International inequality is inequality between countries (cf. Milanovic 2002).
Economic differencesEconomic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and...
between rich and poor countries are considerable. According to the
United NationsThe United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achieving of world peace...
Human Development Report 2004, the GDP per capita in countries with high, medium and low human development (a classification based on the UN Human Development Index) was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ =
purchasing power parityThe purchasing power parity theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power...
measured in
United States dollarThe United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
s).
A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total.
International inequality is inequality between countries (cf. Milanovic 2002).
Economic differencesEconomic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and...
between rich and poor countries are considerable. According to the
United NationsThe United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and the achieving of world peace...
Human Development Report 2004, the GDP per capita in countries with high, medium and low human development (a classification based on the UN Human Development Index) was 24,806, 4,269 and 1,184 PPP$, respectively (PPP$ =
purchasing power parityThe purchasing power parity theory uses the long-term equilibrium exchange rate of two currencies to equalize their purchasing power...
measured in
United States dollarThe United States dollar is the unit of currency of the United States. The U.S. dollar is normally abbreviated as the dollar sign, $, or as USD or US$ to distinguish it from other dollar-denominated currencies and from others that use the $ symbol. It is divided into 100 cents .The U.S...
s).
A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned barely 1% of global wealth. Extensive statistics, many indicating the growing world disparity, are included in the available report, press releases, Excel tables and Powerpoint slides.
The major component of the world's income inequality (the global
Gini coefficientThe Gini coefficient is a measure of statistical dispersion developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variability and Mutability" . It is commonly used as a measure of inequality of income or wealth...
) is comprised by two groups of countries (called the "twin peaks" by
QuahDanny Quah is Professor of Economics at the London School of Economics and Political Science and is currently the Head of Department of Economics at the same school...
[1997]).
- The first group has 13% of the world's population and receives 45% of the world's PPP income. This group includes the United States, Japan, Germany, France and the United Kingdom, and comprises 500 million people with an annual income level over 11,500 PPP$.
- The second group has 42% of the world's population and receives only 9% of the world PPP income. This group includes India, Indonesia and rural China, and comprises 2,100 million people with an income level under 1,000 PPP$. (See Milanovic 2001, p.38).
Economic inequality is generally considered to be approximately
exponentialIn mathematics, the exponential function is the function ex, where e is the number such that the function ex equals its own derivative. The exponential function is used to model phenomena when a constant change in the independent variable gives the same proportional change ...
as one traverses the strata of national and world societies from top-to-bottom. More sophisticated models of income distribution may apply (see
Pareto distributionThe Pareto distribution, named after the Italian economist Vilfredo Pareto, is a power law probability distribution that coincides with social, scientific, geophysical, actuarial, and many other types of observable phenomena...
).
During the 20th century there was considerable divergence between the economic
wealthIn economics and business, wealth of a person or nation is the value of assets owned net of liabilities owed at a point in time. The assets include those that are tangible and financial . Wealth may be measured in nominal or real values...
of developed and developing countries. Richer countries like the United States and many European countries converged together towards a GDP per capita much greater than developing countries such as India and Ethiopia.
The evolution of the income gap between poor and rich countries is related to
convergenceThe catch-up effect, also called the theory of convergence, states that poorer economies tend to grow at faster rates than richer economies. Therefore, all economies should in the long run converge in terms of per capita income and productivity...
. Convergence can be defined as "the tendency for poorer countries to grow faster than richer ones and, hence, for their levels of income to converge"
http://www.worldbank.org/fandd/english/0696/articles/090696.htm. Convergence is a matter of current research and debate, but most studies have shown lack of evidence for absolute convergence based on comparisons among countries (with regard to this debate see for instance Cole and Newmayer (2003) or
http://ucatlas.ucsc.edu/income/debate.html).
Comparisons
Some of the economic disparities among nations can be better appreciated when rich and poor countries or societies are contrasted. For example, with regard to income inequality, according to some estimates by
Branko MilanovicBranko Milanovic is a Lead economist in the World Bank's research department in the unit dealing with poverty and inequality and a senior associate at the Carnegie Endowment for International Peace, in Washington, D.C.-Education:...
from the
World BankThe World Bank is an international financial institution that provides leveraged loans to poorer countries for capital programs, tied to neoliberal market restructurings...
