International inequality

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Countries by 2019 GDP (nominal) per capita[1]
Global share of wealth by wealth group, Credit Suisse, 2021

International inequality refers to inequality between countries, as compared to global inequality, which is inequality between people across countries. International inequality research has primarily been concentrated on the rise of international income inequality, but other aspects include educational and health inequality,[2] as well as differences in medical access. Reducing inequality within and among countries is the 10th goal of the UN Sustainable Development Goals and ensuring that no one is left behind is central to achieving them.[3] Inequality can be measured by metrics such as the Gini coefficient.

According to the United Nations Human Development Report 2004, the gross domestic product (GDP) per capita in countries with high, medium and low human development (a classification based on the UN Human Development Index) was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ = purchasing power parity measured in United States dollars).[4]

Proposed explanations[edit]

Differences in economic institutions[edit]

Economic institutions such as competitive markets, credible contracts and systems of property rights allow economic agents to pursue the economic activities which form the basis of growth. It has been argued that the presence or absence of strong economic institutions is a primary determinant of development. Economists have begun to consider the set of economic institutions adopted by countries as a choice that is in turn determined endogenously by competing social forces.

Gross domestic product in 2011 US dollars per capita, adjusted for inflation and purchasing power parity (log scale) from 1860 to 2011, with population (disk area) for the US (yellow), UK (orange), Japan (red), China (red), and India (blue).[5]

In a widely cited paper by Daron Acemoglu, Simon Johnson and James A. Robinson, the authors concluded that the majority of present-day inequality among former European colonies can be attributed to the persisting role of economic institutions. Describing European colonization as a "natural experiment," they argued that colonizers who encountered dense populations with developed economies such as in Central America and India were incentivized to impose extractive economic institutions, while colonizers who encountered sparse populations with few natural resources such as in North America were more likely to institute broad-based property rights. This resulted in a "reversal of fortune" around 1800 as regions which were under-developed at the time of colonization were able to industrialize more effectively.

Path dependence[edit]

In the context of development, path dependence is the idea that certain points in history may have an outsized and persistent impact on the long-term economic and political character of nations. These points may produce outcomes that induce positive feedback and are therefore difficult to reverse. Political scientist James Mahoney has examined the political consequences of a period of liberal reform in Central America during the 19th and early 20th centuries, and argued that whether policies were implemented along radical or reformist guidelines directly determined the success of the liberalization efforts and ultimately resulted in vastly different political outcomes which persisted for decades, ranging from military authoritarian regimes (Guatemala and El Salvador) to progressive democracy (Costa Rica).

Other explanations[edit]

Multiple other causes of international inequality have been proposed, such as:

  • Geography: The location of countries often affects their economy. For example, landlocked countries have difficulty accessing sea trade routes.[6][7]
  • Economic structure: the economies of different countries are composed of different industries, such as poorer countries relying primarily on agriculture.[8]
  • Natural disasters such as earthquakes, droughts, and hurricanes.[9]
  • The use of the United States dollar in international trade allows the US government to create wealth by creating new money.[10]
  • Environmental factors (including work by Jared Diamond)
  • Cultural factors (including work by Max Weber)

International inequality during COVID-19[edit]

The COVID-19 pandemic is widely believed to have worsened global income inequality, but this is incorrect. Despite better-quality health systems, higher wages, more competent governments, and better preparedness, rich countries have seen more deaths per head than poor countries. International income inequality decreased across most countries. While the measurement does increase if countries are weighted by population, this is because of China's outsized effect on the data instead of any divergence between rich and poor countries.[11] However, the pandemic has had the greatest impact on vulnerable groups such as the elderly, people with disabilities, children, women and refugees.[3]

International wealth distribution[edit]

Between 1820 and 2000, global income inequality increased with almost 50%. However, this change occurred mostly before 1950. Afterwards, the level of inequality remained mostly stable. It is important to differentiate between between-country inequality, which was the driving force for this pattern, and within country inequality, which remained largely constant.[12]

Countries by total wealth (trillions USD), Credit Suisse
Change in real income between 1988 and 2008 at various income percentiles of global income distribution, known as the Elephant Curve].[13]

