The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [60]
Ideally, we’d look at the individual incomes of every person, regardless of their country, and see what happened along the whole spectrum of global income distribution. Milanovic, in his careful study of global income distribution, has pointed out that this is not just a philosophical nicety; it has implications for policy if social justice is to be relevant. He calculated that, given the pattern of income distribution in France and Brazil respectively, there is a 10 percent chance that an aid dollar given by French taxpayers to the Brazilian government is a transfer from a poorer person to a richer one.18
The data are not available to make this assessment comprehensively, and we are stuck with some imperfect measures. The calculations are made more difficult because of uncertainty about the measures of prices and exchange rates to use for converting income in different countries into comparable figures. The most recent data, using the best estimates available from the International Price Comparison research program, are for 2005.19 A thorough survey of the range of evidence and data difficulties concludes that there is insufficient evidence to draw any firm conclusions about the direction of change in global inequality in recent decades.20 However, using the recent figures, and taking account of both inequality between countries and inequality within countries, Milanovic draws some broad conclusions. Inequality has increased steadily between the early nineteenth century and the early twenty-first century. The increase was fastest in the nineteenth century and the very end of the twentieth century—global income distribution was stable for much of the twentieth century.
He also calculates an “inequality extraction ratio,” which compares actual inequality to the maximum it could be if the actual average income level came about through averaging the incomes of a tiny rich elite and the rest of the population living at subsistence level. Within modern developed economies, the ratio has typically declined over time, implying that inequality in these countries has either declined or at least not increased as much as it could have as the economy grew. At the global level, however, there has been little change over time in the “extraction ratio.”
What this combined with the shift from “within” to “between” inequality implies, Milanovic suggests, is the success of a rich global elite. Certainly this helps reconcile the contrasting perspectives on inequality set out above. There has been both great improvement in incomes for very many people around the world, combined with vast improvement for a small group of the globally privileged. I return to the implications of this later.
UNEQUAL COUNTRIES
The picture becomes more complex looking at the distribution of income within certain countries in the recent past.
There is a distinction to be drawn between the rich and poor countries. Poor countries have long been more unequal than rich ones, largely because only a few people have high incomes in poor countries, so they contrast sharply with most of their fellow citizens. The extremes of wealth and poverty to be observed in the developing world are almost a cliché and have in some cases become even more pronounced because the rich have been getting richer. In those poorer countries that have grown very rapidly since the 1980s, very many more people have seen their incomes grow. These countries, notably China and India, now have a middle class—but also a large rich elite and a group of people living in still-undeveloped rural areas who remain on very low incomes. Even if the net effect in the various formal measures of inequality is small, the shock of absolute poverty—the absence of sanitation and safe water, hunger, childhood disease, and death—is all the greater in societies where many people are now doing well.