:
- "An American having the average income of the bottom US decile is better-off than 2/3 of world population." (Milanovic 2002, p.50)
- "The top 10 percent of the US population has an aggregate income equal to income of the poorest 43 percent of people in the world, or differently put, total income of the richest 25 million Americans is equal to total income of almost 2 billion people." (Milanovic 2002, p.50)
With regard to wealth inequality (researchers defined wealth as the value of physical and financial assets minus debts), a 2006 report with data from 2000 concluded that:
- "India dominates the bottom third of the global wealth distribution, contributing a little under a third (27 per cent to be precise) of this group. The middle third of the distribution is the domain of China which supplies more than a third of those in deciles 4-8. At the top end, North America, Europe and high-income Asia monopolise the top decile, each regional group accounting for around one third of the richest wealth holders" (Davies et al. 2006, p.27)
- "the top 10 per cent of adults own 85 per cent of global household wealth, so that the average member of this group has 8.5 times the global average holding. The corresponding figures for the top 5 per cent, top 2 per cent, and top 1 per cent are 71 per cent (14.2 times the average), 51 per cent (25 times the average) and 40 per cent (40 times the average), respectively. This compares with the bottom half of the distribution which collectively owns barely 1 per cent of global wealth. Thus the top 1 per cent own almost 40 times as much as the bottom 50 per cent. The contrast with the bottom decile of wealth holders is even starker. The average member of the top decile nearly 3000 times the mean wealth of the bottom decile, and the average member of the top percentile is more than 13,000 times richer." (Davies et al. 2006, p.26)
- "for the world as a whole the share of the top 10 per cent was 85 per cent in the year 2000 and the Gini equalled 0.892 using official exchange rates" (Davies et al. 2006, p.32)
- "only $2161 was needed in order to belong to the top half of the world wealth distribution, but to be a member of the top 10 per cent required at least $61,000 and membership of the top 1 per cent required more than $500,000 per adult." (Davies et al. 2006, p.25)
James Davies, Professor of Economics at the University of Western Ontario, and one of the authors of the report, said: "Income inequality has been rising for the past 20 to 25 years and we think that is true for inequality in the distribution of wealth." "There is a group of problems in developing countries that make it difficult for people to build assets, which are important, since life is so precarious."
http://www.timesonline.co.uk/article/0,,11069-2488836,00.html
Other disparities can be better appreciated when rich individuals (or corporations) are compared against poor individuals. According to some estimates, for instance:
- "The richest 1 percent of people in the world receive as much as the bottom 57 percent, or in other words, less than 50 million richest people receive as much as 2.7 billion poor." (Milanovic 2002, p.50)
- The three richest people possess more financial
Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated...
assets than the poorest 10% of the world's population, combined http://cte.rockhurst.edu/FileUploads/mchugh.pdf.
- As of May 2005, the three richest people in the world have assets that exceed the combined gross domestic product of the 47 countries with the least GDP, (calculation based on data from list of countries by GDP (PPP) and list of billionaires) (Annan, 1998)
However, the three richest individuals' wealth consists largely of stock in their own companies. The value of these assets was largely created by the economic conditions in their respective countries.
- As of May 2005, the 125 richest people in the world have assets that exceed the combined gross domestic product of all the least developed countries
Least Developed Countries are countries which according to the United Nations exhibit the lowest indicators of socioeconomic development, with the lowest Human Development Index ratings of all countries in the world...
(calculation based on data from list of countries by GDP (PPP) and list of billionaires).
Causes of international inequality
There are many hypotheses about what may cause international inequality. For example, poor countries may have been subjected in the past or present to
exploitationThe term "exploitation" may carry two distinct meanings:# The act of using something for any purpose. In this case, exploit is a synonym for use.# The act of using something in an unjust or cruel manner...
,
colonialismColonialism is the building and maintaining of colonies in one territory by people from another territory. Sovereignty over the colony is claimed by the metropole...
,
neocolonialismNeocolonialism is a term used by post-colonial critics of developed countries' involvement in the developing world. Writings within the theoretical framework of neocolonialism argue that existing or past international economic arrangements created by former colonial powers were or are used to...
or
imperialismImperialism, as defined by the dictionary of human geography, is “the creation and maintenance of an unequal economic, cultural and territorial relationship, usually between states and often in the form of an empire, based on domination and subordination.” Imperialism, in many ways, is described...
. In this context, the
dependency theoryCategory:Uncategorized articles needing expert attentionDependency theory is a body of social science theories predicated on the notion that resources flow from a "periphery" of poor and underdeveloped states to a "core" of wealthy states, enriching the latter at the...
