1 Is global inequality rising or falling?

Listen to the audio below which opens with a few lines from the former US President Barack Obama. Here he reflects an understanding, held by many, that there is real progress around the world, and that this is, in fact, a good time to be born.

The discussion that then follows involves two academics discussing whether global inequality is rising.

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BARACK OBAMA:

In just the past 25 years, more than one billion people have been lifted out of extreme poverty-- one billion. And sometimes when I'm talking to young interns at the White House, I remind them, if you had to choose a moment in history to be born and you didn't know ahead of time who you were going to be, you'd choose now because the world has never been less violent, healthier, better educated, more tolerant, with more opportunity for more people, and more connected than it is today.

INTERVIEWER:

Well, how might such claims be reconciled? Well, to help me, I'm joined by the author of The Divide, who's Jason Hickel, who's an anthropologist at the London School of Economics, and on the line from Washington by Marian Tupy, who is Senior Policy Analyst at the Centre for Global Liberty and Prosperity at the Cato Institute in Washington. Now, Jason, let me start with you. We just heard Obama talking there about what wonderful things are going on. But you're arguing in your book, aren't you, that inequality is getting more extreme. Perhaps you could flesh this out a bit more in terms of inequality growing. Tell me a little bit more about the signs of that.

JASON HICKEL:

Right. So, for example, what we've seen is an increase in the absolute number of people in poverty around the world from 1980 until today, and today we're seeing about 4.3 billion people under the international poverty line of $5 per day-- so a dramatic increase in the number of people over the past-- who are poor over the past 20, 25 years.

And we're also seeing an increase in inequality, as you pointed out. The gap-- the per capita income gap between the global north and the global south has expanded dramatically by a factor of three since the 1960s. And today we're seeing this also at the level of individuals. The richest eight people in the world have more wealth now than the poorest 50% of the world's population.

INTERVIEWER:

Well, those are certainly dramatic examples of inequality, I would have thought. Let me come to you, Marian Tupy, over there in Washington. I mean, would you agree, first of all, that inequality is, if you like, a worsening problem, that there is growing inequality? And secondly, how would you want to relate this to the argument about poverty decreasing in the world?

MARIAN TUPY:

Well, most academic studies, including those of Paolo Liberati at University of Rome, also Branko Milanovic from the World Bank, and a number of other studies, including the Nobel Prize-winning economist Angus Deaton, all agree that income inequality in the world is decreasing rather than increasing. And the reason for that is that you have a tremendous number of people, especially in China, where incomes are actually growing at a faster pace than they are in the West. And consequently, the income gap between the West and the rest is declining.

Now, of course, it is true that in different regions of the world economies grow at different pace. So the income gap between Africa and the United States, for example, is still increasing, but it has decreased tremendously between the United States and a number of Asian countries, primarily China.

One last thing I want to mention is that I think there is an unhealthy obsession with looking at income differential and income inequality because, of course, there are a number of other inequalities which are arguably even more important where the gap is decreasing. For example, the inequality in infant mortality is decreasing around the world. Maternal mortality is decreasing around the world. The gap between life expectancy is decreasing between the West and the rest. So in many ways, inequality is actually shrinking rather than growing.

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So, the answer to the question: Is global inequality rising? depends on how you look at it. The first thing to remember is that huge global income inequality still exists (one of the contributors mentions that the eight richest people in the world are wealthier than 40% of the world’s population combined), but it has decreased. This is largely because of the remarkable rise of income levels in China in the last 30 years or so.

The second key point to consider is that income inequality should perhaps not be the thing that is focused on; infant mortality and maternal mortality have reduced and life expectancy has steadily improved.

Now listen to the rest of the clip in which the discussion moves on first to consider the idea of China as an ‘outlier’ and the pros and cons of excluding the country from statistics, and then to the definition of ‘absolute poverty’ and whether this also distorts the global picture.

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JASON HICKEL:

So China, in some ways, is kind of an outlier. If you take China out of these statistics, then what you see is that, in fact, the opposite is true. Global inequality, in terms of per capita income, has been increasing. And even Milanovic, who Marian cites here, agrees with that.

INTERVIEWER:

But when you were talking before about this growing inequality, you were including China in that, were you?

JASON HICKEL:

No, no, no. I've been excluding China. And the reason that I do exclude China is because including China is somewhat misleading. People have cited the figures inclusive of China to say that globalisation led by Washington since the 1980s has been leading to this reduction in global inequality. But China has not been globalised forcibly by Washington in the same way that the rest of the world has been. They've liberalised their trade on their own terms largely. So we really need to take China out to think about how the rest of the world has performed in these things.

INTERVIEWER:

Marion, I can hear you I want to jump--

MARIAN TUPY:

May I jump in on that?

INTERVIEWER:

Yes please.

