After examining new data, a renowned inequality researcher for Foreign Affairs magazine has declared that global economic inequality is lower than it’s been in 150 years. What can a closer look at the findings tell us about the future?
‘The rich are getting richer, while the poor are getting poorer.’ This phrase is one we’re heard uttered time and time again, but how true is it in 2023?
According to Branko Milanovic, an expert in inequality research, this generalisation is no longer reflective of our society from a global perspective. In an essay for Foreign Affairs magazine, he explains why.
We should first clarify that the term ‘global inequality’ is used to refer to ‘the income disparity between all citizens of the world at a given time, adjusted for the differences in prices between countries.’
Financial experts assess this disparity using the Gini coefficient. This is a theoretical tool that enables them to rank global economic distribution at a figure between zero to one hundred.
A measurement of 0 would mean everybody in the world is earning the same amount of money, while a measurement of 100 would mean a single individual is earning all the world’s available income. These are two unlikely scenarios.
For context, the Gini coefficient sat at around 70 points at the turn of the Millennium. More interestingly, by 2018, the Gini measurement for global inequality was measured significantly lower at 60 points.
Economists believe that number could be even lower today, and at face value, this tells us that the amount of wealth held by nations is more economically equal than it has been in 150 years. How did this happen and what does it mean for the future?
A look at history explains how major inequality between global nations came about.
We tend to think of the Industrial Revolution as a time when the world began to experience sudden and rapid growth. But this did not happen at equal speeds and degrees around the globe.
Countries in the West had a head start, bolstered by wealth obtained during the colonial era, and were more easily able to put in motion new and advanced technologies. Meanwhile, nations recovering as victims of these conquests lagged behind.
The increased workforce productivity and booming trade that took place in the West as a result of the Industrial Revolution only further widened the global inequality gap throughout the twentieth century.
It’s no surprise then that major differences in economic prosperity became easily observable between regions. More specifically between the West (UK, Northern Europe, and the US) and East (Africa, India, and some parts of Eastern Asia).
This granted citizens in Western nations great social mobility, resulting in a drop in economic disparity between citizens within these regions. It also saw America become responsible for a massive 40 percent of global economic output.
Today, the world is different. Countries with lower GDP per capita are tapping into their resources, developing rapidly, and coming for long-reigning Western nations’ spots.
Globalisation and the West’s dwindling power
Globalisation has enabled money to flow more lucratively into developing nations, boosting their economies and improving rates of productivity.
This is most evident in China, which has experienced tremendous growth in just a few decades. Similar growth is also taking place in India, admittedly at a much slower rate, but it can also explain the Gini coefficient rating drop that occurred in the last 20 years.
For as long as most of Gen Z has been alive, even the poorest individuals in Western nations have been considered rich when compared to the highest earners in low-income nations.
The tables are turning, with a growing number of citizens in China starting to match the income levels of middle-class Americans. Milanovic points out that within the next two to three decades, the number of Chinese people earning more than the U.S. median will surpass the number of Americans continuing to do so.
This is causing our perspective on wealth to shift to a global lens. As earners in non-Western countries begin claiming higher earnings, they’re forcing Westerners out of their long-reigning position as the world’s top earners.
From this angle, you’re no longer ‘rich’ or ‘poor’ by Western standards. You’re ‘rich’ or ‘not rich’ by a global standard. As such, countries in the West are seeing economic disparity amongst their own citizens worsen for the first time in two centuries.
What the overall data doesn’t tell us
Of course, the fact that money is flowing more equally around the world is objectively very good news.
The infamous Three World Model could become less relevant as developing nations continue improving education rates – especially for young girls – creating a domino effect resulting in higher employment, boosted economic productivity, and stronger trading power.
Globalisation has no doubt opened opportunities for lower-income nations to accomplish this. But Milanovic points out that it is not the silver bullet, warning that ‘progress towards greater global inequality is not inevitable’ and has historically left some nations worse off.
He also says that whether the Gini coefficient rating for global economic inequality falls further will depend on the ability of African countries to grow and sustain a higher level of wealth. This is a scenario he sees as ‘unlikely,’ though these things aren’t always entirely predictable.
All in all, rich people in the West may still be getting richer and poorer groups are now feeling the pinch more than ever. But, it’s interesting to see wealth – which generally equates to overall power – being more evenly distributed across the world.
Read the full report here, complete with full stats and visual graphs depicting how global inequality has changed throughout the decades.
I’m Jessica (She/Her). I\\\’m the Deputy Editor & Content Partnership Manager at Thred. Originally from the island of Bermuda, I specialise in writing about ocean health and marine conservation, but you can also find me delving into pop culture, health and wellness, plus sustainability in the beauty and fashion industries. Follow me on Twitter, LinkedIn and drop me some ideas/feedback via email.
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