Global income inequality peaked approximately in the 1970s, when world income was distributed bimodally into "rich" and "poor" countries with little overlap. Since then, inequality has been rapidly decreasing, and this trend seems to be accelerating. Income distribution is now unimodal, with most people living in middle-income countries.[14]

As of 2000, a study by the World Institute for Development Economics Research at United Nations University found that the richest 1% of adults owned 40% of global assets, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth. Oxfam International reported that the richest 1 percent of people owned 48 percent of global wealth As of 2013,[15] and would own more than half of global wealth by 2016.[16] In 2014, Oxfam reported that the 85 wealthiest individuals in the world had a combined wealth equal to that of the bottom half of the world's population, or about 3.5 billion people.[17][18][19][20][21]

As of 2001, the major component of the world's income inequality (the global Gini coefficient) was comprised by two groups of countries (called the "twin peaks" by Quah [1997]). The first group has 13% of the world's population and receives 45% of the world's PPP income. This group includes the United States, Japan, Germany, the United Kingdom, France, Australia and Canada, and comprises 500 million people with an annual income level over 11,500 PPP$. The second group has 42% of the world's population and receives only 9% of the world PPP income. This group includes India, Indonesia and rural China, and comprises 2.1 billion people with an income level under 1,000 PPP$.[22]

In terms of between country inequality, between 1820 and 2000, Latin America, Africa and the middle east almost always had a higher average Gini coefficent than Europe, implying a higher level of inequality. Asia was usually below average.[12]

As of 2017, over 70% of the world's adults had under $10,000 in wealth. Only 0.7% of the world had one million dollars or more in wealth, but this number is increasing.[23] As of 2008, there were 1,125 billionaires (in US dollars) who owned $4.4 trillion in assets.[24] As of 2006, the total value of global assets was about $125 trillion.[25]

The evolution of the income gap between poor and rich countries is related to convergence. Convergence can be defined as "the tendency for poorer countries to grow faster than richer ones and, hence, for their levels of income to converge".[26]

Global poverty[edit]

Percentage of population suffering from hunger, World Food Programme, 2013

In the past, the vast majority of the world population lived in conditions of extreme poverty.[27][28]

The absolute number of poor people (living below the poverty threshold, e.g. earning below 1 dollar per day) was reasonably stable between 1820 and 1929. It then increased significantly between 1929 and 1950, and fell rapidly again after 1950 before reaching its lowest point at ca. 220 million. From 1980, there was another increase in poverty, a trend that only reversed after 1995.[12]

The percentage of the global population living in absolute poverty fell from over 80% in 1800 to under 20% by 2015.[29] According to UN estimates, in 2015 roughly 734 million people or 10% remained under those conditions.[30] The number had previously been measured as 1.9 billion in 1990, and 1.2 billion in 2008. Despite the significant number of individuals still below the international poverty line, these figures represent significant progress for the international community, as they reflect a decrease of more than one billion people over 15 years.[30]

In 1981, 60% of the world population (2.73 billion people) had an income of less than $2.50 per day and 42% of the world population (1.91 billion people) had an income of less than $1.25 per day. As of 2005, these numbers had reduced to 43% and 21.5% respectively.[31] In 2002, the proportion of poor people (earning less than $3,470 per year) was 78%, while the proportion of rich people (earning more than $8,000/year) was 11%.[32]

A very severe case of income inequality can be observed on the African continent. 40-45% of the world’s poor (persons earning less than 1 dolar per day) live in Africa, while only 11% of the global population inhabit the continent.[12]

Challenges in reducing global poverty include ongoing armed conflicts, low levels of support from other countries, and not knowing how to begin helping.[33]

Social welfare spending[edit]

Overall, social spending is lower in the Global South, with some regions registering just a few percentage points of GDP.[34]

Proposed solutions[edit]

Potential approaches to decrease inequality include:

