Rich and Poor
View of Rio de Janeiro in Brazil with the Santa Marta favela in the foreground, 2013
Credit: dany13 / CC BY
Summary
The complex trend for increased income inequality since the 1980s is marked by an acute disparity in degrees of inequality between and within countries, including when these are at similar stages of development. Although extreme poverty has substantially declined, relative poverty has remained constant, while wealth is concentrated in the hands of a minority of individuals. International institutions and governments are becoming increasingly aware of the need to combat inequality, but they are doubly limited in their capacity to regulate and redistribute by the boom in privatization and the high incidence of tax evasion.
A trend toward increasing inequality
While inequality between populations take many different forms (living standards, access to global public goods), changes in income inequality across the world occupy a central and controversial place in the debate on globalization.
International inequality (i.e. between nation states) can be measured by differences in per capita GDP at purchasing power parity (PPP) and differ depending on whether or not they are weighted by population for each country. The unweighted figures have been constantly rising since the early nineteenth century due to greater increases of wealth in the richest countries and populations. When weighted, international inequalities increased strongly from the 1850s, stabilized in the 1950s and even more in the 1980s, and have declined slightly since the 2000s. Indeed some so-called developing countries have caught up with the rich countries. These are the “newly industrialized countries” (South Korea, Taiwan, Singapore) and countries with low wages and high technological capabilities (China, India). Other developing countries have joined the poor countries, increasing the gap between the rich and least developed countries (LDCs).
Internal and global inequality
Internal inequalities within societies (measured by the Gini Index) diminished noticeably in the first half of the twentieth century, before increasing to various degrees in over fifty percent of countries. Globalization has fueled growth, but led to greater inequality in the countries of the South and in China, and also greater gender inequality. The lack of social redistribution and the internationalization of the labor market have led to a bias in favor of skilled work and increasing global competition in the low wage sector. In rich countries, inequality was held in check during the post-war period of the Trente Glorieuses (1945-1975), but began increasing again in the 1980s due to significant increases in high incomes, a greater concentration of income from capital, lower tax rates (halved in the United States and the UK) and social security benefits rising at a lower rate than real wages.
Global (or world) inequality measures inequality between individuals within the global population using the global Gini Index and reflects the combined measurements of weighted international inequality and internal inequality. According to the World Inequality Database, since the 1980s, the richest 1 % have benefitted from twice the income growth of the poorest 50 %, who have, however, also seen their incomes grow (particularly in China and India). Conversely, the incomes of the middle 49 % have stagnated and sometimes dropped. Across the world, the increase in inequality has been highest in Russia, India, the United States and China, has remained high in the Middle East, Brazil and sub-Saharan Africa and is more moderate in Europe.
Income inequality: divergent trajectories, 1980-2016
Comment: The curves show the proportion of income owned by the most affluent sections of the populations in some states or regions between 1980 and 2016. Inequalities are more marked in the South (the Middle East, Africa, and Brazil) – where over half the national wealth is concentrated in the hands of the richest 10% – than they are in Europe. In India, inequality clearly increased over the period, in 2016 reaching the level of Brazil. This was also true of China and, to a lesser extent, the United States.
Relative poverty and ultra-concentrated wealth
The number of people living in extreme poverty has gone down by two-thirds since the early 1990s, but 700 million people were living on less than $1.90 a day in 2015, mainly in sub-Saharan Africa and South Asia. Poverty is also present in the rich countries, where social models were undermined by a financial crisis that initially affected the poorest individuals and extended to new social categories (the working poor, single-parent families, young people, etc.). The United States is one of the developed countries where poverty is most widespread and has been increasing since the early 2000s.
Multidimensional Poverty Index, 2005-2015
Comment: This is a composite poverty indicator: a single value is calculated for each country by combining ten criteria that consider the number of privations in terms of health, education, and standard of living; but only for countries “of the South,” (i.e. the Southern hemisphere) which are in principle more affected by poverty. India has the largest numbers, with over 600 million individuals, while there is also a strong prevalence (percentage of population) in sub-Saharan Africa (especially from Burkina Faso to Somalia).
