Worlds Apart: Measuring International and Global Inequality
240
Worlds Apart: Measuring International and Global Inequality
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Overview
We are used to thinking about inequality within countries--about rich Americans versus poor Americans, for instance. But what about inequality between all citizens of the world? Worlds Apart addresses just how to measure global inequality among individuals, and shows that inequality is shaped by complex forces often working in different directions. 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 evenhandedly 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.
Product Details
| ISBN-13: | 9781400840816 |
|---|---|
| Publisher: | Princeton University Press |
| Publication date: | 06/27/2011 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 240 |
| File size: | 5 MB |
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Read an Excerpt
Worlds Apart
Measuring International and Global InequalityBy Branko Milanovic
Princeton University Press
Copyright © 2005 Princeton University PressAll right reserved.
Chapter One
THE THREE CONCEPTS OF INEQUALITY DEFINEDTHERE are three concepts of world inequality that need to be sharply distinguished. Yet, they are often confounded; even the terminology is unclear. So, we shall now first define them and give them their proper names.
The first (Concept 1) is unweighted international inequality. This concept takes country as the unit of observation, uses its income (or GDP) per capita, disregards its population, and thus compares, as it were, representative individuals from all the countries in the world. It is a kind of UN General Assembly where each country, small or large, counts the same. Imagine a world populated with ambassadors from some 200 countries, each of whom carries a sign on which is written the GDP per capita of his/her country. These ambassadors are then ranked from the poorest to the richest, and a measure of inequality is calculated across such ranking of nations (ambassadors). Note that this is properly a measure of international inequality, since it is compares countries. It is "unweighted" because each country counts the same. Concept 1 is not a measure of inequality among citizens of the world.
Since it is reasonable to hold that if China becomes richer, this event should have more impact on the world than if Mauritania were to become so, we come tothe second type of inequality (Concept 2): population-weighted international inequality, where we still assume that everyone in a country receives the same income but the number of representative individuals from each country reflects its population size. Note that this is still international inequality because we compare mean incomes among nations, but it is now weighted by the population of each country. The difference when compared to Concept 1 is that the number of ambassadors from each country in our fictional assembly is proportional to the country's population. Otherwise, everything else is the same: each ambassador carries a sign with the GDP per capita of his/her country, and income ranks-a concept crucial in the calculation of every inequality measure-are the same. Concept 2 assumes that "within-country" distribution is perfectly equal: all Chinese have the same mean income of China, all Americans, the mean income of the United States, etc. This is the distribution that is often billed as "world" income distribution (e.g., Melchior et al. 2000), but, as we have just seen it is not.
Concept 2 is only a halfway house to the calculation of a true world income distribution (Concept 3), where inequality is calculated across all individuals in the world. Concept 3 treats, in principle, everybody the same. We no longer have ambassadors from the countries: we line up all individuals, regardless of the country, from the poorest to the richest. Now, Chinese individuals will no longer be crowded together: the poor Chinese will mix with poor Africans, the rich Chinese with the middle-class or rich Americans, and a few rich Africans may even mix with the U.S. "top dogs." If one thinks that this is impractical because we cannot array all 6 billion individuals, one is right. But what we can do, as we would in any household survey, is interview individuals or households selected in a worldwide random sample (such that the Chinese will have a chance to be selected proportionally to their population size), and rank all such individuals from the poorest to the richest. World distribution (Concept 3) goes back to the individual as the unit of analysis, ignoring country boundaries.
In terms of Jan Pen's (1971) parade, which is similar to the idea of our fictional assembly but where in addition the height of each individual is proportional to his income, in Concept 1, only countries' ambassadors parade, each having the height of that country's GDP per capita. The number of participants in such a parade is small: at most 180-200, as many persons as there are countries in the world. In Concept 2, each country has a number of participants proportional to its population. Thus if the entire parade consists of 1000 people, China would have some 200 participants, and Luxembourg 1/150 of a participant, but all participants from a given country have the same height-equal to that country's GDP per capita. In Concept 3, the number of participants from each country remains as in Concept 2, but the participants' height now reflects their true income: there are tall and short Chinese just as there are tall and short Americans.
