Global inequalities may be shrinking, but the gap between haves and have-nots is widening

In one of the most unequal countries in the world, South Africa, the poorest 40% have annual income less than US $ 1,000 (£ 727) per person. Comparable incomes for the richest 10% are over US $ 39,000 per person, nearly 40 times that of the poorest 40%.

These numbers, which are based on data from 2017, are actually an improvement from 2008, when the multiple was 50 times. But the income gap between these groups increased by more than $ 10,000 per person during this period. And more than two decades after the end of apartheid, the richest 10% are still predominantly from the white minority group, while the poorest 40% are the “exclusive” preserve. of the black majority.

These extreme inequalities show that economic growth has been neither inclusive nor transformative – although the country has implemented important policies in favor of low-income people with the aim of improving the disparity.

We have found similar situations in many countries – even those like Brazil, China, India and Mexico where inequalities are less and tackling them has become a fundamental development challenge.

A fair distribution of income is both a moral imperative and crucial for a socially cohesive society. Excessive income disparity also has negative implications for growth, poverty and human development.

Not a simple story

Inequalities do not increase or decrease everywhere at the same time and there are no consistent or universal trends over time and between countries or regions. Successes are often followed by setbacks if conditions change, and vice versa, such as the recent trend of Latin American countries shows. This complexity is at the heart of the history of inequality.

As we have seen by collecting the different studies in our book, Inequalities in the developing world, it is essential to avoid oversimplifying inequalities, whether at national or global level. Instead, we need to pay close attention to how successful developing countries attempt to address these issues. This is especially important in times of deep economic adjustments and booms and recessions.

Studying global income inequality also requires looking at the big picture, treating the world as one country. Here, forces such as globalization or technological progress are at work, with potentially asymmetric effects on inequalities within and between countries.

Global inequalities have indeed been declining for several decades. according to numerous standard measures. The figure below shows this decrease as measured by the Gini index (on which 100 represents the maximum inequality). But as you can see, this is due to falling inequalities Between countries rather than within them.

Global inequality 1990-present

Large economies such as China or India are home to a large part of the world’s population – and their development has strongly influenced global inequalities. The overall decline is mainly due to China’s rapid economic growth, which has gradually approached the global average for income. This has reduced inequalities between countries by dramatically improving the living conditions of hundreds of millions of people.

But it is far too early to celebrate. Although other developing countries have followed this path to some extent, the decline in global inequalities is slowing. And it is proven that the poorest have extreme difficulty keeping pace with others. The differences between rich and poor countries remain colossal.

National income inequality

The forces that helped reduce inequalities between countries had the opposite impact on inequalities within countries. As the figure shows, the overall contribution of inequalities within countries to the global measure has increased. This is true even of China and India.

These trends within countries – often growing inequalities – are crucial to our understanding of the problem. It is what ultimately defines people’s lives and perceptions and is central to policies aimed at tackling inequalities. The five country studies in our volume show that at this level too, various factors affect the final measured inequality. There is no single general model that applies to each period or area.

Functional and inclusive local labor markets that enable people from all walks of life to earn a decent living are very important. They are the main source of income for the majority of the population. To reduce inequalities in the labor market, it is essential to achieve more equal access to the types of skills and capital that enable workers to obtain quality jobs and decent incomes.

Macroeconomic factors, such as the degree of industry specialization in a country or the existence of markets with adequate regulations and good governance, are also important. Of particular importance is the capacity of the public sector to compensate for the main forces that cause inequalities and to provide direct access to basic goods and services.

Although most developing countries have smaller welfare states compared to more developed ones, some countries have experienced varying degrees of success in addressing income inequality through active and innovative policies such as welfare reforms. labor market. Brazil and Mexico, for example, have succeeded with minimum wages and progressive tax and benefit structures.

While inequalities have increased over the past decades in many countries, representing the majority of the world’s population, this is not the case everywhere. Brazil and Mexico have seen it decline even as others, like South Africa, live with stable but extremely high inequalities.

But in general, inequalities within countries are very persistent and hamper social mobility. Inequalities do not automatically decrease as countries develop or deploy more democratic or inclusive institutions, as previously thought. Income inequality is the result of a complex set of intersecting inequalities, especially in education, health and the labor market.

Combating inequalities therefore requires a determined, coordinated and sustained collective effort. Our study provides the evidence needed for action in this difficult area of ​​socio-economic development and establishes a framework for identifying effective policy measures.

This article is republished from The conversation under a Creative Commons license. Read it original article.

The conversation

Murray Leibbrandt receives research funding from the National Research Foundation of South Africa, United Kingdom Research and Innovation, the French Development Agency (AFD), the World Institute for Development Economics Research of the University United Nations.

Carlos Gradín and Finn Tarp do not work, consult, own shares, or receive funding from any company or organization that would benefit from this article, and have not disclosed any relevant affiliation beyond their academic appointment.

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