, the Marxian point of view on imperialism and even the
anti-globalizationCriticism of globalization is skepticism of the claimed benefits of the globalization of capitalism. Many of these views are held by the anti-globalization movement however other groups also are critical of the policies of globalization....
movement may be relevant. Internal national inequality may also be an important factor in
underdevelopmentUnderdevelopment is the state of an organization that has not reached its maturity.It is often used to refer to economic underdevelopment, symptoms of which include lack of access to job opportunities, health care, drinkable water, food, education and housing.-Overview:Underdevelopment takes place...
. Many other causes may play a role, as is the case with
povertyPoverty is the condition of lacking basic human needs such as nutrition, clean water, health care, clothing, and shelter because of the inability to afford them. This is also referred to as absolute poverty or destitution...
. With limited academic success, even national mean IQ differences have been proposed as hypothetical causes (see
IQ and the Wealth of NationsIQ and the Wealth of Nations is a controversial 2002 book by Dr. Richard Lynn, Professor Emeritus of Psychology at the University of Ulster, Northern Ireland, and Dr. Tatu Vanhanen, Professor Emeritus of Political Science at the University of Tampere, Tampere, Finland...
) though this has received much criticism. Several factors have been recognized as being important for a country to grow faster economically, a requirement to "converge" to the status of richer countries. One of this factors are the institutions. Some economists (for example
Hernando de SotoHernando de Soto is a Peruvian economist known for his work on the informal economy and on the importance of business and property rights. He is the president of Peru's Institute for Liberty and Democracy , located in Lima....
and
New institutional economistNew institutional economics is an economic perspective that attempts to extend economics by focusing on the social and legal norms and rules that underlie economic activity.-Overview:...
Douglass NorthDouglass Cecil North is an American economist known for his work in the history of economic thought. He is the co-recipient of the 1993 Nobel Memorial Prize in Economic Sciences...
) emphasize the role of certain institutions, like those protecting property rights, in the development of rich nations.
CorruptionPolitical corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
(v.g.
http://www.reason.com/news/show/33258.html) has an associated role which can deform economic incentives. Another factor is education, including technology and human development. A third factor is international commerce, and a fourth factor geographic advantages.
Schools of thought on economic inequality
Main discussion: Perspectives regarding economic inequality.
There are various schools of thought regarding economic inequality.
MarxismMarxism is the political philosophy and economic worldview based upon a materialist interpretation of history, a Marxist analysis of capitalism, a theory of social change, and an atheist view of human liberation derived from the work of Karl Marx and Friedrich Engels; three primary aspects of...
favors an eventual society where distribution is based on an individual's needs rather than social class or other such factors.
MeritocracyMeritocracy is a system of a government or other organization wherein appointments are made and responsibilities assigned to individuals based upon demonstrated talent and ability . In a meritocracy, society rewards those who show talent and competence as demonstrated by past actions or by...
favors an eventual society where an individual's success is a direct function of contribution reflecting an individual's skills and effort, and detrimental inasmuch as it represent inherited or unjustified wealth or opportunities. Classical liberals and libertarians generally do not take a stance on wealth inequality, but believe in equality under the law regardless of whether it leads to unequal wealth distribution. Arguments based on
social justiceSocial justice is a notion used to describe a society with a greater degree of economic egalitarianism through progressive taxation, income redistribution, or even property redistribution, policies aimed toward achieving that which developmental economists refer to as equality of opportunity and...
favor a more equal distribution making claims economic inequality weakens societies, although counter-arguments are made that inequality might benefit societies.
See also
- Classism
Classism is prejudice and/or discrimination on the basis of social class. It includes individual attitudes and behaviors, systems of policies and practices that are set up to benefit the upper classes at the expense of the lower classes...
- Development economics
Development economics is a branch of economics which deals with economic aspects of the development process in low-income countries. Its focus is not only on methods of promoting economic growth and structural change but also on improving the potential for the mass of the population, for example,...
- Development geography
Development geography is the study of the Earth's geography with reference to the standard of living and quality of life of its human inhabitants. In this context, development is a process of change that affects people's lives. It may involve an improvement in the quality of life as perceived by...
- Economic development
Economic development is the increase in the standard of living of a nation's population associated with sustained growth from a simple, low-income economy to a modern, high-income economy...
