World in CrisisWorld in CrisisWorld in CrisisWorld in Crisis

Global Imbalances:Global Imbalances:Inequality in the World TodayInequality 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 Helú Bill Gates Warren Buffett

The richest person in the world…?

Carlos Slim Helú Bill Gates Warren Buffett

(each has approx. US$60 billion, or £39 billion)

US$60 billion versus US$60 billion versus the UK?the UK?

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

Slim/Gates/Buffett therefore possesses Slim/Gates/Buffett therefore possesses wealth equivalent to about 3.7% of thatwealth equivalent to about 3.7% of that

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

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

US$60 billion vs. Sierra US$60 billion vs. Sierra Leone?Leone?

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

it would take the average Sierra Leonean it would take the average Sierra Leonean 120,855,615 years to produce 120,855,615 years to produce Slim/Gates/Buffett’s current wealthSlim/Gates/Buffett’s current wealth

(remember: 2,199,799 years for the Briton)(remember: 2,199,799 years for 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 Sierra how long would it take the average Sierra Leonean to produce what the average Briton Leonean to produce what the average Briton produces in a produces in a single yearsingle year (US$30,821)? (US$30,821)?

54.9 years54.9 years

but life expectancy at birth in Sierra Leone:but life expectancy at birth in Sierra Leone:

41.4 years41.4 years

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

A Crisis of Inequality??A Crisis of Inequality??

Is inequality a problem?Is inequality a problem?

Is inequality growing?Is inequality growing?

If it’s growing, why?If it’s growing, why?

If it’s growing, what might be the If it’s growing, what might be the consequences?consequences?

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

InequalityInequality

a situation in which units vary in their a situation in which units vary in their possession or control of somethingpossession or control of something

in other words, where there is in other words, where there is nonzero dispersion around the mean nonzero dispersion around the mean (average)(average)

Comparing DistributionsComparing Distributions

A

A

Comparing DistributionsComparing Distributions

C

B

Distributions versus Distributions versus What Kinds of People What Kinds of People

Are Located WhereAre Located Where

C

B

Types of Inequality ITypes of Inequality I things that many people want, that things that many people want, that

some people have more of than others?some 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

Types of Inequality IITypes of Inequality II characteristics of people that may influence characteristics of people that may influence

where they are located in a distribution of where they are located in a distribution of desirable things?desirable things? gendergender ethnicityethnicity nationalitynationality citizenshipcitizenship ageage

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 (education, other good things you want (education, life, political freedom, etc.)life, political freedom, etc.)

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

we will set aside the characteristics of we will set aside the characteristics of individualsindividuals

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?

Issue at three levels:Issue 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

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

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 poor most of the world’s people were poor

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

starvation a constant threat for moststarvation a constant threat for most most inequality was within nations, not most inequality was within nations, not

between thembetween them

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

1800-19501800-1950 thenthen, as a result of the Industrial Revolution:, as a result of the Industrial 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 decliningbetween-nation inequality began declining

within-nation inequality began expandingwithin-nation inequality began expanding

however, between-nation inequality depends however, between-nation inequality depends on how you treat two key countries: China on how you treat two key countries: China and Indiaand 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 recognize (assuming you recognize China’s and India’s populations)China’s and India’s 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:Not Increasing… (We Not Increasing… (We

Think)Think) A: declining between-nation inequality A: declining between-nation inequality

outweighs increasing within-nation inequalityoutweighs increasing within-nation inequality

therefore… therefore… global inequality is now decliningglobal inequality is now declining

but only because of India and, even more but only because of India and, even more so, China (and in the rest of the world so, China (and in the rest of the world inequality is inequality is increasingincreasing))

and uncertainty about the data remainsand uncertainty about the data remains

Global Inequality:Global Inequality:Remaining ProblemsRemaining Problems

but, absolute but, absolute gapsgaps in income and wealth are in income and wealth are growing (even if ratios are shrinking)growing (even if ratios are shrinking)

many (poor) countries are not growing, and many (poor) countries are not growing, and thus falling farther and farther behind the ones thus falling farther and farther behind the ones that arethat are

sub-Saharan Africa (largely because of sub-Saharan Africa (largely because of HIV/AIDS, malaria, cholera, tuberculosis… HIV/AIDS, malaria, cholera, tuberculosis… plus conflict and political crises)plus conflict and political crises)

billions remain in poverty (most in Asia)billions remain in poverty (most in Asia)

Consequences of Consequences of InequalityInequality

existing research suggests that existing research suggests that inequality leads to:inequality leads to:

less political democracyless political democracy

less economic developmentless economic development

worse human healthworse human health

more corruptionmore corruption

Key ConclusionsKey Conclusions

1.1. research has shown that inequality has a research has shown that inequality has a range of negative consequencesrange of negative consequences

2.2. economic inequality has recently been economic inequality has recently been increasing within most countriesincreasing within most countries

3.3. but economic inequality is decreasing at the but economic inequality is decreasing at the global level because it’s decreasing global level because it’s decreasing between countries (weighted by population)between countries (weighted by population)

4.4. these trends are a change from earlier in the these trends are a change from earlier in the 2020thth century century

Changes in the Future?Changes in the Future?

Readings and Further Readings and Further HelpHelp

required readings:required readings: Gilbert 2007Gilbert 2007

recommended readings:recommended readings: Sutcliffe 2004Sutcliffe 2004 Firebaugh 2003Firebaugh 2003 Birdsall et al 2005Birdsall et al 2005

my open door time for WiC:my open door time for WiC: January 19, 14.00-16.00, 2.17NJanuary 19, 14.00-16.00, 2.17N