  • Education and family planning: Many countries with education access have higher income levels. Part of this is because people are striving for a career and are striving for higher education. Countries that do not have access to education have lower incomes. Women who have access to an education will have fewer children because they are focusing on building themselves.
  • Democracy: Democracy allows people to have a say in where money is spent, such as in social welfare programs.
  • Government policies: The government can create policies that can aid the poor and help provide medicine.
  • Empowerment of women
  • Improve agriculture: Poor countries tend to suffer from food shortages. One thing that could be done is to help improve farming grounds and livestock development. By starting the proper groundwork for crops, it will help provide the nutrition that many people need. Livestock can provide milk, eggs, meat, and cheese for consuming. This can also help provide fur and feathers for making clothing and other goods, which could be sold to help with low income.
  • Volunteers who travel to poor countries to help[35]
  • A global wealth tax: Thomas Piketty suggests a global and coordinated wealth tax as the remedy to trends of global inequality, saying that only a direct solution to wealth concentration can be successful where other governmental policies have failed. Piketty proposed an international agreement between nations that would tax all personal assets at phased rates. The simplest version of the proposal would levy a 1% tax on net worth between $1.3 million and $6.5 million, and a 2% tax on wealth above $6.5 million.[36] This idea has so far failed to gain ground and has been subject to criticism. Schuyler argues that a wealth tax would cause significant declines in investment, salaries, incomes, and national production, making all groups worse off. In addition, he raises problems of large administrative and enforcement hurdles, making Piketty’s wealth tax impractical to a large extent.[citation needed]
  • Reducing illicit wealth outflows: From 2003 to 2012, developing countries lost $6.6 trillion to illicit financial flows, with the amount rising at an average of 9.4 percent each year.[37] Since this could have been used for investments into human capital, infrastructure and economic growth, a strong correlation exists between illicit outflows and the levels of poverty and economic inequality.[38]
  • Minimum wage: Minimum wage levels are often described as an important part of the challenge to reduce inequality.[39]
  • Worker unions: Historically, labor unions have played an important role in reducing inequality, particularly in negotiating better pay for low-wage workers. Income disparity is typically lower in countries with higher union membership and collective bargaining coverage, while inequality tends to worsen in countries with decreasing union membership and coverage.[40]

Research has stressed the need to address inequality with a multi-pronged approach, including taxation reform and curbing excesses associated with financial deregulation, country-specific circumstances, and potential trade-offs with other policy objectives.[41]

See also[edit]

References[edit]

