Politics of Poverty

Global Inequality’s Been Falling; Don’t Get Used To It

Posted by
Mumbai, India - City of Contrasts
Mumbai, India - City of Contrasts. Credit: Swauli

Economic inequality among all human beings is projected to rise in the near future

Is inequality getting better, worse, or staying stubbornly the same? As the saying goes, where we sit depends on where we stand – both geographically and on the income distribution. For instance, workers around the world feel they’re scraping by in a rigged system while those at the top of the economic ladder see a rosier outlook. Still, hundreds of millions of people (especially in Asia) have escaped what’s known as extreme poverty in the last few decades and entered the global middle-class. Sadly, too many people continue living in severe deprivation across the “Global South.”

While people’s perception of inequality matters enormously for politics, survey and fiscal data offer a clearer picture. Even then, however, the trends you identify depend on where you look and what type of inequality you’re measuring.

A very useful ‘lens’ to view inequality is to look at what’s known as global inequality. This is inequality among all human beings, without reference to the countries where people live. I like to think of it as lining up all eight billion of us from richest to poorest and seeing who’s doing better than whom (economically speaking). Other important ‘lenses’ to think about inequality include between-country and within-country (which, as discussed below, has risen in many countries in recent decades).

How has global inequality has changed since the 1980s?

Global income inequality is measured using the Gini coefficient. This measure scores inequality on a scale from 0 to 1 (the higher the number, the more inequality. For reference, Denmark scores on the low end with a Gini around .27, whereas South Africa scores much higher with a Gini around .63). The global Gini reached its height in the late 1970s, reduced a bit in the 1980s, and then fell from the end of the 1990s through at least 2015. Importantly, despite falling for years, it remains extremely high. Strikingly, it’s higher than within any single country.

Unfortunately, there’s a shared sense that the years of decline are over, and we should expect global inequality to move upward again. Indeed, it spiked in 2020 as the global pandemic swept the globe. In a new paper, authors Ravi Kanbur, Eduardo Ortiz-Juarez, and Andy Sumner model this pivot and offer insight to why we should expect it to rise.

Figure 1. Historical Overview of Global Inequality

image
Kanbur, Ortiz-Juarez, & Sumner ‘Is the Era of Declining Income Inequality Over?’ (2024)

To understand why global inequality is likely to rise, we first need to know why it fell.

Populous developing countries, notably in Asia and especially in China, experienced significant economic growth starting in the 1980s. This created opposing effects on inequality – by shrinking the distance between themselves and rich countries, it reduced global inequality. Yet, since this growth unevenly favored the richest, it worsened inequality within those countries. Also, these emerging economies’ newfound global competitiveness increased inequality in rich countries like the US by putting pressure on manufacturing wages. To parse this a bit, we can say that despite the increase of within-country inequality across many economies in recent decades, global inequality fell. This is because the ‘catching up’ to rich countries by populous lower-middle and middle-income economies was sufficiently robust to offset the within-country increases.

The global shift of fortunes is nicely captured in this well-known graph below.

Figure 2. The Elephant Chart

image

The horizontal line represents all eight billion of us from richest to poorest. Number 1 is the middle-classes in emerging economies like China, India, and Brazil. Number 2 is the middle-classes in rich countries like the US and the UK. Number 3 is the world’s richest people. Alas, the world’s poorest (all the way on the left of the graph, who saw little to no income change) and the middle-classes in rich countries are the big losers of globalization. The middle-classes in emerging economies, and the world’s richest, are the big winners.

Unfortunately, we don’t expect the trend of falling global inequality to persist. Again, it’s the populous middle-income countries – the one’s responsible for falling global inequality – that are driving the story. As China and other large emerging economies continue growing, we expect them pull even further away from poor countries, thereby adding to inequality between countries, and consequently global inequality.

Below, Kanbur, Ortiz-Juarez, and Sumner plot two scenarios for rising global inequality in the next decade and a half. Scenario 1 assumes a weaker post-pandemic growth recovery and scenario 2 assumes a stronger, though improbable, growth recovery.

Figure 3. Global Inequality in the Future

image
Source: Kanbur, Ortiz-Juarez, & Sumner ‘Is the Era of Declining Income Inequality Over?’ (2024)

Why does it matter if the global Gini coefficient starts rising again? For one thing, it demonstrates the significance of populous emerging economies as a center of gravity shaping inequality among humanity. These countries were responsible for reducing the between-country inequality gap, and with it the gap among all people. Yet, going forward, we expect these countries to drive-up between-country inequality, and consequentially, global inequality.

This suggests that if our goal is to reduce the ocean of inequity among human beings, populous middle-income countries need to garner a great deal of attention. Inter-governmental organizations and International NGOs like Oxfam should prioritize the near-term challenges of inequality in these countries.

Economic and demographic trends make this focus especially salient. Thinking about demography, the most populous middle-income countries are projecting declines in their working age populations between now and 2040 (for instance, China, Indonesia, Brazil, Colombia, Russia, Mexico, Vietnam, Turkey, and Thailand). Other imminent challenges include the expected decline of manufacturing jobs in middle-income countries, the changing nature of aid and development finance, and greater integration by developing countries into global value chains.

The divide between low-income and middle-income countries must also shrink if our goal is reducing global inequality. Africa’s population is expected to swell to 2.5 billion by 2050, and non-China/India to around 2 billion. This is roughly the same size as China and India during the growth period of recent decades. Our aim should be replicating a similar catch-up that can accelerate low-income countries to close the gap with middle-income countries, and thereby reduce global inequality.

Oxfam.org Facebook Twitter Instagram YouTube Google+