MARIAN TUPY:

Look, China and India account for 37% of the global population. Almost 40% of the world's population lives in China and India. Since China started to liberalise in 1978, its income per capita grew by almost eightfold. Since India started to liberalise in the early 1990s, its economy, its income per capita has grown almost threefold. Now, I obviously don't support forced liberalisation, and both China and India have chosen to embrace capitalism. And as a consequence, we have seen the greatest reduction in global poverty in human history. More people have been taken out of global poverty in the last 50 years than in the last 500 years.

Now I think the reason why people keep on taking China and India out is because it's inconvenient because it shows the power of capitalism and of liberalisation to actually reduce poverty and increase incomes. But I think it's cherry picking. It think it's cherry picking. You cannot take 3.7 billion people out of the equation.

JASON HICKEL:

So first of all, I haven't been taking India out of the equation at all. And the point that you're making is exactly the point that I want to underline, which is that the crucial fact about China and India is that they've done so well precisely because they've managed their own economic transitions, right? Now, that has not been true for the vast majority of the rest of the world and we need to take that into account.

INTERVIEWER:

Let move away from the moment. Let's just talk about poverty, about the arguments about poverty. Now, UN figures are talking about that there are less than one billion in poverty. And it tells us that poverty has halved between 1990 and 2000.

Now one of the factors in here is what counts as poverty? I think the thing you want to talk about here, what is the indicator of absolute poverty? And I think they're working on a-- I can't-- they're working--

JASON HICKEL:

It's $1.25 per day.

INTERVIEWER:

You want to say the figure they're working on is going to produce results showing that in fact, fewer people are poorer because the figure used to decide the level of poverty is too low.

JASON HICKEL:

Absolutely. Yeah. So if we look at the poverty line that the World Bank is using to determine these figures, right, it's $1.25 per day at 2005 purchasing power parity. Now that's actually been reduced since the Millennium Development Goals came into being in 2000 in real terms. And that's shown fewer people in poverty than would otherwise have been the case. But crucially, there's no scholarly consensus that $1.25 per day is adequate for people to even meet the most basic needs of humans subsistence.

So scholars today are rallying around the idea that what we need is at least $5 per day in order to achieve basic human life expectancy, basic rates of infant mortality and maternal mortality, et cetera.

INTERVIEWER:

I mean, your book suggests, I think I'm right in this, if you use that metric, if you use $5 a day, something like 60% of the world could be said to be living in poverty.

JASON HICKEL:

That's exactly right. And this is according to the World Bank's own data, if we use $5 per day, which even the World Bank admits is a more plausible measure of global poverty. We're seeing 60% of the--

INTERVIEWER:

One other point I want to get in as well, that you argue that the suggestion that there are great reductions in the number of people who are poor is to do with the fact that the figures are being based upon proportions rather than absolute numbers. Explain that a little bit more to me.

JASON HICKEL:

So in 2000 is when the UN set out to cut global poverty in half with the Millennium Development Goals by 2015. And when 2015 rolled around, they claimed success. And it's a very comforting story. We like to hear good news in a world that's full of bad news. And this is what Obama is basically citing.

But if we look at the numbers more closely, we see that they're profoundly misleading actually. So first of all, the UN changed their methodology, shifting from absolute numbers to proportions. And they were able to take advantage of naturally growing denominator, the world population, which made the poverty proportions decrease automatically.

Furthermore, they shifted the baseline from 2000, which was the original agreement, back to 1990, allowing them to take advantage of China's remarkable gains against poverty during that decade, which had nothing at all to do with the Millennium Development Goals.

And finally, as I mentioned before, they continued to move the poverty line lower in real terms, making it seem as though fewer people were poor.

INTERVIEWER:

OK, let me come to you, Marian, and ask you-- first of all, perhaps I could just simply straightforwardly ask you whether you thought that $1.25 was too low a sum and whether or not you have some sympathy with Jason's idea and the idea of other economies that it should be shifted up?

MARIAN TUPY:

Well obviously the higher the amount, the greater percentage of people you are going to have in poverty. You know, for the longest time, absolute poverty was considered to be $1 per person per day. Then it was adjusted for inflation to $1.25, then to $1.90. And it is really the $1.90 which both the World Bank and the Millennium Development Programme have been looking at to tell the world, or rather to discover, that extreme poverty has declined from about 44% around the world in 1981 to roughly 9.6 percent in 2015.

But of course Jason is right. Look, at $5 per day would be great. $10 per day would be great. $30 per day would be great. And we are making progress. The point is not what the relative poverty level is. Obviously we all want to get to a state in the world where people are making $5, $10, $30 a day. The question really is, what are the policies that contribute to economic growth so that poor countries can grow at a fast pace and get to that $5, $10, $30 level quicker?

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As an issue of such importance to everyone, poverty and inequality are, as here, continually debated and challenged.

You will now look at the successors to the Millenium Development Goals next.