The idea of the parade is illustrated in figure 1.1, where we suppose that there are three countries with different average incomes given by the height of each individual in the top row. Concept 1 inequality is calculated across them. In the second row, we let each country be represented by all of its population. The poorest county has five people (men with briefcases), the middle-income country has two (women), and the richest country three (men with hardhats). Concept 2 inequality is calculated across these ten persons, each assigned the average income of their country. In the bottom row, finally, we let each individual come into the parade with his or her true income. Concept 3 inequality is calculated across the ten people in the bottom row. Not all people from the poorest country are poor; in effect, the poorest person is from a middle-income country. Note that the total height of people from each country in the bottom row must be the same as their total height in the middle row-for obviously the total income of each country is given. The example shows how Concept 2 inequality indeed stands between the other two: the height of people from a given country in the middle row is the same as their height in the top row (Concept 1), while the number of people from each country is the same as their number in the bottom row (Concept 3).
Clearly, we would like to know Concept 3 inequality if we are interested in how world individuals are doing, even if the other two concepts have their uses too. Concept 1 answers whether nations are converging (in terms of their income levels). When we talk of convergence, we are not, necessarily or at all, interested in individuals but in countries. Concept 2 is perhaps the least interesting. It deals neither only with nations nor individuals but falls somewhere in between. Its main advantage is that it approximates well Concept 3 inequality (which, although a concept we would like to know, is the most difficult one to compute). Once Concept 3 is available, however, Concept 2 inequality will be (as the saying goes) history.
Table 1.1 summarizes our discussion of the differences among the concepts.
But how do these concepts perform empirically and how big are the differences among them? Before we turn to this issue, comparing the three concepts at the world level, let's compare them at a level where this is easy. Take the United States and break it down into fifty states. Concept 1 is simply inequality calculated after ranking all states from the poorest to the richest and giving them equal weight. Concept 2 inequality is the same except that weights are now proportional to the states' populations. Concept 3 is our usual U.S. inequality that we obtain from the Bureau of the Census's Current Population Survey. Why is it, then, that neither researchers nor ordinary people ever speak of Concept 2 (or even Concept 1) inequality when they discuss income distribution in the United States? Simply because we have a reasonably good estimate of "true" income distribution (Concept 3) thanks to the Bureau of the Census surveys. The reader has already seen my point: once we have such an estimate of Concept 3 inequality for the world, hardly anyone would bother about Concept 2 inequality. (We might still find it interesting to look at Concept 1 inequality to know whether mean incomes of the countries are converging.) And, of course, the three concepts can move in very different directions.
Table 1.2 shows the three concepts calculated for the United States and the fifty states over the period 1959-89 (per capita incomes by state are available at decennial intervals only). First, note the huge difference in Gini values between Concept 3 inequality and the other two. For sure, we do not expect to find such a big difference in results for the world as a whole because mean per capita incomes among countries are much more diverse than mean incomes of U.S. states, and thus both Concept 1 and Concept 2 inequality will be closer to Concept 3 inequality. We note, though, that in the United States, Concepts 1 and 2 do not even display the same trend as "true" inequality (Concept 3). While "true" inequality increased between 1969 and 1979, the other two concepts show a decline. Notice, too, that if one were to make conclusions about "true" U.S. inequality based on the first two concepts, one would be led to believe that inequality in 1989 was less than in 1959. The reverse is true: in 1989, inequality was four Gini points (or 11 percent) higher than thirty years ago.
(Continues...)
Excerpted from Worlds Apart by Branko Milanovic Copyright © 2005 by Princeton University Press. Excerpted by permission.
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Table of Contents
Acknowledgments viiPrologue: The Promise of the Twentieth Century 1
Introduction: A Topic Whose Time Has Come 3
PART I: SETTING THE STAGE
Chapter 1: The Three Concepts of Inequality Defined 7
Chapter 2: Other Differences between the Concepts 12
Chapter 3: International and World Inequality Compared 20
PART II: INEQUALITY AMONG COUNTRIES
Chapter 4: Rising Differences in Per Capita Incomes 31
Chapter 5: Regional Convergence, Divergence, or . . . ''Vergence'' 45
Chapter 6: The Shape of International GDP Per Capita Distribution 51
Chapter 7: Winners and Losers: Increasing Dominance of the West 61
PART III: GLOBAL INEQUALITY
Chapter 8: Concept 2 Inequality: Decreasing in the Past Twenty Years 85
Chapter 9: High Global Inequality: No Trend? 101
Chapter 10: A World without a Middle Class 128
PART IV: CONCLUDING COMMENTS
Chapter 11: The Three Concepts of Inequality in Historical Perspective 139
Chapter 12: Why Does Global Inequality Matter and What to Do about It? 149
Appendixes 1-7 163
Notes 195
References 213
Index of Authors 223
Index of Subjects 225
What People are Saying About This
Worlds Apart is a real tour de force. It presents a new interpretation of trends in the distribution of income among the world's countries and individuals, and makes a strong argument that global income inequality can be and should be reduced. In this emerging issue area of international politics it will become a standard reference.
