World in CrisisWorld in CrisisWorld in CrisisWorld in Crisis

Global Imbalances:Inequality in the World Today

Dr Malcolm FairbrotherDr Malcolm Fairbrother

School of Geographical SciencesSchool of Geographical SciencesWorld in CrisisWorld in Crisis

The richest person in the world…?

The richest person in the world…?

Carlos Slim HelúMexican businessman

The richest person in the world…?

Carlos Slim HelúMexican businessmanwealth: US$67.8bn

(£33.6bn)

Carlos Slim versus the Carlos Slim versus the UK?UK?

UK as a whole produces US$1,845.2 UK as a whole produces US$1,845.2 bn/yearbn/year

Carlos Slim therefore possesses wealth Carlos Slim therefore possesses wealth equivalent to about 3.7% of thatequivalent to about 3.7% of that

the UK produces US$30,821 per the UK produces US$30,821 per resident (“per capita”) each yearresident (“per capita”) each year

it would take the average Briton it would take the average Briton 2,199,799 years to produce Slim’s 2,199,799 years to produce Slim’s current wealthcurrent wealth

Carlos Slim versus Carlos Slim versus Sierra Leone?Sierra Leone?

the average Sierra Leonean the average Sierra Leonean produces about US$561/yearproduces about US$561/year

it would take the average Sierra it would take the average Sierra Leonean 120,855,615 years to Leonean 120,855,615 years to produce Slim’s current wealthproduce Slim’s current wealth

(remember: 2,199,799 years for (remember: 2,199,799 years for the Briton)the Briton)

The UK versus Sierra The UK versus Sierra Leone versus the Leone versus the

World?World? Sierra Leonean economy produces:Sierra Leonean economy produces: US$561/year per capitaUS$561/year per capita

the British economy produces:the British economy produces: US$30,821/year per capitaUS$30,821/year per capita

the whole world’s economy?the whole world’s economy? US$7,439/year per capitaUS$7,439/year per capita (about 6.5 billion people)(about 6.5 billion people)

The UK versus Sierra The UK versus Sierra Leone?Leone?

how long would it take the average how long would it take the average Sierra Leonean to produce what the Sierra Leonean to produce what the average Briton produces in a single average Briton produces in a single year (US$30,821)?year (US$30,821)? 54.9 years54.9 years

but life expectancy at birth in Sierra but life expectancy at birth in Sierra Leone:Leone: 41.4 years41.4 years

(compare with UK: 78.9 years)(compare with UK: 78.9 years)

Shares of Total World Wealth by Decile (2000, PPP)(Source: Davies et al 2006)

0.3%0.1%

0.6%

3.7%

2.4%

1.1%

1.6%

12.9%

71.1%

6.2%

FirstSecondThirdFourthFifthSixthSeventhEighthNinthTenth

0

200

400

600

800

1000

1200

East Asia + Pacific(China)E Europe + C AsiaLatin Am + CaribMidEast + N AfricaSouth Asia(India)S-Saharan Africa

Millions of Poor People (2004)(Source: Chen and Ravallion 2007)

<$2/day<$1/day

The Poor vs. the The Poor vs. the Billionaires?Billionaires?

according to according to ForbesForbes (2007): (2007): as of earlier this year, there were 946 as of earlier this year, there were 946

billionaires in the world, with an billionaires in the world, with an average net worth of US$3.6 billionaverage net worth of US$3.6 billion

InequalityInequality

the degree to which cases differ from the degree to which cases differ from the mean (especially in their share of the mean (especially in their share of something desirable)something desirable)

there is inequality insofar as some there is inequality insofar as some people have more/less of something people have more/less of something than others (and, by definition, they than others (and, by definition, they have more/less than the average)have more/less than the average)

Types of InequalityTypes of Inequality things that many people want, that some things that many people want, that some

people have more of than others?people have more of than others? wealth and incomewealth and income health (including freedom from pain)health (including freedom from pain) educationeducation life (life expectancy, safety)life (life expectancy, safety) political rights and freedomspolitical rights and freedoms social or cultural recognition or statussocial or cultural recognition or status

