The Haves and the Have-Nots

Do you know that the income of the world’s richest 1,75% matches the income of the poorest 77%?

- Milanovic, Branko (2011), The Haves and the Have-Nots. A Brief and Idiosyncratic History of Global Inequality, Nova Iorque, Basic Books.

Review extracted from Observatorio das Desigualdades Website

Do you know that the income of the world’s richest 1,75% matches the income of the poorest 77%?

The Haves and the Have-Nots is a book about income inequalities within the countries, among countries and world regions. Written in an accessible narrative, this work rests on interesting statistical information and delivers some surprising reflections on income distribution. The book has three chapters, in the end of each one several vignettes/essays can be found. In the first chapter Branko Milanovic, the author, focuses on income inequalities within a nation, the second is about intercountry income inequality and the last one debates this subject having as unit of analysis the world inhabitants.

Chapter I begin with a brief presentation of some of the most influential theoretical perspectives and analytical questions on inequality: to what extend the level of inequality is influenced by society’s wealth? What is the impact of income inequalities on economic efficiency? What is the relation between social justice and inequalities? Regarding this last issue, the author introduces the theoretical contributions of Anthony Atkinson, Pareto, Amartya Sen and John Rawls. Then, Milanovic addresses some methodological dimensions related to income inequality measurement, namely the set up of Gini coefficient and its statistical meaning.

This chapter has ten vignettes, in which income inequality is discussed through different and unlikely questions. For instance, what would be the social trajectory and position of Elizabeth Bennet and Anna Karenina (romance characters) if they “lived” nowadays? Who is the richest man ever? How sharp were income inequalities in the Roman Empire or in the socialist countries? Which consequences can inequalities have in countries political unity? Or, is there any specific logic in the way inequalities evolve overtime? Regarding this last question, the author confronts Pareto’s and Kuznets perspectives. Pareto sees wealth unequal distribution levels as being immutable, regardless of society’s political, economic or social configurations; Kuznets stands for the idea that the income inequality evolution can be represented by the letter U: in preindustrial societies inequalities were smaller; with the improvement of wealth and functional differentiation brought by the industrial revolution income inequality grew up; then, in the second half of the XX century, the introduction of income redistributive mechanisms and the generalization of education narrowed the level of inequality. According to Milanovic both are partially right. In fact, there is a certain immutability in the portion of wealth that tends to be possessed by a minority of the population (namely, the richest 1% or 2%). But the unequal distribution of income varies historically and is influenced by the policies that are carried out in each country.

Chapter II begins with an explanation of the indicators and methodologies that support the income comparison among countries. Then the author analyzes the evolution of global income inequality. According to Milanovic, if the unit of comparison is the country and its GDP per capita, inequalities are nowadays much more pronounced than before the industrial revolution or even at three decades ago. But if the population weight of each country is taken into account, that conclusion is not correct, because of the economic growth of both China and India in the last decades. Nevertheless, the author shows that the absolute income levels of these two countries continues to diverge from the United States income. In 1980, the difference of the American and Chinese GDP per capita was 25,000 US dollars Purchasing Power Parities (PPP); today the difference is 37,000 US dollars PPP. The author adds another interesting idea: contrary to the previsions made by some economists, poor countries did not become the main targets of the direct foreign investments. In 2007, direct foreign investments in the US (240 billion dollars) were much higher than the direct foreign investments in China (138 billion dollars) – and the direct foreign investments in China were smaller than direct foreign investments going to France or Great Britain. In fact, the weekly direct foreign investments in the United States are as big as the direct foreign investments India gets in one year (p. 105).

According to Milanovic, the inequality growth started in the second half of the XIX century produced some structural features that were not predicted by Karl Marx. For instance, 80% of the global income inequality is explained by the country where people live, not by the social class they belong to. “Why Was Marx Led Astray?” is the first vignette of chapter II. In the following one the author presents some very interesting data: the poorest 5% of Americans are at the 68th percentile of the world income distribution – where the richest 5% of India are. The other essays (vignettes) of this chapter analyze, for instance, the birth place as being an income premium or penalty; the desirability of a gated world; or the income achieved by “Three Generations of Obamas” (pp. 135-140).

The last chapter focuses on the income inequality among “citizens in the world” between 1988 and 2005. In 2005, the world income inequality, measured by the Gini coefficient, was about 70. If this analysis is based on actual dollar incomes, inequality reaches a Gini of 80. Milanovic presents other impressive data: while the richest 10% receive 56% of the global income, the poorest 10% only receive 0,7%; while the richest 5% have 37% of the global income, the share of the bottom 5% is only 0,2%; and the income of the top richest 1,75% matches the income of the poorest 77%. Milanovic states that the global income inequality didn’t change significantly in the last thirty years. Although the widening of within-national and intercountry income inequalities contributed to the improvement of global asymmetries, the economic growth of China and India, which have a significant portion of the world’s population, neutralized this tendency.

Chapter III has nine vignettes, in which Milanovic helps the reader to locate himself in the global income distribution, questions the existence of a world middle-class, or analyses the relation between income inequality and the global financial crisis.

“The real cause of the crisis lies in huge inequalities in income distribution that generated much larger investable founds than could be profitably employed. The political problem of insufficient economic growth of the middle class was then ‘solved’ by opening the floodgates of cheap credit. And the opening of the credit floodgates, to placate the middle class, was needed because in a democratic system, an excessively unequal model of development cannot coexist with political stability.” (p. 196)

The analysis of income inequality in the world and its evolution using data whose level of accuracy is necessarily heterogeneous imposes cautious interpretations. Milanovic recalls it and explains in a very understandable and rigorous way the methodological procedures in which his calculations rely upon. The presented data on global income distribution are striking. And the analytical perspectives developed by the author to address this subject are very creative and intellectually stimulant. This is a book that should be read.

Frederico Cantante


Photo : © ThorstenSchmitt - Fotolia


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24 October 2011

Themes : • Poverty • Wealth

Analysis

Same theme