WORKSHOP

WEEK 1
The Winners and Losers of Globalization:
Finding a Path to Shared Prosperity

Globalization has benefited an emerging global middle class, mainly people in

places such as China, India, Indonesia, and Brazil, along with the worlds top 1
percent. But people at the very bottom of the income ladder, as well as the lower-
middle class of rich countries, lost out.
The findings, presented by economist Branko Milanovic to a packed audience of
more than 120 people at a Policy Research Talk at the World Bank earlier this month,
come just as the institution mobilizes around two goals: ending extreme poverty by
2030 and boosting the income growth of every countrys bottom 40 percent.
Those goals are very ambitious, since the pace of growth is uncertain, says World
Bank Research Director Asli Demirguc-Kunt, who hosted the event. Boosting shared
prosperity also requires us to tackle inequality, not just within countries, but across
countries as well, as globalization has made it easier for goods and people to move
around the world.
The new global middle class, about 400 million people, earned more and consumed
more in the 20-year span before the global financial crisis hit in 2008, propelled by
economic growth in countries such as India and China, said Milanovic, a lead
economist in the Banks research department who has been studying inequality since
the 1980s. He made the cross-country comparisons using a newly-created database of
World Bank- managed household surveys that covers some 120 countries from 1988
to 2008.
The inflation-adjusted real income for the group around the global median rose 80
percent between 1988 and 2008. Their incomes, however, were still a paltry $3 to $5
per capita per day.
Not surprisingly, the top 1 percent of the worlds earners were big winners. Their
real income went up by more than 60 percent during the 20-year period. In absolute
terms, they saw their incomes increase by nearly $23,000 per capita per year,
compared with some $400 for those around the median.
By contrast, incomes were almost stagnant among the worlds poorest 5 percent,
despite the fact that real income did increase for the bottom and the second-lowest
deciles.
Least satisfactory was the outcome for the people in the 75th to 90th percentile of the

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global income distribution, who saw zero growth in their real income. Those people
represent a global upper-middle class, including the lower-middle class of rich
countries, as well as many people in Latin America and former Communist countries
in Eastern Europe.
Inequality between nations also grew, despite the recent drop in global inequality
between individuals. In fact, the divisions between countries are more pronounced
than those between different income classes within countries, Milanovic said. More
than half of the variability in peoples incomes across the globe is simply due to one
factor: the place where one lives.
The reality that opportunities are highly unequal, depending on where you live
raises a question: How can we reduce global inequality? Milanovic pointed out three
paths. First, high growth rates among poor and middle-income countries. That would
be the best path, but its not easily achievable. It also largely depends on China and
India maintaining their high growth rates. In fact, the decline of global inequality so
far is largely due to the high growth rates of China and India what Milanovic called
two big sumo wrestlers tilting the scales in the fight to reduce global poverty and
inequality.
A second path would be a global redistribution scheme pushing ever larger amounts
of money to poor countries. That isnt likely to happen, as development assistance is
just a little more than $120 billion a year, and isnt showing any signs of increasing.
The third path would be to promote migration, which can be an expeditious way for
people to improve their fortunes. That means development should be seen through the
prism of people, not countries. From a global point of view though not necessarily
from a nation-state political point of view what matters is that people should prosper,
wherever they end up.
Either poor countries will become richer, or poor people will move to rich
countries, Milanovic said.
Augusto Lopez-Claros, director of the World Bank Groups Global Indicators and
Analysis Group, said at the event that Milanovic made income distribution, a complex
subject, easy to understand. Policy makers, he said, can benefit from the research by,
for example, making sure that energy subsidies, which are highly regressive and
benefit largely the middle- and higher-income groups, are phased out. The resources
can then be used in more productive ways, such as educating 800 million people with
low levels of literacy skills, or ensuring that girls have greater access to education.

Source: http://www.worldbank.org/en/news/feature/2013/10/25/The-Winners-and-
Losers-of-Globalization-Finding-a-Path-to-Shared-Prosperity

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Questions:
1. Who are the main winners and losers of globalization?
2. Classify people according to their income levels and list the benefits of
each group as a result of globalization.
3. Which income group of people benefited the most from globalization?
Why?
4. Which income groups of people did not get any benefit from globalization?
Why?
5. According to Milanovic, what is the main factor of income variability?
6. What are the passes of reducing global inequality?