Global Inequality

Jan Luiten van Zanden

UU/Groningen/Stellenbosch

Three issues

• Global Inquality & long-term trends in world economy 1500-2010: the GDP evidence

• Beyond GDP: OECD report

• Why: theories and speculations

The questions

• Why are some countries rich and others poor?

• Why are some countries less unequal than others?

• Are we measuring economic performance ‘correctly’?

Recent trends in research

• Trying to get the ‘big picture’, and searching for the ‘deep’ roots of development and underdevelopment (Engermann & Sokoloff, Acemoglu et.al., Nunn)

• New research on non-western world: China, Japan, India (‘Great Divergence debate’)

• The ‘problem’ of Africa

Recent trends in research

• From research focused on nation state to international-comparative and ‘global’ research

• Need for large global datasets, example Maddison estimates of GDP and population

• To answer questions about when (did global inequality begin to increase?) and why?

What we need:

• Better estimates of the ‘usual’ indicators (such as GDP)

• Alternative indicators: real wages, life expectancy, biological standard of living, ‘agency’ (Sen)

• Datasets about proximate and ultimate causes of growth and stagnation: human capital, institutions, family systems, culture and religion, knowledge production (books?), geography etc.

• How does growth affect sustainability? • For the period 1500-2010, for the whole world

Approach CLIO INFRA

• Set of specialized hubs that produce global datasets

• Central website at International Institute for Social History (IISH)

• Cooperation with Gapminder and Statplanet

• And with Data Archive DANS for datastorage

CLIO INFRA consists of

Thematic datahubs: • National Accounts: the Maddison project

(Groningen)• Biological Standard of Living and Age heaping

(Tuebingen) • Human Capital Formation (Debrecen/Utrecht)• Demography, Gender, Labour Status (IISH)• Prices and Wages (IISH)• Institutions & Agency (UU)• Sustainability (UU)

Black Death1086

Industrial Revolution

Golden Age

French Occupation

Black Death

Stable growth between 1348 and 1800

Sung peak

Peak Arab World Ottoman Empire

Results

• Charting long-term trajectories of various parts of world economy 1000-2000

• Also Middle East/Ottoman Empire, India, Japan

• Transition from Malthusian economy to ‘modern growth’: in North Sea area in two steps: Late Middle Ages (Black Death), ca. 1800 (Industrial Revolution)

• Rest of the world: gradual spread of Industrial Revolution

• Combination with dataset of income inequality within countries: global inequality

The aim: various dimensions of inequalityGlobal Income Inequality 1820-2000

GDP per capita

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

10 100 1000 10000 100000

1990 2000 1980

1970 1960 1950

1929 1910 1890

1870 1850 1820

World income inequality

Within-country income inequality

GDP and Beyond

• OECD: Better Life Initiative: multi-dimensional approach to well-being, resulting a.o. in the How’s Life? report

• Clio Infra project, global network of economic historians to measure various dimensions of long-term evolution of world economy 1500-2010.

Well-being and the OECD

Better policies for better lives

Better measures Subjective well-beingSocial contactGovernance…

The How’s Life Well-being Framework

26

Measuring well-being

27

Aim of cooperation

• Present state-of-the-art estimates on various dimensions of development of well-being in world economy from 1820 to present (“GDP and beyond”)

• Contribute to the discussion about the broadening of the welfare concept used to characterize socio-economic development

• Indicate relevance of going “beyond GDP”, also in historical analysis

The importance of historical statistics

Dimensions covered in “How Was Life?” bookDimension Indicator(s)

Economic standard of living GDP per capita

Inequality Income inequality; Real unskilled wages

Health Status Life Expectancy; Height

Education and Skills Educational attainment

Personal security Homicide, Incidence of warfare

Civic Engagement and Governance

Political institutions

Environmental Quality SO2; CO2; Species abundance

Gender Inequality Various indicators + composite index

Overall indicator of Well-Being  Composite indicator (experimental)

Results

• In general very strong correlation of each indicator with GDP per capita, though less unequally distributed

• Exceptions: low/negative correlations in Inequality, Security, and Environmental quality domains

• Relationship between GDP per capita and other measures of well-being changes over time

Correlation with GDP/c over time

Changing relationship

• 19th century: early growth paradox

• Rapid industrialization and growth did not result in increased well-being

• Early urbanization and industrialization had strong negative externalities

• Standard of Living debates

• Changes after about 1870

Changing Relationship

• After 1950: increases in well-being become (increasingly) autonomous

• Africa after 1970; Latin America 1980s; Japan after 1990: slowdowns of economic growth do not necessarily result in slowdown increase well-being

• Different ranking of western Europe and Offshoots

• Relevant for Europe after 2007?

Composite variable/region

Composite indicator & std. GDP/c

Preston-curve: GDP/c & life expectancy

Segmented relation per capita GDP & combined wellbeing indicators

New results

• Changing link between GDP per capita and Income Inequality

• 19th century: rich countries are more unequal (have larger surplus that can be distributed)

• After 1980: poor countries are more unequal• Rich countries went through ‘egalitarian

revolution’• Recent increase in inequality (after 1980) more

marked in poor countries

Resulting HDI

Resulting HDI

Resulting HDI

Resulting HDI

Resulting HDI

But why?