The most notable development in inequality is the massive enrichment of 1 % of the population. According to Oxfam, in 2017, the world’s eight richest people – all men – owned as much wealth as the 3.6 billion poorest. According to the Credit Suisse Research Institute, 1 % of the richest people owned more than half the wealth of the world’s households.
Billionaires according to Forbes, 1999-2018
Comment: The illustration shows the profile of billionaires in the world. According to Forbes magazine, their number has multiplied by 5 in 20 years. In 2018, there were over 2,000 of them, the great majority consisting of men (90%) and older people (three-quarters aged between 50 and 80). The “invisible” industries such as services and sales, telecoms and finance, banks and insurance are the main sectors of activity on which this concentration of wealth is based.
Branko Milanović has shown that four-fifths of global income inequality is linked to the country and, to a lesser extent, the social group into which a person is born, and only one-fifth to current state of the economy, personal merit or luck. This leads people in poor countries to aspire to migrate to richer countries.
Increasing privatization in rich and emerging countries has probably reduced the capacity of states to combat inequality, notably in China and Russia. Reductions in public ownership and the prevalence of tax evasion limit the ability of governments to regulate the economy and redistribute income in order to keep inequality in check.
In developed countries, income inequality is reduced by around one-third through taxes and direct payments. Such redistribution is more limited in developing countries, due to alternative political choices and lower, less progressive taxation and expenditure. Alerted to the damaging consequences of excessively high levels of inequality for economic growth, the IMF suggests governments should implement a wealth tax and green taxes, increase tax on the income from capital and real estate, strengthen and universalize social protection provision and invest in education, health and gender equality.
- inequality > Inequality
- Unequal distribution of goods, material and/or non-material, regarded as necessary or desirable. Beyond income inequality (national, international and global), cumulative inequalities can also be measured with respect to accessing public services (healthcare, education, employment, housing, justice, effective security, etc.) and accessing property and natural resources more generally, and also relative to political expression or the capacity to respond to ecological risks. When these inequalities are based on criteria prohibited by law, they constitute discrimination.
- global public goods > Global public goods
- These are material and symbolic goods which are under the guardianship of each one of us for the survival of all. Their functions are threatened by shared sovereignty (ozone layer, biological diversity, the cultural heritage of humanity, cultural diversity, scientific knowledge, health, food, financial security, and so on). This concept was set out in the report of the 1999 United Nations Development Program and has since been widely adopted by many international organizations. The term “club goods” is used when administering and consuming these goods is limited to a small number of participants.
- GDP > Gross Domestic Product
- An economic indicator measuring a country’s wealth as generated by investment and expenditure on consumption by households, businesses and the state (not to be confused with gross national income, which measures total wealth created exclusively by national economic actors). Much used by economists (notably per capita GDP), it is biased in a number of ways: it considers only commercial activities, does not include negative externalities (such as environmental destruction), avoids the issue of social and geographical inequalities and (wrongly) postulates the existence of a correlation between wealth and degree of development. Other statistical tools have been developed to counteract these shortcomings (Human Development Index, Gini Index, etc.).
- purchasing power parity > Purchasing Power Parity
- A method for calculating and comparing the relative value of different currencies in order to identify differences in purchasing power and standards of living in different countries, regardless of the exchange rate. For example, PPP can be used to compare the relative cost (for the budget of an average household) of purchasing the same item in different countries. Several international bodies regularly calculate the GDP of different countries in terms of PPP in order to compare their living standards, although these comparisons remain unsystematic.
