Is Global Inequality Rising?

“Inequality Among World Citizens: 1820–1992” by François Bourguignon and Christian Morrisson, in The American Economic Review (Sept. 2002), 2014 Broadway, Ste. 305, Nashville, Tenn. 37203.

There’s a growing effort among economists to measure global economic inequality, but it’s been hampered by the scarcity of reliable data and other factors. Bourguignon and Morrisson say there’s another problem: Economists have, in effect, been barking up the wrong tree.

It doesn’t make much sense, they argue, to look at the problem strictly in terms of inequality among countries, as most other economists have done. (Bourguignon is an economist at the École des Hautes Études en Sciences Sociales in Paris, Morrisson at the Sorbonne.) Pre­tending that everybody in, say, Costa Rica, takes in the nation’s median income of $4,040 doesn’t give a very accurate picture of the world. So the two men set out to measure trends in inequality over the long term—from 1820 to 1992—by incorporating measures of inequality within countries as well as among them. Their results are a kind of bad-news, good-news package: Earlier studies “clearly” underestimated the amount of global inequality in the past, yet it appears that the long-term rise in inequality “almost leveled off” around 1950.

From 1820 to 1950, according to the authors, global economic inequality in­creased almost continuously, though the pace slowed after World War I. Social scientists use something called the Gini coefficient to measure inequality; a Gini coefficient of 1.0 represents maximum inequality. The world’s Gini coefficient grew from 0.5 in 1820 to 0.61 in 1914, and to 0.64 in 1950. By 1992, it had reached 0.657. This is a high degree of inequality—even today’s more inegalitarian countries have Gini coefficients below 0.6, the authors note. (However, the post-1950 rise is partly offset by positive developments in other income indicators: Between 1980 and 1992, for example, the poorest of the poor actually increased their share of the world’s total income for the first time since 1820.)

Rising global inequality after 1820 did not mean that the poor were getting poorer. On the contrary, say Bourguignon and Morris­son, “the extreme poverty headcount fell from 84 percent of the world population in 1820 to 24 percent in 1992.” The rich simply got richer faster.

The authors’ biggest innovation comes in identifying the sources of inequality. In 1820, within-country inequality accounted for 80 percent of the world’s inequality. In other words, there wasn’t a great rich-poor disparity among countries, but there was within each country. By 1950, however, within-country inequality accounted for only 40 percent of the global total.

What happened? Through 1950, the “dominant” drag on equalization was Asia’s slow economic growth, particularly in China and India, the two demographic giants. Asia’s economies grew “some 4.5 times slower than the world average and 6 times slower than the average for the Western European region, including its offshoots.” (It’s an interesting illustration of the perils of such studies that Asia’s “little dragons,” by jumping so far and so fast after World War II, actually contributed to an increase in at least one measure of global inequality.)

Remarkably, there doesn’t seem to be much connection between population growth and global inequality. One reason is that the relative size of regional populations hasn’t changed that much. And to the degree that, say, poverty-stricken Africa’s population has grown rapidly in recent decades, economic gains in China have offset the effect.

“The burst of world income inequality [since 1820] now seems to be over,” the authors conclude. “There is comparatively little difference between the world distribution today and in 1950.” What should worry us now, they say, is that poverty is becoming increasingly concentrated in Africa and a few other parts of the world.