Types of InequalityTypes of Inequality differences among people that influence differences among people that influence

their share of desirable things?their share of desirable things? gendergender ethnicityethnicity nationalitynationality citizenshipcitizenship ageage sexual orientationsexual orientation

Our Focus Today: Our Focus Today: MoneyMoney income and wealthincome and wealth

if you have it, you can probably get if you have it, you can probably get other good things you want other good things you want (education, life, political freedom, etc.)(education, life, political freedom, etc.)

also useful because we have relatively also useful because we have relatively good data (information)good data (information)

Inequality versus Inequality versus Poverty?Poverty?

some people say we should focus on some people say we should focus on poverty, not inequalitypoverty, not inequality maybe we should care what happens to maybe we should care what happens to

the poor in absolute terms, not relative to the poor in absolute terms, not relative to the richthe rich

a somewhat philosophical and psychological a somewhat philosophical and psychological debate:debate: do relative incomes and wealth affect do relative incomes and wealth affect

individuals’ well-being?individuals’ well-being?

Q: Are the rich getting Q: Are the rich getting richer and the poor richer and the poor

getting poorer?getting poorer? In other words: Is economic inequality In other words: Is economic inequality increasing or decreasing?increasing or decreasing?

A at three levels:A at three levels:

1.1. national/domestic: national/domestic: withinwithin countries countries

2.2. international: international: betweenbetween countries countries

3.3. global: considering individuals as global: considering individuals as members of a single globemembers of a single globe

Readings and Further Readings and Further HelpHelp

required readings:required readings: Gilbert 2007Gilbert 2007 Sutcliffe 2004Sutcliffe 2004

recommended readings:recommended readings: Firebaugh 2003Firebaugh 2003 Birdsall et al 2005Birdsall et al 2005

my office hours:my office hours: tomorrow, 9:00-1:00, office 2.17Ntomorrow, 9:00-1:00, office 2.17N

Measuring InequalityMeasuring Inequality

it’s not easy!it’s not easy! inaccurate national statistics, surveys, inaccurate national statistics, surveys,

historical estimates, cross-national historical estimates, cross-national comparisonscomparisons

but accurate enough to draw some but accurate enough to draw some key conclusionskey conclusions

Measuring InequalityMeasuring Inequality

can just compare scores for a few can just compare scores for a few cases (e.g., individuals, countries)cases (e.g., individuals, countries)

but that gets complicated when we but that gets complicated when we have many cases and/or want to have many cases and/or want to compare one distribution to anothercompare one distribution to another

so we use some key so we use some key indexesindexes of of inequality…inequality…

Measuring Inequality:Measuring Inequality:Gini Coefficient/IndexGini Coefficient/Index

Gini Coefficient varies from 0 to 1Gini Coefficient varies from 0 to 1 0: perfect equality0: perfect equality 1: one member has everything1: one member has everything

Gini Index is the Gini Coefficient Gini Index is the Gini Coefficient multiplied by 100 (range of 0 to 100)multiplied by 100 (range of 0 to 100)

Measuring Inequality:Measuring Inequality:Ratios of PercentilesRatios of Percentiles

can compare the income or wealth of can compare the income or wealth of the 90th percentile to the 10ththe 90th percentile to the 10th

or the 80th percentile to the 20thor the 80th percentile to the 20th both comparisons provide a ratio that both comparisons provide a ratio that

tells us something about the amount of tells us something about the amount of something distributed at the top versus something distributed at the top versus at the bottomat the bottom

Income Inequality, Selected Countries(Source: UN Human Development Report

2.6 4.3 3.4 4 4.3 4.9 6.5 7.2 6.8 8.4 10.717.9

23.7

010203040506070

Azerbaijan Denmark

Japan Sweden Germany

IndiaItaly

United Kingdom New Zealand United States

China

South Africa

Brazil

Gini Index

010203040506070

Ratio

Gini Index Richest 20%:Poorest 20% Richest 10%:Poorest 10%

Measuring Inequality:Measuring Inequality:Comparing Incomes of Comparing Incomes of

NationsNations individuals, families, and households individuals, families, and households have incomeshave incomes

what about nations?what about nations? usually use GDP (Gross Domestic usually use GDP (Gross Domestic

