Hunting for green growth in the G20…….

January 23, 2012

Best blog awards; Dodd-Frank and Africa; India miscellany – high tech, low tech and anti-corruption; creme that egg: links I liked

January 23, 2012

What's going on with global inequality? Let's ask Andy Sumner……

January 23, 2012
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When I was asking around about last week’s paper on the G20 and inequality, ace number cruncher Andy Sumner emailed to say that talking about inequality in terms of the Gini index is terribly old hat, and these days, everyone is trying out different indicators. So I went back to his July summary of the latest research on within-country inequality on Global Dashboard, and I have to say, it is brilliant. Some highlights http://www.globaldashboard.org/2011/07/01/what%E2%80%99s-really-happening-to-inequality/
‘What’s happening to within-country inequality isn’t immediately clear.
The new Solt database of the main measure of inequality (known as the Gini after an Italian Sociologist who developed it) was analysed by Ortiz and Cummins at UNICEF who concluded the evidence showed:
Rising inequality in Asia, 1990-2008 but falling inequality in Sub-Saharan Africa over the same time period.
And inequality in Latin America rose slightly 1990-2008 but fell between 2000-2008 and inequality was static in the Middle East and North Africa.
Ortiz and Cummins list a long set of countries where inequality significantly fell between 2000-2008. For example, inequality fell by more than 3 points in Thailand, Malaysia; Brazil, Peru, Argentina, Chile; Lesotho, Malawi, Ethiopia, Burundi, Mali, Sierra Leone, Burkina Faso, Uganda, Nigeria, Gabon.
However, a new paper by Chilean Economist Gabriel Jose Gabriel Palma does a detailed study of within country inequality between 1985 vs 2005 suggesting the Gini hides as much as it reveals.
Instead we need to look at each 10% of the population and what they get.
He finds that there is now a surprising similar picture in most countries, noting:
1. The great majority of regions and countries have a relatively similar distribution of income inequality because countries with low inequality at the outset (1985) have got more unequal and countries with high-inequality have got slightly more equal.
2. The middle classes generally get half of the economic pie wherever you look and the middle classes are incredibly successful about protecting their half.
3. Politics is increasingly a fight for the remaining half between the richest 10% and poorest 40% meaning the other half of the distribution is increasingly ‘up for grabs’ between the very rich and the very poor and who can win over the middle classes.
This might begin to explain some of the recent declines in inequality in Latin America as suggested in a paper by Birdsall et al., who argue that ‘social democratic’ regimes (eg Brazil, Chile and Uruguay) are more likely to reduce inequality than ‘left populist’ (eg Argentina, Bolivia, Ecuador, Nicaragua and Venezuela) and both are more likely to reduce inequality that non-left regimes (eg Colombia, Costa Rica Mexico, Peru) and that this is largely due to more social spending and more progressive spending especially so in the social democratic regimes (eg spending on cash transfers targeted to the poorest and greater increases in spending on health and education and increases in spending on basic services – in particular in education, greater increases in spending on primary and secondary schooling rather than on public universities.
These social democrats have strong support in the middle classes and this throws up the question posed by Birdsall et al:
Might the growing middle classes in countries like Chile and Brazil help lock in leftist social democratic political regimes (whether because or despite its concentration in the top quintile of households)?  There is no evidence that a large middle class is necessary let alone sufficient to these regimes.  But a growing global middle class does seem likely to reinforce effective government that manages moderate redistribution while retaining investor confidence in the likelihood of continuing growth and price stability. Put another way: When is the middle class large enough to become politically salient in supporting or at least tolerating the kind of social and other distributive policies that are good for them but turn out to be good for the poor—for example universal public education?
Food for thought – the middle classes as the new revolutionaries?’
Great stuff Andy. As for organizations like Oxfam, it seems to provide empirical support for our focus on ‘convening and brokering’ – the latest jargon for getting people from different social and economic backgrounds into a room, and helping them build alliances. Any other thoughts?

When I was asking around about last week’s Oxfam paper on the G20 and inequality, ace number cruncher Andy Sumner emailed to say that in his opinion, Andy Sumner 2talking about inequality in terms of the Gini index (a single number for overall inequality) is terribly old hat, and these days, everyone is trying out different indicators to get at the fine detail of different kinds of inequality. So I went back to his July summary of the latest research on within-country inequality on Global Dashboard, and I have to say, it is brilliant. Some highlights:

‘What’s happening to within-country inequality isn’t immediately clear.

The new Solt database of the main measure of inequality (known as the Gini after an Italian Sociologist who developed it) was analysed by Ortiz and Cummins at UNICEF who concluded the evidence showed:

Rising inequality in Asia, 1990-2008 but falling inequality in Sub-Saharan Africa over the same time period.