— Robert Hunter Wade, London School of Economics
A fascinating read. This book is a helpful primer to help you find your way around the complex debates surrounding global inequality. It is also a forceful demonstration that the world economy remains much too unequal.
— Dani Rodrik, Harvard University
"Worlds Apart is a real tour de force. It presents a new interpretation of trends in the distribution of income among the world's countries and individuals, and makes a strong argument that global income inequality can be and should be reduced. In this emerging issue area of international politics it will become a standard reference."—Robert Hunter Wade, London School of Economics"Don't be fooled by globalization's noisy naysayers or proponents, who invoke the rise or decline of 'global inequality' to make their case. Here, in the first comprehensive look at inequality across the world's individuals as well as the world's nations, are laid out the many definitions of global inequality, and comprehensive, evidence-based analysis about the course of global inequality, variously defined, before and during our globalization era."—Nancy Birdsall, founding President of the Center for Global Development"Branko Milanovic's painstaking work takes us closest to a global understanding of income disparities at the present time. Among many other things, his work underscores that while national level income disparities are often obscene, international differences account for much more of the even more obscene level of global income inequality."—Jomo K. S., Assistant Secretary General for Economic Development, United Nations"A fascinating read. This book is a helpful primer to help you find your way around the complex debates surrounding global inequality. It is also a forceful demonstration that the world economy remains much too unequal."—Dani Rodrik, Harvard University"An important book by a master of the relevant data. Milanovic provides hard answers to tough questions."—Samuel Bowles, Santa Fe Institute, author of Microeconomics: Behavior, Institutions, and Evolution"This is a very good book on a timely and much debated topic. Unlike many economists who write about global poverty and inequality, its author is genuinely open and fair-minded, exploring alternative ways of selecting and processing the available data so as to get robust results that make sense. Milanovic writes about economics in a way that is clear and engaging and fully accessible to nonspecialists, which is very rare indeed. This book has what it takes to be widely used in classrooms and among journalists, politicians, and diplomats."—Thomas Pogge, Columbia University and CAPPE, ANU
Branko Milanovic's painstaking work takes us closest to a global understanding of income disparities at the present time. Among many other things, his work underscores that while national level income disparities are often obscene, international differences account for much more of the even more obscene level of global income inequality.
— Jomo K. S., Assistant Secretary General for Economic Development, United Nations
Don't be fooled by globalization's noisy naysayers or proponents, who invoke the rise or decline of 'global inequality' to make their case. Here, in the first comprehensive look at inequality across the world's individuals as well as the world's nations, are laid out the many definitions of global inequality, and comprehensive, evidence-based analysis about the course of global inequality, variously defined, before and during our globalization era.
— Nancy Birdsall, founding President of the Center for Global Development
Branko Milanovic's painstaking work takes us closest to a global understanding of income disparities at the present time. Among many other things, his work underscores that while national level income disparities are often obscene, international differences account for much more of the even more obscene level of global income inequality.
— Jomo K. S., Assistant Secretary General for Economic Development, United Nations
An important book by a master of the relevant data. Milanovic provides hard answers to tough questions.
— Samuel Bowles, Santa Fe Institute, author of "Microeconomics: Behavior, Institutions, and Evolution"
This is a very good book on a timely and much debated topic. Unlike many economists who write about global poverty and inequality, its author is genuinely open and fair-minded, exploring alternative ways of selecting and processing the available data so as to get robust results that make sense. Milanovic writes about economics in a way that is clear and engaging and fully accessible to nonspecialists, which is very rare indeed. This book has what it takes to be widely used in classrooms and among journalists, politicians, and diplomats.
— Thomas Pogge, Columbia University and CAPPE, ANU