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Branko Milanovic, a top World Bank economist, analyzes income distribution worldwide using, for the first time, household survey data from more than 100 countries. He even handedly explains the main approaches to the problem, offers a more accurate way of measuring inequality among individuals, and discusses the relevant policies of first-world countries and nongovernmental organizations. Inequality has increased between nations over the last half century (richer countries have generally grown faster than poorer countries). And yet the two most populous nations, China and India, have also grown fast. But over the past two decades inequality within countries has increased. As complex as reconciling these three data trends may be, it is clear: the inequality between the world's individuals is staggering. At the turn of the twenty-first century, the richest 5 percent of people receive one-third of total global income, as much as the poorest 80 percent. While a few poor countries are catching up with the rich world, the differences between the richest and poorest individuals around the globe are huge and likely growing.
GENERAL CHARACTERISTICS OF GROWTH IN THE 1980–2002 PERIOD Milanovic says that the period 1980–2002 was a time of uneven development among the countries of the world. The average annualized rate of growth for all countries, unweighted by population, was only 0.7 percent per annum—a full 2 percentage points less than during the previous twenty years (1960–1980). However, on a population-weighted basis, the average annualized growth rate was 3.1 percent, thanks to the very high growth rates registered by the two most populous countries in the world, China and India. China’s per capita growth averaged 7.8 percent per annum, and India’s averaged 3.6 percent. Similarly, if we look at the global total of goods and services (that is, world GDI - Gross Domestic Income), we can see that per capita expanded on average by 2.1 percent per annum. In this case, of course, it is the countries with the largest economies that matter the most. The annual per capita growth of the United States was 1.7 percent; Japan’s and Britain’s, 2.0 percent. Milanovic says that there are three different ways to measure growth. Each type of measurement yields different results, highlighting the unevenness of global outcomes. Thus, if we look at total world income, growth of 2.1 percent per annum may be considered respectable. If we look at how individuals, on average, fared during these twenty-two years, the growth record, at more than 3 percent per annum, turns out to have been satisfactory, primarily because China and India—with their huge populations—grew at higher-than-average rates. But if we look at individual countries, the mean growth rate of only 0.7 percent per capita clearly implies that many countries failed to grow at all, or they even declined. This is where we detect unevenness in outcomes among the countries.In table 1, Milanovic focuses on the distribution of growth rates of the three groups of countries: the rich world that includes the “old” OECD countries (that is, excluding new members like South Korea, Mexico, and the post-Communist countries), the least-developed countries (LDCs), and the rest. The rest are those countries that fall between rich and poor countries; we shall call them interchangeably “others” or “middle-income countries,” although strictly speaking they include quite a few relatively poor countries that are not normally considered middle-income countries as defined by the World Bank and other international agencies. The average annual growth rate for the countries belonging to the rich world was approximately +1.9 percent per capita, and the distribution of outcomes was quite narrow. In other words, rich countries tended to grow at moderate rates, and to grow as a club— there was little difference in performance among them.
For both LDCs and others, the divergence in outcomes was much greater. The group of others, which includes the Asian “tigers,” comprised a number of fast-growing countries. The best performers were China (average growth of 7.8 percent per capita), South Korea (6.3 percent per capita), Singapore (4.6 percent per capita), and Mauritius (4.5 percent per capita). This group also has many failures—for example, countries like Russia and Ukraine that have seen their incomes between 1980 and 2002 drop by some 20 to 30 percent. Outside of the transition economies, the worst record is that of Saudi Arabia (with a decline of GDI per capita of 47 percent), Nicaragua (a decline of 34 percent), and Ivory Coast (a decline of 30 percent). The mean annual growth rate for the group of others is 1 percent, just a bit over one-half of that of the rich world. The LDCs like the middle-income countries, show a wide distribution of outcomes. Among them, however, are no stellar, high-growth performers like China and South Korea. More than 40 percent of these countries had negative growth rates during the 1980–2002 period. This is substantially higher than 33 percent for the middle-income countries and 17 percent for the rich countries. Those among LDCs that lost the most were Djibouti, Sierra Leone, Madagascar, and Haiti, all with GDI per capita losses between 40 and 50 percent. The best performers among LDCs were Bangladesh (average growth of 2.6 percent per capita), Uganda (2.4 percent), and Lesotho (2.3 percent). The mean growth rate for LDCs was just barely above zero; the median was 0.8 percent, again substantially lower than that of the other two groups. The near universal absence of growth among LDCs during the past twenty years can also beseen in figure 2, which shows GDI per capita of LDCs in 1980 and 2000. The two distributions are almost the same—there was no movement toward higher incomes among the LDCs.
