nytimes.

com 14/12/2017

It’s an Unequal World. It Doesn’t Have to Be.

Karl Russell Eduardo Porter.
Global inequality, after widening for decades, has stabilized. The share of the world’s income captured by the
top 1 percent has shrunk since its peak on the eve of the financial crisis. The bottom half of the population is
reaping its biggest share of the global pie since Ronald Reagan was elected president of the United States.

Inequality Stalls
But here’s the bad news: The respite probably won’t last. Despite rapid strides among developing economies
like China and India, which have been closing the income gap with the world’s richer nations, growing
inequality within almost every country will drive a further concentration of income around the globe.
Examining the “World Inequality Report” — published Thursday by the creators of the World Wealth and
Income Database, who include the economists Thomas Piketty and Emmanuel Saez — it is tempting to see
the rising concentration of incomes as some sort of unstoppable force of nature, an economic inevitability
driven by globalization and technology. The report finds that the richest 1 percent of humanity reaped 27
percent of the world’s income between 1980 and 2016. The bottom 50 percent, by contrast, got only 12
percent.
Nowhere has the distribution of the pie become more equitable. In China, 15 percent of the income growth
since 1980 flowed to the richest 1 percent of Chinese while 13 percent flowed to the bottom half. Even in
egalitarian, social-democratic Europe, 1-percenters got 18 percent of the growth in the period. The bottom half
got 14 percent. And among the more unequal regions of the world — the United States, say, or Russia —
income disparities are reaching levels not before seen in modern history: The bottom half of Americans
captured only 3 percent of total growth since 1980. The income of the bottom half of Russians actually
shrank.

Diverging Patterns
And yet, a careful examination of the data suggests there is nothing inevitable about untrammelled inequality.
Take China and India, developing countries of billion-plus populations playing catch-up to pull themselves
out of poverty. Incomes have become much more concentrated in both. But China’s economic strategy has
delivered much more growth at a lower cost in terms of economic disparity. Comparing Europe with the
United States and Canada offers similar contrasts.
Policy, it turns out, matters. More aggressive redistribution through taxes and transfers has spared Europe
from the acute disparities that Americans have grown used to. Unequal access to education is helping
reproduce inequality in the United States down the generations. On the other end of the spectrum of
development, China’s strategy based on low-skill manufacturing for export, and underpinned by aggressive
investment in infrastructure, has proven more effective at raising living standards for the bottom half of the
population than India’s more inward-looking strategy, which has limited the benefits of globalization to the
well-educated elite.
Where is global inequality going? Policy choices — about taxes and education, employment rules and finance
regulations — will play a big role in shaping how countries around the world distribute the spoils of growth in
the future. But the most powerful force driving the distribution of income on a worldwide scale will be raw
economic growth: if economic catch-up by developing nations shrinks the income gap between rich and poor
countries faster than inequality increases inside each country, the global disparity of income will narrow.

How World Income Grows

The question is, how fast can developing countries grow in the future? The answer, unfortunately, is not fast
enough. If China’s furious economic growth over the last couple of decades was not enough to bring about a
more equitable distribution of income on a global scale, it seems hard to imagine the kind of economic
miracle that could shrink the worldwide income gap.
China’s economic miracle was an unprecedented feat: in one generation, an unproductive communist nation of
farmers transformed itself into a manufacturing export colossus, a giant of capitalism. Since 1980, its share of
the world’s income has grown to 19 percent from 3 percent. Its income per person has grown almost 15 times
as fast as that of the United States and Canada, and almost 19 times as fast as that of the European Union —
to 90 percent of the world average, from 15 percent. Once at the bottom of the world’s income distribution,
Chinese are now much more broadly represented across the spectrum of the world’s income.
China’s rising income was pretty much the only force pushing for a more equitable share of the spoils of
growth, holding world inequality down even as the incomes of the world’s biggest earners surged ahead and
workers in the industrialized world mostly got stuck. And yet it wasn’t enough.
As China has become richer and its growth has slowed, its impact on how the world’s income pie is sliced is
likely to be mixed: Once the income of the average Chinese exceeds the world average, China's fast growth
will start adding to inequality, rather than mitigating it. And it seems implausible that India and sub-Saharan
Africa, today at the bottom of the world’s income distribution, will experience anything in the coming three
decades like what China experienced in the last three.

The Future of Inequality

Will poor countries make sufficient progress relative to their rich peers to bring more balance to the
distribution of global income? Or will rising inequality within countries dominate? It depends on three forces:
countries’ economic and population growth, as well as the evolution of inequality within them. The World
Inequality Report takes a shot at projecting these forces, drawing from economic forecasts by the
Organization for Economic Cooperation and Development, population projections from the United Nations
and the evolution of inequality in each country over 36 years. If you care about equity, it doesn’t look good.
If the evolution of income inequality in every country remains on the same path it has been since 1980, the
plateau in global inequality since 2000 will prove to be but a temporary blip: by 2050, the bottom half of the
world’s population will draw only 9 percent of the world’s income, a percentage point less than today. One-
percenters at the top, by contrast, will reap 24 percent of the global income pie, up from 21 percent in 2016.
But again, policy matters. Say countries decide to push vigorously back against inequality — as vigorously as
the European Union pushed in the 36 years after 1980. In that case, the world’s income gap would even shrink
a little: by 2050, the bottom half would get 13 percent of the pie; the share of the top 1 percent would shrink
to 19 percent of the world’s income.
What we probably don’t want the world to do is follow the trajectory of inequality in the United States. If it
were to do that, by 2050 the few at the top of the pyramid would be drawing 28 percent of global income. The
bottom half would get only about 6 percent.