fyi ...

---------- Forwarded message ----------
Date: Sun, 27 Jan 2002 01:43:45 +0000
To: [log in to unmask]
Subject: Richest 1% have more income than the poorest 57% in World

Dear All

The first estimates of World income inequality based on household survey
data have just been published in the Economic Journal by Branko
Milanovic (see press release below).

THE REALITY OF GLOBAL INEQUALITY

The differences in income among citizens of the world are absolutely
huge and far higher than conventional measures indicate, according to
new research by Branko Milanovic, published in the latest issue of
the Economic Journal. His calculations of global inequality show, for
example, that the richest 1% of people in the world receive as much
as the bottom 57%; in other words, less than 50 million richest people
receive as much as 2.7 billion poor.

In addition to being very high, global inequality is rising. For
example, in a mere five-year period between 1988 and 1993,
inequality increased by 5% with the real incomes of the poorest 5%
of people in the world decreasing while the real incomes of the top
20% increased. World inequality rose at approximately the same
speed at which UK inequality rose during the Thatcher years. And as
the rich get richer and the poor poorer, the middle of the income
distribution is disappearing.

Why is the picture so much bleaker than conventional measures
indicate?

What is new about Milanovic's work is that, for the first time ever,
inequality among people in the world is calculated as if they all
belonged to the same 'nation' called the world. Household surveys,
which are the source of information on incomes and inequality within
each country, have been combined to derive the 'true' world income
distribution. Such surveys were taken for 91 countries in the world,
covering 85% of the world's population and 95% of world income.

Previous studies have calculated world inequality as the difference
between average incomes (GDP per capita) of the countries,
disregarding inequality in distribution within each country. Implicitly,

such studies assume that each Chinese person had the average income
of China, each American the average income of the US. But if we go
'deeper' and use the actual survey results, the picture changes and
becomes bleaker.

Milanovic estimates inequality among citizens of the world at 66 Gini
points, on a scale that runs from 0 (total equality) to 100 (one person
gets all world income). The level of 66 is higher than inequality in
any single country: the world is a more unequal place than South
Africa or Brazil. This level of inequality is equivalent to a situation
where 66% of people have zero income, and 34% divide the entire
income of the world among themselves equally.

Basically, the 'problem' with the world is that it lacks a middle class.

If we define the poor as those with real income lower than the poverty
line that makes people eligible for social assistance in Western
Europe and the US, 78% of world citizens would qualify. (Note that
this includes adjustment for lower price levels in poorer countries, so
that it is a measure of real differences in purchasing power.) If we
then define the world 'middle class' as all those with incomes higher
than the Western poverty lines but lower than the average income of
Italy, there would be only 11% of such people in the world. The rest
would be the rich.

What is driving the increase in global inequality?

First, widening differences between slow-growing rural incomes
in several populous Asian countries (Bangladesh, India) as well
as in most of Africa compared to the rich world.
Second, the downward slide in real incomes in Eastern Europe
and the former USSR, which 'emptied out' the world middle
class - most people in these countries, before the transition, were
around the middle of the world income distribution.
Third, the widening gap between urban (high) and rural (low)
incomes in China. This last factor shows how strictly internal
developments in large and/or rich countries like China, India and
the US have significant international repercussions: when 400
million Chinese pull ahead of the other 800 million Chinese, the
world is affected.

Is the increase in inequality caused by globalisation?

Milanovic's work does not directly address this issue: there is no
analysis of causality. It could be that we are witnessing a blip due to
the effects of transition in Eastern Europe, and widening income
differences between the rich West and most of the 'rest' due to the
strong period of growth in the rich world during the 1990s. But the
main point is that whatever the cause of the current increase and
whatever the exact amount of that increase, one thing is certain: the
differences between individuals are huge.

We can wonder how long such huge inequalities may persist in the
face of ever closer contacts, not least through television and movies,
where opulent life-styles of the rich influence expectations and often
breed resentment among the poor. Should it be of concern to the rich?
Perhaps, if we believe that wide income gaps lead to migration, and
resentment breeds terrorism. For ultimately, the rich may have to live
in gated communities while the poor roam the world outside those
few enclaves.

Notes for Editors: 'True World Income Distribution, 1988 and 1993:
First Calculations Based on Household Surveys Alone' by Branko
Milanovic is published in the January 2002 issue of the Economic
Journal. Milanovic is in the Development Research Group at the
World Bank, 1818 H Street NW, Washington, DC 20433.

For Further Information: contact Branko Milanovic on
+1-202-473-6968 (fax: +1-202-522-1153; email:
[log in to unmask]); or RES Media Consultant Romesh
Vaitilingam on 0117-983-9770 or 07768-661095 (email:
[log in to unmask]).


k


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