• Explain success and failure in world economy

• Institutions versus Geography

• Agency

Jared Diamond: Guns, Germs and Steel

• Importance geography:

• Why did Neolitihic revolution start in Middle East?

• EurAsia: easy spread crops and ideas: first cities, states, iron technology

Daron Acemoglu en James Robinson

• Institutions: extractive versus inclusive

• Reversal of Fortune 1500-present (Peru versus North America)

Amartya Sen

• Development as Freedom

• Capabilities approach

• Agency enhances economic development

• Female Agency: smart economics

• Quality-Quantity switch

Institutions as explanation

• New Institutional Economics (North, Acemoglu & Robinson) most promising explanation of such trends

• Institutions: ‘rules of the game’ of society: informal (customs) vs. formal (laws)

• Determine how people interact

• Related to trust

• Embedded in culture, religion

Institutions and power

• Institutions are related to power

• They determine who are powerholders and how much power they have, and whether it is constrained or not

• At various levels: the state, the firm, the family

• NIE: power structures determine economic development (Acemoglu & Robinson)

How to test these ideas

• Example: did female agency matter

• Classification family systems on basis of antropological data

• Inheritance, monogamy/polygamy, consensus/arranged marriage, nuclear/extended families

• Female-friendly index Eurasia

Agency of women in historic family systems

(-0.00475,0.528](0.528,1.06](1.06,1.58](1.58,2.11](2.11,2.64](2.64,3.17](3.17,3.69](3.69,4.22](4.22,4.75]

Gfriendly

Hypothesis Emmanuel Todd

• Original family system of hunter-gatherers was relatively female friendly

• Rise of settled agriculture resulted in decline position women (heavy plough)

• State formation after Neolithic Revolution reinforced this process

• Strong position of women only in ‘marginal’ regions EurAsia, at distance from centers Neolithic Revolution (Middle East, Northern India, North China)

Example: marriage system

• Europe: rise of European Marriage Pattern (EMP): marriage based on consensus between spouses, who select their partner themselves and set up their own household (De Moor and Van Zanden 2010)

• China: patriarchical marriage system, where marriage is arranged by family, and girl moves in with household boy

Consequences

• Age of Marriage: low in China (women: 12-15), high in Europe (women: 25-28)

• Son-preference in China, no gender preferences in Europe

• Europe: more agency for women• China: all education invested in sons (for

exams); Europe: education more balanced between males and females

• Europe: gradual rise of overall level of human capital; China: stagnation?

Age at marriage ca. 1900

(17.2,20.4](20.4,23.6](23.6,26.8](26.8,30](30,33.2]

SMAM

Marriage and agency

• ‘balanced’ power relations in Europe led to high age of marriage, no son preference, more investment in education women, and gradual shift from quantity to quality

• Less ‘balanced’ power relations in China resulted in high fertility for women (who married very early)

Effects on human capital formation

• China: highly trained civil servants, but big gap between men and women (Qing: 40%/10%)

• China: stagnation state demand for public service leads to stagnation in level of human capital formation (van Leeuwen et.al. 2013)

• Europe: gender gap much smaller, women also receive (basic) education; better preconditions for quantity-quality shift

Results of recent work

Example 2: State Formation

• Reversal of fortune in state formation:• China: from very strong state under Sung to

weak state during Qing (Liu Guanglin: 8% of GDP to 2-3% of GDP)

• Europa: process of state formation resulting in high state capabilities of 19th/20th centuries (8-12% of GDP in 19th century)

• Rooted in different relationships between state and inhabitants

Fundamental problem of the state

• Agency: state is agent of population, should work in ‘common interest’

• But may turn against citizens – has its own logic/independence

• Why support a state (by paying taxes) which can use its power against its own citizens?

• Required: institutions that constrain power of the executive

• Or institutions that ensure that power state will be used for interest of citizens

State formation in Western Europe

• Tradition of citizenships: cooperative relationship between citizens and state; emerged in city states of Middle Ages

• Feudal tradition of power sharing and bargaining: between King and his nobles; between King and cities (in Parliaments), between state and church

• Most successful European states (England after 1688; Netherlands after 1572; France after 1789) combine these traditions; taxation and representation – resulting in democratization

State Formation in China

• State based on professional bureaucracy, recruited via examination system – guarantee against using state for own interest

• But all power in principle concentrated in emperor • No ‘contract’ between ‘subjects’ and state; • Dramatic changes in relationship between state and

citizens (for example early Ming – late Ming)• Problem of legitimacy of ‘foreign’ dynasties such as

Manchus• Qing: stagnation state, growing corruption

Conclusion

• Much work on measuring global inequality 1500-2010: GDP and beyond GDP

• Exciting theories about development paths of regions/countries

• Western Europe: balance between agency and institutions (freedom and rules)

• Old Centres of Neolithic Revolution: ‘too much’ hierarchy (ergo: reversal of fortune)