Table 2 shows that the population living in the countries belonging to the most successful group amounted to almost 3.2 billion in 2000. This is mostly due to India and China. Four African countries are also in that group: Botswana, Lesotho, Egypt, and Uganda, with a total population of 92 million. In total, seventy-eight countries with the combined population of 5 billion have experienced an overall positive growth during the past twenty-two years. The remaining one billion people living in forty-eight countries have seen real incomes in their countries go down. In terms of regional composition, almost 400 million Africans live in negative-growth countries; this represents more than one-half of Africa’s total population. The second-largest group of people living in countries with negative income growth are those in post-communist states: almost 300 million, or three-quarters of the population from those countries. In addition, 140 million Latin Americans live in “shrinking economies”: this represents 30 percent of the Latin American population. Finally, four countries in Asia (with a combined population of 100 million) have had negative growth.4 There are no negative-growth economies in the rich world. Thus, about one billion people live in countries that have declined during the past twenty or so years; unfortunately, many of these countries had already been among the poorest. FAILURE TO BUILD A MIDDLE CLASS The picture is clearest when you look at the number and fate of the world's middle- class countries (rather than middle-class individuals, although the story there is not so terrific, either). Rothkopf says that for all the great progress of the past four decades or so, from the end of colonialism and communism to the birth of the Information Age, only four economies—South Korea, Singapore, Hong Kong and Taiwan—have managed to join the ranks of "high income" nations, now defined by the World Bank as countries with a per capita gross national income (GNI) of more than $10,066. That is to say that, by Western standards, on average their citizens are now reasonably comfortable. He notes Milanovic's data in Worlds Apart, that the number of countries in the comfortable zone has fallen from 41 in 1960 to 31 today, and the number of rich non-Western nations has fallen from 19 to nine. At the same time, incomes of the richest countries, which were 16 times higher than those of the poorest countries in the 1960s, grew to be 35 times higher by 1999. This foiled aspirant class of states is a polyglot group spanning the Caribbean, Latin America, Eastern Europe, Central Asia and Africa. In Latin America, real incomes are now the same as in the 1980s, and a recent U.N. report finds that 23 million Latin Americans slipped from the middle class into poverty in the past six years. In the former communist countries of Eastern Europe and Russia, which had been known as the Second World for income levels that were lower than the United States' and Western Europe's but higher than most other countries', real incomes have fallen in the post-1989 transition. The middle classes in the region shrank by more than 7 percent through the mid-1990s. SHIFT LENDING FROM GOVERNMENTS TO PEOPLE Rothkopf makes the point that despite the wave of highly touted reforms of the late '80s and '90s in much of the emerging world, results have come up short because elites who embraced privatization and trade liberalization refused to go the next step. They did not transform ownership structures to give more citizens a chance to raise capital, or to own businesses. Rothkopf says that the place to focus is on the middle ground. He quotes the New America Foundation's Sherle Schwenningerwho argues, "Extending the system of mass affluence found in the United States and Europe to the developing world is the key to both world economic growth and global political stability in the decades ahead." This means building market mechanisms that create stakeholders in national economies. This could be the development of mortgage markets in places like Latin America, where they are rare, or the expansion of programs that make loans to the little guy, or give workers an equity stake in their businesses, or open up universities to the underprivileged. Rothkopf says that development institutions ought to shift their lending from governments to people. They ought to identify and emulate the success stories of those cities and provinces and countries that have managed to do better—the Singapores and Taiwans, for example. In addition, we need to recognize the lesson of India and China: that size attracts investment and that the backlash against trade liberalization that knits together fragmentary smaller markets is dangerous and counterproductive for rich and poor alike. Finally, and perhaps most controversially, we need to recognize that there is a role for government in all this. Markets favor the strong. Chapter 1 of Worlds Apart Why did poor countries fail to catch up? © Copyright 2007 by Finfacts.com |