And inequality in Latin America rose slightly 1990-2008 but fell between 2000-2008 and inequality was static in the Middle East and North Africa.

Ortiz and Cummins list a long set of countries where inequality significantly fell between 2000-2008. For example, inequality fell by more than 3 points in Thailand, Malaysia; Brazil, Peru, Argentina, Chile; Lesotho, Malawi, Ethiopia, Burundi, Mali, Sierra Leone, Burkina Faso, Uganda, Nigeria, Gabon.

However, a new paper by Chilean Economist Gabriel Jose Gabriel Palma does a detailed study of within country inequality between 1985 vs 2005 suggesting the Gini hides as much as it reveals.

Instead we need to look at each 10% of the population and what they get.

He finds that there is now a surprising similar picture in most countries, noting:

1. The great majority of regions and countries have a relatively similar distribution of income inequality because countries with low inequality at the outset (1985) have got more unequal and countries with high-inequality have got slightly more equal.

2. The middle classes generally get half of the economic pie wherever you look and the middle classes are incredibly successful about protecting their half.

3. Politics is increasingly a fight for the remaining half between the richest 10% and poorest 40% meaning the other half of the distribution is increasingly ‘up for grabs’ between the very rich and the very poor and who can win over the middle classes.

This might begin to explain some of the recent declines in inequality in Latin America as suggested in a paper by Birdsall et al., who argue that ‘social democratic’ regimes (eg Brazil, Chile and Uruguay) are more likely to reduce inequality than ‘left populist’ (eg Argentina, Bolivia, Ecuador, Nicaragua and Venezuela) and both are more likely to reduce inequality that non-left regimes (eg Colombia, Costa Rica Mexico, Peru) and that this is largely due to more social spending and more progressive spending especially so in the social democratic regimes (eg spending on cash transfers targeted to the poorest and greater increases in spending on health and education and increases in spending on basic services – in particular in education, greater increases in spending on primary and secondary schooling rather than on public universities.

These social democrats have strong support in the middle classes and this throws up the question posed by Birdsall et al:

Might the growing middle classes in countries like Chile and Brazil help lock in leftist social democratic political regimes (whether because or despite its concentration in the top quintile of households)?  There is no evidence that a large middle class is necessary let alone sufficient to these regimes.  But a growing global middle class does seem likely to reinforce effective government that manages moderate redistribution while retaining investor confidence in the likelihood of continuing growth and price stability. Put another way: When is the middle class large enough to become politically salient in supporting or at least tolerating the kind of social and other distributive policies that are good for them but turn out to be good for the poor—for example universal public education?

Food for thought – the middle classes as the new revolutionaries?’

low income inequalityGreat stuff. It set me thinking about one of the findings of our paper – that whereas inequality is falling in many low and lower middle income countries (see chart), it is rising in all but four of the G20 countries. Might that be because the middle class is more likely to ally with the elite in the G20 countries than elsewhere and why could that be? Perhaps because their economies are integrated, or more dominated by financial institutions? Just idle speculation of course  – feel free to add y0ur own.

As for organizations like Oxfam, it seems to provide empirical support for our focus on ‘convening and brokering’ – the latest jargon for getting people from different social and economic backgrounds into a room, and helping them build alliances. Any other thoughts?

3 comments

  1. Thanks Duncan,

    Credit should go to my IDS colleagues too: Ricardo Santos, Pui Yan Wong and Henrique Conca Bussacos.

    My personal conclusion is inequality is rising in the 10-20 countries (low and middle income ones) where 75%-90% of the world’s poor live so if one cares about poverty one ought to be taking inequality seriously too…

  2. Duncan – very interesting comments on the role of the middle class as potential revolutionaries and in promoting good governance.

    Here are my thoughts as of last year.

    http://www.ft.com/cms/s/0/d5507868-b651-11e0-8bed-00144feabdc0.html#axzz1kHCH5mYI

    I wonder is there a tipping point where the middle class no longer see it as worth their while to pursue redistributive policies. It would be fascinating if that point where just enoughequality to ensure political stability and low crime rates.

    Of course the role of the media in shaping such decisions is crucial.

  3. This is a really interesting debate – it is essential to find new ways of measuring inequality. Am a bit surprised by the reference to Chile as a Leftist Government. While Brazil and Uruguay can claim to have left leaning Governments, the current regime of business tycoon Sebastian Piñera in Chile is one of the most right wing in the region, still following the neoliberal policies of which Chile was one of the global laboratories for in the 1970s. Public education is now in such a state that there have been massive student demonstrations, and subsequent violent repression by the Government. And last week there was an attempt by the Ministry for Education to remove the word “dicatorship” when referring to the Pinochet regime in school text books and call it a “Military Regime” instead. Luckily it was rejected by Parliament but if ever a sign that the Chilean Government is no where near being a leftist social democratic regime there you have it!

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