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Is Rising Global Inequality a Myth?

The second issue of the recently-launched journal Harvard College Economics Review dealt with the topic of economic growth and inequality.  In one of the articles, Professor of Sociology at the University of North Carolina François Nielsen (also current editor of the academic journal Social Forces) contends that rising global income inequality is really a myth.1  The fact, he and other authors in the same issue argue, is that income inequality between nations has been declining in recent years, even though income inequality within individual nations has been on the rise.  The former trend goes against the conventional criticism of globalization which says that post-World War II economic governance (e.g. the formation of the IMF, World Bank, GATT, etc.) has helped to exploit the peripheral nations of the world, deepening the divide between the rich and the poor.2   However, according to Nielsen, in terms of income inequality, globalization has been much more benign than either university students advocating boycotts of products made in Third World sweatshops or the thousands of people marching in Seattle in 1999 led us to believe.  In fact, Nielsen concludes that the “net effect of the new regime of global interactions is a reduction in global inequality” (p. 26).

His argument is partly based on Glenn Firebaugh‘s The New Geography of Global Income Inequality (2003), which pointed out the same trends (i.e. increasing income inequality within nations and decreasing inequality between them) and made the same argument that neoliberal globalization is closing the gap between the rich and poor.  However, why did Nielsen consult Firebaugh but not address other research that has drawn the opposite conclusion?

For example, Professor of Political Economy and Development at the London School of Economics Robert Hunter Wade has demonstrated that income inequality has continued to increase during the neoliberal era.3  Of course, international income distribution can be measured many ways, which can affect the picture we paint of neoliberal globalization.  For instance, comparisons of population-weighted incomes based on purchasing power parity (PPP), such as one made by Firebaugh, indicate that since around 1980 inequality has actually decreased.  According to Wade, this is “the result that the neoliberal argument celebrates” (p. 10).  But, this is only one way to measure economic inequality.  Furthermore, take China out of this equation, and it already shows that income has become more unevenly distributed over time, not less.  Besides, Wade argues that, instead of PPP incomes, incomes measured at the market exchange rate should be used when deciding how unequal the relationship is between nations.  He writes: “The reason why many poor small countries are hardly represented in negotiations that concern them directly is that they cannot afford the cost of hotels, offices, and salaries in places like Washington DC and Geneva, which must be paid not in PPP dollars but in hard currency bought with their own currency at market exchange rates” (pp. 9-10).  When using the market exchange rate, nobody disputes the idea that global inequality continues to increase.

The way in which authors such as Nielsen and Firebaugh frame the question of global inequality misses two key points: 1) the difference between income and wealth and 2) the connection of modern inequality to capitalism.  Regarding the first point, measurements in the international distribution of wealth have only just begun.4  In many respects, however, wealth is a more reliable indicator of resource allocation and material wellbeing.  In 2006, a report released by the World Institute for Development Economics Research at the UN University found that global wealth was extremely unevenly distributed.  The BBC News reported: “The richest 2% of adults in the world own more than half of all household wealth . . . [while] the poorer half of the world’s population own barely 1% of global wealth.”5 

Amartya Sen, the 1998 winner of the Noble Memorial Prize in Economics, has made an observation that brings us to the second point:

Even if the poor were to get just a little richer, this would not necessarily imply that the poor were getting a fair share of the potentially vast benefits of global economic interrelations.  It is not adequate to ask whether international inequality is getting marginally larger or smaller.  In order to rebel against the appalling poverty and the staggering inequalities that characterize the contemporary world — or to protest against the unfair sharing of benefits of global cooperation — it is not necessary to show that the massive inequality or distributional unfairness is also getting marginally larger.  This is a separate issue altogether.6

The spread of capitalism around the globe established a huge divide between groups of countries.  The conditions of people living on either side of the division are subject to the changing conditions of the global economy.7  These conditions are influenced by the opposing forces of the capitalist system, with classes struggling within nations and nations battling for a better position in the global economy.  This is a dynamic system, but it nevertheless operates within certain limits.  As long as this system remains in place, “the staggering inequalities that characterize the contemporary world” will persist, whether or not they are getting marginally larger or smaller.

Last but not least, any improvement in global income inequality does not necessarily mean that it is neoliberal globalization helping the poor.  Ha-Joon Chang’s new book Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism should put to rest any notion that “free trade” has been responsible for raising absolute living standards under capitalism.  Historically, according to Chang, countries have not developed using the neoliberal economic tools (e.g. reducing tariffs, cutting social spending, etc.) designed by organizations like the WTO, IMF, etc.  Therefore, Nielsen’s implicit criticism of the thousands in Seattle in 1999 marching against the WTO seems to lack evidence.  If what he means by “new regime of global interactions” is neoliberal globalization, it is not doing what he thinks it is. 

 

1 François Nielsen.  2007.  “Income Inequality in the Global Economy: The Myth of Rising World Inequality.”   Harvard College Economics Review  1(2): 23-26.

2 For example, Kevin Danaher and Roger Burbach, eds.  2000.  Globalize This! The Battle against the World Trade Organization and Corporate Rule.  Monroe, ME. Common Courage Press.

3 Robert Hunter Wade.  2004.  “Is Globalization Reducing Poverty and Inequality?”  World Development  32(4): 567-589.  The United Nations is also of the opinion that income inequality has increased during the post-World War II era.  “The income gap between the fifth of the world’s people living in the richest countries and the fifth in the poorest was 74 to 1 in 1997, up from 60 to 1 in 1990 and 30 to 1 in 1960” (Overview of the Human Development Report 1999.  p. 3). 

4 James B. Davies, Susanna Sandström, Anthony Shorrocks, and Edward N. Wolff.  2008.  “The World Distribution of Household Wealth.”  Discussion Paper No. 2008/03.  United Nations University World Institute for Development Economics Research. 

5 Andrew Walker.  Tuesday, 5 December 2006.  “Richest 2% Own ‘Half the Wealth.'”  BBC News.

6 Quoted in UC Atlas of Global Inequality.  2003.  “Debate about Income Inequality.”  UC Atlas of Global Inequality. 

7 The UC Atlas of Global Inequality provides a useful illustration of the income gap over time between the various groups of countries in the world: <ucatlas.ucsc.edu/income/global_disparities.gif>.


Matthew Thomas Clement currently lives in Austin, TX with his wife (a postpartum nurse) and their little baby.  His previous contribution (with much help from the editors) to Monthly Review is “Rice Imperialism: The Agribusiness Threat to Third World Rice Production,” which can be found at monthlyreview.org/0204clement.htm.



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