Worlds Apart: Measuring International and Global Inequality

240 Pages·2007·0.73 MB·English

by  Branko Milanovic

WORLDS APART

WORLDS APART
MEASURING INTERNATIONAL AND
GLOBAL INEQUALITY
Branko Milanovic
PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD
Copyright © 2005 by Princeton University Press
Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540
In the United Kingdom: Princeton University Press, 3 Market Place, Woodstock,
Oxfordshire OX20 1SY
All Rights Reserved
Second printing, and first paperback printing, 2007
Paperback ISBN-13: 978-0-691-13051-4
Paperback ISBN-10: 0-691-13051-5
The Library of Congress has cataloged the cloth edition of this book as follows
Milanovic, Branko.
Worlds apart : measuring international and global inequality / Branko Milanovic.
p. cm.
Includes bibliographical references and index.
ISBN 0-691-12110-9 (alk. paper)
1. Income distribution. 2. Economic development. 3. Globalization. 4. Equality.
I. Title.
HC79.I5M55 2005
330.9—dc22 2004058312
British Library Cataloging-in-Publication Data is available
This book has been composed in Palatino Typeface
Printed on acid-free paper. ∞
pup.princeton.edu
Printed in the United States of America
10 9 8 7 6 5 4 3 2
Contents
Acknowledgments vii
Prologue
The Promise of the Twentieth Century 1
Introduction
ATopic Whose Time Has Come 3
PART I:SETTING THE STAGE
Chapter 1
The Three Concepts of Inequality Defined 7
Chapter 2
Other Differences between the Concepts 12
Chapter 3
International and World Inequality Compared 20
PART II:INEQUALITYAMONG COUNTRIES
Chapter 4
Rising Differences in Per Capita Incomes 31
Chapter 5
Regional Convergence, Divergence, or . . . “Vergence” 45
Chapter 6
The Shape of International GDPPer Capita Distribution 51
Chapter 7
Winners and Losers: Increasing Dominance of the West 61
PART III: GLOBALINEQUALITY
Chapter 8
Concept 2 Inequality: Decreasing in the Past Twenty Years 85
Chapter 9
High Global Inequality: No Trend? 101
Chapter 10
AWorld without a Middle Class 128
vi CONTENTS
PART IV:CONCLUDING COMMENTS
Chapter 11
The Three Concepts of Inequality in Historical Perspective 139
Chapter 12
Why Does Global Inequality Matter and What to Do about It? 149
Appendixes 1–7 163
Notes 195
References 213
Index of Authors 223
Index of Subjects 225
Acknowledgments
This book has been “under construction” for several years. For me, it
all started with the idea that I had in the mid-1990s of combining the
many household surveys available at the World Bank for almost all of
the less developed countries in the world with those, generally avail-
able, of the rich countries, thus creating the first “true” world income
distribution of all individuals—in the same way as if state-level distri-
butions were collated to obtain the all-U.S. distribution of income
among individuals. The process took several years, and in 1999 the first
draft of the paper was published. The results showed both a very high
level of global inequality (Gini index of inequality of about 66 in 1993),
and a rather significant increase of some three Gini points between 1988
and 1993. The first finding is more important, but it was not surprising:
previous approximations have all come up with a Gini number in the
mid-sixties range. The second finding generated much discussion.
Some people saw it as proof that globalization was leading to increased
inequality in the world (although I did not deal with causality), and it
seemed to agree with many people’s “feeling” of rising inequities. Oth-
ers criticized the finding and felt compelled—using at time dubious
statistical practices—to come up with numbers that showed global in-
equality on the decline. Some papers and magazines peddled this Pan-
glossian vision with even less inhibition that the authors of the original
papers.
During the ensuing debate I realized not only the highly contentious
nature of these calculations but also the tendency to use the same terms
(“international,” “global,” “world” inequality) to mean different things.
As in any other branch of human knowledge, no progress is possible
until we all agree at least on what different terms mean. So, I tried both
to clear some misunderstandings, for example, to distinguish inequality
in mean incomes of the countries from inequality among all individuals
living on this Earth, and to proceed to additional calculations.
The need for the methodological clarity, as well as the debate on global
inequality into which I was at first somewhat reluctantly drawn (al-
though later I joined it, at times with gusto), have led me to the two areas
that I originally did not plan to cover. First to the issue of differences in
economic performance among the countries, the so-called “convergence
debate,” since, obviously, convergence (or divergence) in countries’
mean incomes indicates that inequality among countries is decreasing
(or increasing). And second, to the long-term relationship between, on
viii ACKNOWLEDGMENTS
the one hand, globalization and, on the other hand, inequality in mean
countries’ incomes and inequality among world individuals.
The book is very much organized along the lines that I have sketched
here. After the first three chapters, which deal with definitions and
measurement, in chapters 4 through 8, I discuss the empirics of incomes
and growth of some 140 countries over the last fifty years, using Na-
tional Accounts data (GDPper capita). In chapters 9 through 10, using