  1. ^ Data from the United Nations is used.
  2. ^ Goesling, Brian; Baker, David P. (1 June 2008). "Three faces of international inequality". Research in Social Stratification and Mobility. 26 (2): 183–198. doi:10.1016/j.rssm.2007.11.001. ISSN 0276-5624.
  3. ^ a b "Goal 10 | Department of Economic and Social Affairs". sdgs.un.org. Retrieved 10 April 2021.
  4. ^ "Archived copy". Archived from the original on 8 June 2007. Retrieved 6 December 2005.CS1 maint: archived copy as title (link)
  5. ^ Graph: Gapminder.org
  6. ^ "Economic Development Problems of Landlocked Countries". January 2000.
  7. ^ https://www.tandfonline.com/doi/full/10.1080/14649880310001660201casa_token=aztvgLGO3d4AAAAA%3ARqfQGuWhGVVgB3hNYKF9uYT5rSaHHfPKHYbFnTQGfp8srmJPtW67IThrrE_DBC36vpMfQkBXiN9x}}
  8. ^ [1]
  9. ^ Payne, Richard (2017). Global Issues: Politics, Economics, and Culture. Pearson Education Inc. p. 116. ISBN 978-0-13-420205-1.
  10. ^ https://www.oakton.edu/user/4/ebottorf/pistor.pdf
  11. ^ "COVID-19 and Global Income Inequality". World Bank. Retrieved 10 April 2021.
  12. ^ a b c d van Zanden, Jan Luiten; Baten, Joerg; Földvari, Peter; van Leeuwen, Bas (2011). "The Changing Shape of Global Inequality 1820-2000: Exploring a new dataset". CGEH Working Paper Series.
  13. ^ Branko Milanovic-Global Income Inequality by the Numbers-In History and Now-February 2013
  14. ^ "Parametric estimations of the world distribution of income". 22 January 2010.
  15. ^ Oxfam: Richest 1 percent sees share of global wealth jump
  16. ^ Cohen, Patricia (19 January 2015). "Richest 1% Likely to Control Half of Global Wealth by 2016, Study Finds". New York Times. Retrieved 19 January 2015.
  17. ^ Rigged rules mean economic growth increasingly “winner takes all” for rich elites all over world. Oxfam. 20 January 2014.
  18. ^ Neuman, Scott (20 January 2014). Oxfam: World's Richest 1 Percent Control Half Of Global Wealth. NPR. Retrieved 25 January 2014.
  19. ^ Stout, David (20 January 2014). "One Stat to Destroy Your Faith in Humanity: The World's 85 Richest People Own as Much as the 3.5 Billion Poorest". Time. Retrieved 21 January 2014.
  20. ^ Wearden, Graeme (20 January 2014). "Oxfam: 85 richest people as wealthy as poorest half of the world". The Guardian. Retrieved 21 January 2014.
  21. ^ Kristof, Nicholas (22 July 2014). "An Idiot's Guide to Inequality". New York Times. Retrieved 22 July 2014.
  22. ^ Milanovic 2001, p. 38)
  23. ^ "Global Inequality". Inequality.org.
  24. ^ http://www.spiegel.de: report from 6 March 2008
  25. ^ http://www.spiegel.de: Report at 5 December 2006, www.orf.at: report at 5 Decembre 2006
  26. ^ [2]
  27. ^ "About the book". Economics & Poverty. 1 December 2015. Retrieved 10 March 2019.
  28. ^ Zanden, Jan Luiten van; Baten, Joerg; Foldvari, Peter; Leeuwen, Bas van (July 2011). "The Changing Shape of Global Inequality – exploring a new dataset". Cite journal requires |journal= (help)
  29. ^ Beauchamp, Zach (14 December 2014). "The world's victory over extreme poverty, in one chart". Vox. Retrieved 17 June 2019.
  30. ^ a b "PovcalNet". iresearch.worldbank.org. Retrieved 10 March 2019.
  31. ^ Shaohua Chen, Martin Ravallion. The developing world is poorer than we thought, but no less successful in the fight against poverty. Policy Research Working Paper 4703, The World Bank Development Research Group, August 2008.
  32. ^ Milanovic, Branko and Yitzhaki, Shlomo, 2002. "Decomposing World Income Distribution: Does the World Have a Middle Class?", Review of Income and Wealth, Blackwell Publishing, vol. 48(2), pages 155–78, June 2002.
  33. ^ Payne, Richard (2017). Global Issues: Politics, Economics, and Culture. Pearson Education Inc. p. 124. ISBN 978-0-13-420205-1.
  34. ^ Glenn, John (2009). "Welfare Spending in an Era of Globalization: The North-South Divide". International Relations. 23 (1): 27–8, 30–1, 36–9, 45–6. doi:10.1177/0047117808100608. S2CID 145077740.
  35. ^ Payne, Richard (2017). Global Issues: Politics, Economics, Culture. Pearson Education Inc. p. 125. ISBN 978-0-13-420205-1.
  36. ^ Schuyler, Michael. "The Impact of Piketty's Wealth Tax on the Poor, the Rich, and the Middle Class" (PDF). Tax Foundation. 225: 17.
  37. ^ "Global Economic Inequality–and What Might Be Done About It". Norwich University Online. Retrieved 10 April 2021.
  38. ^ "Illicit Financial Flows from Developing Countries: 2003-2012 « Global Financial Integrity". 9 August 2017. Archived from the original on 9 August 2017. Retrieved 10 April 2021.
  39. ^ "Income Inequality: Time to Deliver an Adequate Living Wage". Social Protection and Human Rights. Retrieved 10 April 2021.
  40. ^ Herzer, Dierk (2014). "Unions and income inequality: A heterogeneous panel cointegration and causality analysis". Cite journal requires |journal= (help)
  41. ^ Jaumotte, Florence (2015). Inequality and labor market institutions. Carolina Osorio Buitron, International Monetary Fund. Research Department. [Washington, D.C]: International Monetary Fund, Research Department. ISBN 978-1-5135-2690-4. OCLC 914159875.

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