Global Policy Forum

Unequal Gains


For the Elites, the Super-Rich Are the True Heroes of the Times

By Achin Vanaik

December 22, 2005

Unlike the ‘economic establishment' in India that comprises economic bureaucrats, journalists, academics (Indian and non-resident Indians) and is all gung ho about the emergence of neoliberal economic globalization since the beginnings of the Eighties, the World Bank has taken criticisms of this model much more seriously, even if not seriously enough. Its annual World Development Reports over the last decade have reflected this, taking up themes, going well beyond the idea of markets as the ‘ideal allocator', such as governance, health, education, and most recently in its WDR 2006, the issue of "Equity and Development".

Inequality of incomes and wealth as well as other kinds of inequalities (social and cultural) are bad, it says, for development and even for growth, leaving aside its more profound political implications recently highlighted, not by the WDR, but by the renowned scholar, Brian Barry, in his book Why Social Justice Matters. Increasing commodification of health and education, growing inequalities of income and wealth and, therefore, of power, systematically undermine democracy and the basic principles of justice. This should be simple and obvious enough, but tell this to global and national elites for whom the super-rich are the true ‘heroes' of our times.

Let us take some accepted, indeed indisputable, facts. One, the combined wealth of the world's three richest people is greater than the total gross domestic product of the 48 poorest countries. Two, in 1960, the average income of the richest 20 per cent of the world's population was 30 times higher than that of the poorest 20 per cent. By 1995, this had become 82 times greater (United Nations Development Programme Report 1998). Three, in 1970, the gap between the per capita GDP of the richest country, the United States of America ($5070) and of the poorest, Bangladesh ($57) was 88:1. In 2000, the gap between the richest, Luxembourg ($45,917) and the poorest, Guinea Bissau ($161) was 267:1. Four, a study of 77 countries (with 82 per cent of the world's population) showed that between the Fifties and the Nineties, inequalities rose in 45 countries and fell in 16 countries.

Now surely all this indicates that inequalities of income (which strongly determines the levels of consumption and wealth) increased greatly in the neoliberal era, and that this must count as a severe indictment of the current economic model. Defenders of this model, however, from The Economist to Jagdish Bhagwati, author of In Defense of Globalization, would insist, not at all. Even the World Bank, which has done so much to promote and justify neoliberalism, and despite its partial backtracking, is not about to throw in the towel. Defenders have three responses. First, they acknowledge that there has been an acceleration or at least a steady and continuing increase in inequality but claim that this is the necessary price to pay for having greater prosperity overall. Understandably, this is not the kind of response that is likely to prove persuasive to others or comforting to defenders.

The second response generally carries the most authority and is present in the WDR 2006 itself. This is to point out that since we only have country-wise statistics for income inequality, and leaving aside the comparability problems of such data (some countries use more reliable income data from tax records, others use more unreliable consumption data to make income estimates), such data cannot give us true estimates for global inequality. This we could only get if we could treat the world as one country and properly measure the distribution of income within it, which so far we haven't been able to do. So the jury must remain out about whether global inequality has increased or decreased though inter-country inequalities have undeniably increased and within-country inequalities have varied, increasing and decreasing in different countries, even if there are more countries in the former category.

What do The Economist and Bhagwati say? The former (June 26, 2003) acknowledges that the gap between the richest and the poorest segments of the world's population has been growing. But this particular journal, far from harbouring any leftist attitudes, does not even entertain moderate centrist-liberal views of the Rawlsian type that would be deeply appalled at this growing impoverishment of the already poorest, and see this as itself a decisive indictment of the current form of economic globalization. Instead, The Economist claims that the high and sustained growth rates of China, above all (though the Indian performance also contributes), have pulled up the ‘in-betweens' of hundreds of millions closer to the world average for annual incomes, and therefore actually reduced global inequality. That is to say, the differences between average incomes in the richer and poorer parts of the world have lessened.

Bhagwati's response is equally interesting. In a book of over 300 pages, he devotes less than two full pages to a sustained discussion of this issue of global inequality, only to first claim that since we only have country-wise data, cross-country comparisons are inherently misleading and so there is "just so much irrelevant data-mongering". This more cautious initial judgment, based on a recognition of a genuine statistical problem, quickly gives way (without any serious survey, let alone analysis, of a vast literature on this subject) to a more ambitious conclusion that the "evidence points in just the opposite direction". Global inequality, according to Bhagwati, is decreasing in the neoliberal era.

Moreover, in so far as neoliberals claim that the incomes of many people in the developing world have risen significantly, given that the average incomes in the two parts have diverged over the last 20 years, then clearly this category of ‘richer people' in the developing world simply cannot be very big. Defenders of neoliberalism can either claim that neoliberalism has greatly benefited some people or widely benefited people in the developing world but cannot claim both. If a group has become much richer, then it cannot be that big. If it is big then it cannot have become that much richer. Thus, despite all problems of data comparison, the most informed and authoritative judgment that one can make is that global inequality of incomes, wealth and consumption have risen dramatically in the era of neoliberal economic globalization.

More Information on Social and Economic Policy
More Information on Inequality of Wealth and Income Distribution
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