ie defined to be living on US$1-a-day or less) are around 1.2 billion at [World Bank (2000) (b) p 23]. 2 This paper deals mostly with what the World Bank now calls 'income poverty', in distinction to its wider concept of poverty as 'deprivation in well-being'. The wider concept, drawn from the work of Amartya Sen, includes not only income-related dimensions such as education and health, but also vulnerability, exposure to risk, and lack of 'voice' (including lack of civil liberties, political rights and good governance). See [World Bank (2000) (b) pp 15-21; Sen (1999)]. 3 New products and quality improvements are hard to measure in GDP. Their impacts are understated, and the underestimation gets worse over time. By allowing for such underestimation, some estimate actual global annual real GDP growth could have been 0.7 per cent higher still during the 20th century. If so, actual GDP was 38 times higher in 2000 than in 1900, not just 19 times higher. See DeLong, cited in [IMF (2000) (b) p 151 fn 3]. 4 The demographic transition is important to understanding global income inequality trends. A country experiencing fast natural population growth can experience slower GDP per capita growth for an extended period, because the rise in the ratio of dependent young to workers increases the denominator (population) by more than it increases the numerator (GDP). But this need not mean any persistent hindrance to its ultimate 'catch up' in living standards with rich countries with stable population, or only slow population growth. The transitional GDP growth problem (which may be protracted) has demographic causes, not economic causes. See [Firebaugh (1999)]. 5 This statement is based on conversion of national per capita GDPs to the common denominator of US dollars, using Purchasing Power Parities. The meaning and importance of PPP conversion is discussed at Box 4. 6 In an extreme case, life expectancy in Botswana actually fell by 13.5 years. 7 Life expectancies in the former USSR and the Ukraine actually commenced falling slightly from the early 1960s. 8 The gross enrolment ratio for a particular level of schooling is the number of students at that level, divided by the number of the population in the relevant age group. Because mature age students can enrol, the gross enrolment ratio can be more than 100 per cent, which is relevant to how some countries fare under the Human Development Index (see Box 2). 9 The view of Development as Freedom is eloquently argued by Nobel Laureate Amartya Sen in a book of this title. The practical influence of his theoretical argument is apparent in much contemporary work of the UNDP and the World Bank (such as the latter's recent work on The Quality of Growth). See bibliography for details. 10 'Extended genuine savings' = (measured savings + investment in education) - (depreciation of capital + depletion of natural resources + the costs of pollution damage). 11 In 1990, these 42 countries accounted for between about 80 and 90 per cent of world population and GDP. See [IMF (2000) (b) p 155]. 12 One of the first to analyse these developments was T. Paul Schultz of the Yale University Economic Growth Centre, in 1998. His findings have been confirmed by Boltho and Toniolo in 1999 for the Oxford Review of Economic Policy, Glenn Firebaugh in the May 1999 American Journal of Sociology, and Melchior, Telle, and Wiig in a 2000 study for the Royal Norwegian Ministry of Foreign Affairs. The significance of the findings for 'turning the corner' were noted in a 2001 essay by J. Bradford DeLong. Firebaugh used data only through to 1989. This data set misses some of the recent effect on narrowing inequality from the continued strong economic growth through the 1990s in populous, poor countries including India and China. So Firebaugh speaks only of a `great plateau in the historical trend' of rising inequality, rather than the narrowing of inequality or turning point that authors using more recent data have identified. See bibliography for details. 13 An interesting exception to this generalisation is the work of Branco Milanovic, who has studied household income or expenditure survey data for 91 countries that have conducted at least two surveys (accounting for 84 per cent of the world's population). He has projected the available data to the years 1988 and 1993, to produce two snapshots of what he calls the 'true income distribution' at those two points in time. Data for both years was not available for some 61 countries (mostly only with small populations) [Milanovic (1999)]. His results are further discussed below. 14 At another level, movements in per capita GDP averages may be driven more in particular periods by either growth in GDP, or growth in population. For example, per capita GDP might grow only slowly for a period if a poor country is passing through the demographic transition mentioned above, with high rates of population growth adding to the number of dependents relative to the number of workers. Firebaugh (1999) enumerates this effect. 15 The only study using PPPs that shows a rise in inequality is the study based on household surveys noted above. [Milanovic (1999)] This study (whose data set is also the basis of the argument by Wade (2001)) uses only two observation points (1988 and 1993), and available household expenditure or income survey data are projected forwards or backwards to those dates. Its underlying data was made available for other researchers to study in February 2001, so its findings have not yet been verified. Household survey data for populous developing countries have large and growing question marks over their accuracy relative to national accounts measures of the same concepts, as discussed below (see [Deaton (2000)]). Household survey data capture private spending or income, whereas GDP per capita data also capture public spending and investment (eg on health and education), so this difference too could contribute to the Milanovic results. Finally, it is not yet clear whether those results are influenced by the two years chosen for observation. (On this last point, all the other studies showing a declining trend for inequality over the last 30 years nonetheless show considerable year-to-year variation around that trend (see Chart 5), so the choice of any two observation points may be influential.) 16 Although not stated in the text cited above, a footnote to the Bank's accompanying diagram makes it clear that China was excluded from the calculations of the poorest 20 countries in 1960 (and was no longer in that group in 1995). But as discussed below, that 'graduation' was also achieved by a 17 Gordon identifies the key technologies as electricity; the internal combustion engine; industrial chemistry (chemicals, plastics and pharmaceuticals); communications/entertainment (the telegraph, wireless and sound and film recording); and urban sanitation. [Gordon (2000)] 18 Even if, for want of detailed reconciliation between the national accounts and household survey data, we merely took the average of the two measures, the reduction in the numbers in poverty would be significant. 19 This identification of convergence follows the IMF's categorisation of developing countries into fast convergers, slow convergers, those not converging, and those regressing. See [IMF (2000) (b) p116]. 20 The question of the direction of causality is further discussed below. The following examples are drawn from [Easterly (2001)] and other sources cited therein. 21 Menes Zenawi, Remarks at Havard University, 5 September 2000, cited in [Easterly (2001)]. 22 Stockholm International Peace Research Institute's 1999 Yearbook, cited in [Collier and Hoeffler (2000) p 1]. 23 Singapore, Malaysia and Thailand provide examples of ethnic diversity and economic success from very poor starting points. |