- Gini Index > Gini index
- {alias} Gini ratio
- growth > Growth
- A long-term, sustained increase in a country’s production of economic wealth, in other words, its GDP. Economic growth is not synonymous with development. Measuring it with purely economic and monetary tools is becoming increasingly unsatisfactory because of the deterritorialization and internationalization of economic activities, as well as the failure to take account of any wealth creation that cannot be monetized (elimination of illiteracy, gains in scientific or cultural knowledge, etc.). This implies special emphasis on high productivity despite the potential destruction (especially ecological) caused by growth that is seen exclusively from the angle of economics and financial profitability.
- gender > Gender
- Historic, social, cultural and psychological construction of a binary categorization between sexes (men/women) and between the values and representations associated with them (masculine/feminine). Arising from the feminist works of the 1970s, the concept of gender spread through the United States during the 1980s and then in Europe from the 1990s before being taken up in the literature on sexual minorities. The gender concept views relations between the sexes as a power relationship (historically constructed around the material and symbolic subordination of women compared to men) that cannot be isolated from other power relationships such as social class, race, age or disability.
- Trente Glorieuses
- This French phrase coined by economist Jean Fourastié refers to the thirty “glorious” years of strong economic growth experienced by the industrialized countries between the end of World War II and the oil crises of 1973 and 1979.
- individuals > Individual
- The individual, as a basic social actor, is playing an increasingly important role in the processes of globalization for multiple reasons, including the ever-faster circulation of ideas, values and information; the ability to build networks for sharing and solidarity without physical proximity; the networking of international expertise; and human rights movements and demands for democracy.
- developed countries > Developed Country
- At point 4 of his Inaugural Address of 1949, American President Harry S. Truman outlined a program of aid for “underdeveloped areas. This phrase refers to all the countries regarded as “lagging behind” in progress toward what thus becomes the model set by the developed, industrialized countries, which at that time had stronger growth and higher standards of living. The evolution of the terminology from underdeveloped to developing and developed countries has not altered the linear, evolutionist aspect of the overall vision. Nor has it in any way nuanced the homogenization and reification of the groups so described.
- migrate > Migration
- Movement of people leaving their country of origin permanently (emigration) to relocate to another country (immigration), which might be voluntary or forced (war, poverty, unemployment, human rights violations, climate factors, etc.), and which often involves temporary stays of varying duration in several transit countries. Migratory flows, which are an integral component of humanity’s history, give rise to a range of public policy measures linked to specific political, economic and cultural contexts and understandings of nationality. Host states seek to organize immigration, sometimes to attract it (need for labor, exploitation of specific territories, naturalizations, etc.), and most often to restrict it (border controls, quotas, residence permits, etc.). In most cases the states of origin seek to maintain relations with their nationals and diaspora communities living abroad.
- states > State
- The state is a political system that is centralized (unlike the feudal system), differentiated (from civil society, public/private space), institutionalized (institutions are depersonalized), territorialized (a territory whose borders mark the absolute limit of its jurisdiction), that claims sovereignty (holding ultimate power) and that bears responsibility for ensuring its population’s security. In public international law, the state is defined as a population living on a territory defined by borders subject to a political authority (the national territorial state).
- tax evasion > Tax evasion
- Illegal practice in which an individual or business hides revenues and assets in a third country, generally a tax haven, in order to evade fiscal obligations in their country of residence or business activity. Tax optimization, by contrast, involves using loopholes in national legislation to legally avoid taxes.
- social protection > Social Protection
- Payments enabling individuals to cope with life’s risks without compromising their living standards. These include maternity, the costs of raising a family, sickness and disability, unemployment, old age, etc. The three current systems have different origins and aims and influence each other. Social assistance is a minimum income intended to establish solidarity between individuals in the fight against poverty. It is means-tested rather than being based on previous contributions (for example, the welfare system advocated by Beveridge in the UK). Social insurance seeks to counteract the risk of loss of income by providing benefits funded by contributions taken from wages (for example, the system introduced by Bismarck in Germany). Universal benefits are intended to cover certain types of expenditure for all individuals and identical amounts are paid to all, regardless of income or contributions (for example, universal health care coverage in France).