30 March 2017

Globalisation is slashing inequality – here’s how

By Chelsea Follett

The United Nations has just released a new report on international development, titled “Development for Everyone”. It focuses on equality, distinguishing between absolute inequality and relative inequality. It points out that in terms of the Gini coefficient, a statistical measure used to gauge a country’s income inequality, one kind of inequality is rising while the other is falling:

“Rising incomes around the world have been accompanied by widening inequality … Although income inequality … has narrowed across the world as a whole because the incomes of developing and developed regions have been converging. Relative global inequality has declined steadily over the past few decades … This happened despite an increasing trend towards inequality within countries.

By contrast, absolute inequality, measured by the absolute Gini coefficient, has increased dramatically. [For example, in] 2000 one person in a country earns $1 a day and another person $10 a day. With economic growth, in 2016 the first person earns $8 a day, and the second person $80 a day. The relative difference between the two remains the same (the second person has 10 times more than the first person), but the absolute difference has gone up from $7 to $72.”

 

(Source: United Nations, 2016 Human Development Report: Development for Everyone)

Even though the difference between absolute and relative inequality is increasing, the key thing to take away is that the tremendous growth in developing countries has decreased relative inequality between states and diminished poverty. And, arguably, reducing deprivation and raising living standards are more important than lessening income inequality.

So why the focus on money? In many other vital areas inequality is declining across the globe. Here are five charts which pin-point where.

Life expectancy is one of the best measures of the overall standard of living. Even for Africa, the poorest continent, the life expectancy gap with North America has narrowed. North American life expectancies were about 29 years longer than Africans’ in 1960, but only 18 years longer in 2015. This progress occurred despite the catastrophic AIDS epidemic that slowed Africa’s life expectancy significantly. Asia and South America have gone even farther towards closing the life expectancy gap with North America, narrowing it to roughly 6 and 5 years, respectively.

 

Life expectancy gains are partly due to falling rates of infant mortality—another area in which poor countries are catching up with rich ones. In 1960, 144 out of 1,000 African children died before their first birthday, compared to 26 out of 1,000 North American children. In other words, 118 more African children than North American children died as infants out of every 1,000. By 2015, that number had shrunk to 43.

 

Better nourishment is also to thank for longer lives. In 1991, close to 30 per cent of Africa’s population was undernourished, compared with “5 per cent or less” of North America’s population. By 2015, fewer than 20 per cent of Africans were undernourished. The absolute inequality between the poorer areas of the globe and the richer ones shrank considerably, even as undernourishment became rarer worldwide.

 

The education gap between rich and poor countries has diminished as well. In 1950, Americans spent nearly seven more years learning than Chinese students on average, and nearly eight more years leaning than Indians. By 2015, average years of schooling in the United States exceeded the Chinese average by only five years and the Indian average by about six years.

 

Internet use tells a similar story. China, in particular, has rapidly narrowed the gap. In 2000, a little under 2 per cent of Chinese used the internet, compared to 43 per cent of Americans. That means a gap of 41 per cent. By 2015, that gap had shrunk to 24 per cent.

 

As these charts show, poor countries are actually making faster progress than rich ones in many areas. In some cases, this is simply because richer countries have “reached the finish line”: it’s impractical to school children for years and years, for example, or levels of malnutrition might already be at zero.

In other cases, the rapid adoption of technologies and growth-friendly policies from a standing start is giving poorer countries a boost that enables them to progress at breakneck speed.

Even bearing this in mind, why do some places develop more quickly than others? What explains the incredible pace of change in China, for example? The UN report nails it with this sentence:

“In China and India, opening up the economy to the world accelerated growth, which in turn helped address human development challenges — reducing poverty, improving health outcomes and extending access to basic social services.”

So rather than rush to complain about the increase in absolute inequality, we should stop and consider how globalisation and free exchange, though unpopular among those who think they only benefit the rich, are to thank for shrinking relative inequality and plummeting poverty across the world.

Chelsea Follett is the managing editor of HumanProgress.org, a project of the Cato Institute