household survey data, I deal with incomes of individuals in the world
during the past two decades. Both parts deal with figures, facts, calcu-
lations. In the concluding comments (chapters 11 and 12), I look at the
evolution of several types of inequality during the past two centuries,
and briefly address the issues of association—I dare not say causality—
between different inequality outcomes and the two globalization
episodes. I also address some more speculative questions as to the per-
ception of inequality during the era of globalization, why inequality
may (or may not) matter, and, finally, what to (or not to) do about it.
It is truly a difficult, or more exactly an impossible, task to acknowl-
edge the help of so many individuals whom I often consulted or sought
out for data, and to make sure that no one is omitted or forgotten. Lit-
erally dozens of my colleagues in the World Bank helped with the
household survey data, providing many hard-to-obtain surveys, ex-
plaining how income or consumption aggregates were constructed,
and, in some cases, even doing decile calculations from the micro data
themselves (when the micro data could not be released). They are ac-
knowledged in the detailed Data Sources, a companion database (avail-
able at http://www.worldbank.org/research/inequality/data.htm)
that provides disaggregated statistics (mostly deciles) from some 360
surveys I have used to calculate global inequality in 1988, 1993, and
1998. Without my colleagues’ generous help and assistance, this book
literally would not have been possible.
Then, Prem Sangraula, and, at an earlier stage, Costas Krouskas and
Dimitri Kaltsas, provided excellent research assistance. As the reader will
appreciate, the “data intensity” of the book is very high. It was not always
easy for them, or for me, to keep all these files straight, to avoid mistakes
as far as possible, to link many distributions together, and to do the same
calculations many times over just because we had received a new survey
or added a new country. I am extremely grateful to all of them.
I have also benefited from comments that I have received from many
of my colleagues in the World Bank and elsewhere—at conferences and
talks—where I have presented this book at its various stages: from very
early to almost complete. Let me mention some: the Bellagio conference
on global inequality in February 2001; lectures at the Royal Institute of
International Affairs in London and at Nuffield College in Oxford in
ACKNOWLEDGMENTS ix
May 2001; the World Bank ABCDE Conference in May 2001; the Glob-
alization and (In)equality Conference at Warwick University in March
2002; Globalization and Inequality workshops at the Brookings Institu-
tion and World Bank, both in June 2002; the Institute G17 Summer
School in Belgrade in July 2002; and talks at the Economic Policy Insti-
tute in Washington and at the Kennedy School of Government at Har-
vard, both in September 2002, at the Institute for Social Studies at the
Hague in October 2002, at Yale in February 2003, at a conference on
globalization and inequality at Brisbane, Australia in February 2003, at
a meeting on global poverty at Columbia University in New York in
March 2003, at the Siena Summer School, and at the Observatoire
Français de Conjonctures Économiques in July 2003. I am grateful to
participants at these conferences as well to many people with whom I
have corresponded for their comments and suggestions. Again, I can
mention only some of them: Sudhir Anand, Isabelle Bensidoun, Nancy
Birdsall, François Bourguignon, Samuel Bowles, Ian Castles, William
Cline, Guillaume Daudin, Yiri Dikhanov, Steven Durlauf, Dag Ehren-
preis, Francisco Ferreira, Glenn Firebaugh, James K. Galbraith, Carol
Graham, Mansoob Murshed, Barrie Pittock, Thomas Pogge, Graham
Pyatt, Gustav Ranis, Martin Ravallion, Sanjay Reddy, Robert Wade,
Michael Ward, Bernard Wasow, and Shlomo Yitzhaki. I am particularly
grateful to K. S. Jomo, who has consistently supported me in my work
and has encouraged me to address in writing some of the issues that we
have discussed informally. It is also a pleasure to thank Tim Sullivan,
associate editor at Princeton University Press, who helped shape the
book from its very early stages, Linda Truilo, who did an excellent ed-
iting job, and Jill Harris, who skillfully directed the book’s production.
The book was written as a continuation of the Research Project 684-
84 financed by the World Bank Research Grant. This is the proper place,
I think, to mention that without World Bank’s immense resources, in
particular access to hundreds of household surveys from many coun-
tries around the world (many of which were conducted jointly by the
World Bank and countries’ statistical agencies), it would have been im-
possible to produce a data-intensive book such as this. The World Bank
is indeed the only place in the world where this kind of information
could be accessed, assembled, processed, and even possibly written
about. Despite the sometime lack of enthusiasm in this line of research
by some of my colleagues at the World Bank, I dare to believe that this
may be one of the instances where the World Bank indeed played the
role to which it aspires to, that of a “knowledge bank.” The views ex-
pressed in the book, however, are my own and should not be attributed
to the World Bank or its affiliated organizations.