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Let’s talk of inequality

Let’s talk of inequality
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First Published: Tue, Oct 25 2011. 08 53 PM IST

File photo
File photo
Updated: Tue, Oct 25 2011. 08 53 PM IST
If you need a nice little moral jolt before setting off to make the final Diwali purchases for the family, go to this website: www.globalrichlist.com. It will help you figure out where you are placed in the global income pyramid. Enter your annual dollar salary in the box provided. A computer programme calculates where you exactly stand.
Anybody earning above $50,000 a year is among the richest 1% of the planet. My guess is that many of the well-meaning protesters active in the Occupy Wall Street movement in the US and holding placards condemning the top 1% are actually part of the same hated group, when you think of inequality on a global scale rather than just the income gap between a Wall Street banker and a burger flipper at McDonald’s.
The point is that global inequality is far deeper than inequality within countries.
File photo
The most common measure of inequality is called the Gini coefficient. A reading of zero depicts perfect equality (every person earns exactly the same annual income), while a reading of 100 means there is perfect inequality (the entire national income is earned by one individual).
Egalitarian countries such as Sweden have a Gini coefficient between 25 and 30. Most countries have values of around 40. India is broadly around this mark. Countries in Africa and Latin America with great inequality have a Gini coefficient of over 50.
Inequality within nations has been on the rise in recent decades, but not even the most unequal country compares with the world as a whole. The global Gini coefficient is around 70.
The main reason why global inequality is so much worse than national inequality is the huge income difference between the developed and developing countries. So whether you are poor or not depends less on your abilities than on which country you work in.
The roots of such mind-boggling global inequality can be traced back to when the West pulled ahead of the rest a couple of centuries ago. For example, average incomes in Western Europe and the US were around twice those in India and China in 1820. The gap has since widened, with an average Indian earning only around one-tenth of an average American today, in constant dollars adjusted for purchasing power.
Now the good news: The world could be in the early stages of a revolutionary shift in global inequality, even as evidence mounts that inequality within nations is growing. New research by Branko Milanovic, lead economist at the World Bank research group, shows that global inequality could have begun dropping after 2008.
“Global inequality seems to have declined from its high plateau of about 70 Gini points in 1990–2005 to about 67–68 points today. This is still much higher than inequality in any single country, and much higher than the global inequality 50 or 100 years ago. But the likely downward kink in 2008—it is probably too early to speak of a slide— is an extremely welcome sign. If sustained (and much will depend on China’s future rate of growth), this would be the first decline in global inequality since the mid-19th century and the Industrial Revolution,” writes Milanovic in the latest issue of Finance and Development, an International Monetary Fund (IMF) publication.
The trend in global inequality will depend on two factors: the rate at which inequality within individual countries is growing and the rate at which India and China lift living standards of their citizens. High rates of economic growth are central to maintaining high growth rates in the decades ahead. Asia, Latin America and Africa need to figure out how to maintain their momentum even as rich economies struggle with stagnation. The developing world, thus, has greater incentives to power ahead with low taxes, free trade and robust investment.
All this does not for a moment mean that domestic inequality is not an issue. A table from the new Regional Economic Outlook published by IMF shows that most Asian countries, other than Thailand, Malaysia and Mongolia, have seen Gini coefficients climb since 1990. In India, rural and urban inequality has climbed by around two and three points, respectively, the IMF data shows.
Inequality within nations continues to be a risk. But global inequality is a far more serious problem, and the most likely way this can be reduced is if populous countries such as India and China continue to grow rapidly. Movements like Occupy Wall Street seem to be oblivious to the problem of global inequality, and are unlikely to figure out that subsidies to European farmers harm far more poor people in the world than low taxes on Wall Street buccaneers.
In case an Occupy Dalal Street movement does appear of the stage, it would do well to not copy the slogans that protesters in the West are currently using.
Niranjan Rajadhyaksha is executive editor of Mint. Comments are welcome at cafeeconomics@livemint.com
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First Published: Tue, Oct 25 2011. 08 53 PM IST