By Jonathan Glennie
As the Occupy movement embeds the concept of the elite 1% versus the 99% it is screwing over, the facts may be uncomfortable for some of those encamped in US and European cities: they may be part of the 1% themselves. Because while they (rightly) contrast the earnings of the top 1% in their own countries with those of the rest, if they did the same for the whole world a different picture would emerge.
Let's take Britain. If you are part of a household that takes home over £75,000 ($117,000) a year, you are part of the British 1%. But globally, your net household income only has to be over £30,000 to be in the top 1%, which is true of many more British households – probably including many of the Occupy protestors.
The data comparing global incomes are incredibly tenuous, but these are the ball park calculations of Branko Milanovic, a leading World Bank economist specialising in research into inequality, who presented at Warwick University's International Development Summit (Wids) last weekend. According to him, 75% of the world's population find themselves in the bottom income quintile, ie share 20% of the world's income, while 1.7% of the world's population (119 million people) are in the top quintile.
The challenge for the Occupy demonstrators and anyone interested in inequality is that global inequality is even more complex than national inequality.
Milanovic took us back to the 19th century to describe a fascinating shift that has taken place. It is not that the world is more unequal now, but it is unequal in a different way.
At the onset of the industrial revolution, when China was still the world's largest economy (as it had been for centuries and soon will be again), economic power was much more equally distributed between nations. Per capita income in the richest countries was something like four times what it was in the poorest. Inequality within countries was the big problem.
Now that has reversed. Counter-intuitively, inequality within countries has reduced over the last century and a half, despite the fact that it has been on the rise again in the last 20 years or so. But inequality between countries that has shot up. The world is more unequal than any individual country. While few countries have a Gini measure of income inequality above 60, the world's Gini coefficient is 70, up from 55 in 1850.
This effect can be seen in Europe. While each EU member state is more equal than the US (including the UK, Portugal and Estonia, the EU's most unequal countries), taken as a whole the EU is more unequal than the US because of the disparity between east and west.
Milanovic characterises this shift in terms of class and location. Whereas 150 years ago it was the economic class you were born into that was mostly responsible for your income level, today what matters most is your country of birth. Citizenship is a kind of rent, and migration looks more economically sensible than ever. The poorest 5% in the US earn about as much as the richest 5% in India, according to Milanovic, despite the massive incomes of a handful of Indian mega-millionaires.
At first glance the 2008 estimates for inter-country inequality offer some hope: a slight decrease in global inequality for the first time in decades. However, that turns out to be misleading. It is only rapid growth in average incomes in two massive countries (China and India) that is bucking a trend of increasing inequality.
So how can global inequality be reduced? We know something about how to tackle inequality at a national level. Milanovic confirmed that countries with better redistributive policies and higher levels of government spending have lower inequality. He also said that cutting social expenditure, as advocated by institutions such as the IMF and World Bank in poor countries in times of austerity, and in Greece and Italy today, leads to increased inequality.
But how can you apply redistributive policies globally? Are there active options to narrow the gap between rich and poor countries, or should we just accept that it is a function of geopolitical forces far beyond the reasonable reach of public policy?
One might suggest more aid, as the nearest proxy for government spending. But is the current aid system redistributive, leading to a narrowing of the gap between rich and poor, or is it just welfare, tossed to the poor by the increasingly rich? It is so small (only 0.2% of global GDP) that it can hardly make much of a difference anyway.
If redistribution at a national level requires a strongly interventionist state, doesn't that imply that something similar is required globally if we hope to contain global inequality? Such a plan would be laughed at by those who know the inner workings of the UN, and who recognise the nationalist instinct of politicians and voters. It is ironic that as knowledge about and empathy with the rest of the world has increased in the 20th century, through a revolution in communications, so has global inequality. One might have hoped for the opposite.
It is hard to see how global inequality can be contained without a shift in the mindset, cemented by centuries of traditional politics and nationalism, that favours the state you are born in over the world you want to live in.