Product) or something like itProduct) or something like it not perfect, but does tell us not perfect, but does tell us

something useful about a countrysomething useful about a country GDP/capita measures productivityGDP/capita measures productivity

GDP/capita (2003, I$)(Source: Penn World Table 6.2)

05000

10000150002000025000300003500040000

AzerbaijanDenmark

JapanSwedenGermany

IndiaItaly

United KingdomNew ZealandUnited States

China

South Africa

Brazil

A Brief History of A Brief History of Economic Inequality: Economic Inequality:

1800-19501800-1950 until the Industrial Revolution:until the Industrial Revolution: most of the world’s people were most of the world’s people were

poor (even in Europe, which had poor (even in Europe, which had the highest GDP/capita)the highest GDP/capita)

starvation a constant threat for starvation a constant threat for mostmost

most inequality was within nations, most inequality was within nations, not between themnot between them

A Brief History of A Brief History of Economic Inequality: Economic Inequality:

1800-19501800-1950 thenthen, as a result of the Industrial , as a result of the Industrial Revolution:Revolution:

tremendous economic growth (increasing tremendous economic growth (increasing GDP/capita) in countries with industryGDP/capita) in countries with industry

within-nation inequality expandedwithin-nation inequality expanded but between-nation inequality expanded far but between-nation inequality expanded far

moremore starting in early 1900s, within-nation starting in early 1900s, within-nation

inequality began declining in rich countriesinequality began declining in rich countries

Economic Inequality: Economic Inequality: 1950-now1950-now

sometime between 1950 and 1980:sometime between 1950 and 1980: between-nation inequality began between-nation inequality began

decliningdeclining within-nation inequality began expandingwithin-nation inequality began expanding

however, between-nation inequality however, between-nation inequality depends on how you treat two key depends on how you treat two key countries: China and Indiacountries: China and India

in other words: Do you “weight” by in other words: Do you “weight” by population?population?

GDP/capita, 1-2001AD

0

5000

10000

15000

20000

25000

30000

11000150016001700182018701913195019732001

International 1990 USD

Western EuropeWestern OffshootsLatin AmericaAsia (excl Japan)AfricaWorld

Global Inequality:Global Inequality:Are the rich getting Are the rich getting richer and the poor richer and the poor

getting poorer?getting poorer? we know:we know: inequality between nations is inequality between nations is

decliningdeclining (assuming you (assuming you recognize China’s and India’s recognize China’s and India’s populations)populations)

inequality within nations is inequality within nations is increasingincreasing

Q: so which effect is stronger??Q: so which effect is stronger??

Global Inequality:Global Inequality:Are the rich getting Are the rich getting richer and the poor richer and the poor

getting poorer?getting poorer? A: declining between-nation A: declining between-nation

inequality outweighs increasing inequality outweighs increasing within-nation inequalitywithin-nation inequality

therefore… therefore… global inequality is global inequality is now decliningnow declining but only because of India and but only because of India and

(even more so) China(even more so) China

Global Inequality:Global Inequality:Are the rich getting Are the rich getting richer and the poor richer and the poor

getting poorer?getting poorer? qualifiers:qualifiers: absolute gaps in income and wealth absolute gaps in income and wealth

are growing (even if ratios are are growing (even if ratios are shrinking)shrinking)

some (poor) countries are not some (poor) countries are not growing, and thus falling farther growing, and thus falling farther and farther behind the ones that areand farther behind the ones that are sub-Saharan Africasub-Saharan Africa

Key ConclusionsKey Conclusions

1.1. economic inequality is increasing economic inequality is increasing in most (maybe all) countriesin most (maybe all) countries

2.2. but economic inequality is but economic inequality is decreasing at the global level decreasing at the global level because it’s decreasing between because it’s decreasing between countriescountries

3.3. these trends are relatively recentthese trends are relatively recent

Is World Inequality a Is World Inequality a Crisis?Crisis?

• as we’ve seen, global inequality as we’ve seen, global inequality is not growingis not growing

• but many poor countries are but many poor countries are falling farther and farther behindfalling farther and farther behind

• also, global media are increasing also, global media are increasing poor people’s awareness of their poor people’s awareness of their relative poverty (whether they’re relative poverty (whether they’re among the poorest or not)among the poorest or not)