- Economic inequality
Economic inequality comprises all disparities in the distribution of economic assets and income. The term typically refers to inequality among individuals and groups within a society, but can also refer to inequality among countries. Economic Inequality generally refers to equality of outcome, and...
(Male-female income disparity)
- Income inequality metrics
The concept of inequality is distinct from that of poverty and fairness . Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific...
- Income disparity
In the context of economic inequality, gender gap generally refers to the differences in the wages of men and women. There is a debate to what extent this is the result of gender differences, lifestyle choices , or because of discrimination.-Statistics:A United Nations report found that women...
- International development
International development or global development is a concept that lacks a universally accepted definition, but it is most used in a holistic and multi-disciplinary context of human development – the development of greater quality of life for humans,...
- Human Development Index
The Human Development Index is an index used to rank countries by level of "human development", which usually also implies whether a country is developed, developing, or underdeveloped.-Summary:...
, United Nations (with comparisons between nations)
- Poverty
Poverty is the condition of lacking basic human needs such as nutrition, clean water, health care, clothing, and shelter because of the inability to afford them. This is also referred to as absolute poverty or destitution...
- United Nations Millennium Development Goals
The Millennium Development Goals are eight international development goals that 192 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...
- Income inequality in the United States
Income inequality in the United States is the extent to which income, most commonly measured by household or individual, is distributed in an uneven manner...
- Male-female income disparity in the USA
Male–female income disparity, also referred to as a "gender gap in earnings", in the United States, also known as the "gender wage gap," the "gender earnings gap" and the "gender pay gap", is used by government agencies and economists to refer to statistics gathered by the U.S. Census Bureau, as...
- Welfare trap
The welfare trap theory asserts that taxation and welfare systems can jointly contribute to keep people on social insurance. This is also known as the unemployment trap or poverty trap in the UK....
- Distribution of wealth
Distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in a manner analogous to the difference between position and speed.-Definition of wealth:...
- Distributive justice
Distributive justice concerns what some consider to be socially just with respect to the allocation of goods in a society. Thus, a community in which incidental inequalities in outcome do not arise would be considered a society guided by the principles of distributive justice...
- List of countries by income equality
See also, related
- IQ and Global Inequality
IQ and Global Inequality is a 2006 book by Dr. Richard Lynn, Professor Emeritus of Psychology at the University of Ulster, Northern Ireland, and Dr. Tatu Vanhanen, Professor Emeritus of Political Science at the University of Tampere, Tampere, Finland...
(book)
- Global Justice
Global justice is an issue in political philosophy arising from the concern that "we do not live in a just world."-Context:The broader philosophical context of the global justice debate, in both its contemporary and historical forms, is the issue of impartiality...
- Globalization
Globalization describes an ongoing process by which regional economies, societies, and cultures have become integrated through a globe-spanning network of communication and exchange....
- Positive liberty
Positive liberty refers to having the power and resources to act to fulfill one's own potential, as opposed to negative liberty, which refers to freedom from restraint. Inherent to positive liberty is the idea that liberty is the ability of citizens to participate in their government, or in...
- Negative liberty
The concept of negative liberty refers to freedom from interference by other people. According to Thomas Hobbes, "a free man is he that in those things which by his strength and wit he is able to do is not hindered to do what he hath the will to do." The concept of negative liberty refers to...
- Marx
- United Nations Millennium Development Goals
The Millennium Development Goals are eight international development goals that 192 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...
- Occupational inequality
Occupational inequality is the unequal treatment of people based on gender or race in the workplace. When researchers study trends in occupational inequality they usually focus on distribution or allocation pattern of groups across occupations, for example, the distribution of men compared to women...
- Poverty
Poverty is the condition of lacking basic human needs such as nutrition, clean water, health care, clothing, and shelter because of the inability to afford them. This is also referred to as absolute poverty or destitution...
and Cycle of povertyIn economics, the cycle of poverty is the "set of factors or events by which poverty, once started, is likely to continue unless there is outside intervention."...
- Population health
Population health has been defined as “the health outcomes of a group of individuals, including the distribution of such outcomes within the group.” It is an approach to health that aims to improve the health of an entire population. One major step in achieving this aim is to reduce health...
- Population Health Forum
The Population Health Forum is a group based at University of Washington in Seattle, Washington, and composed of academics, citizens, students, and activists from around North America.- Purpose and activities :...
- Achievement gap
An achievement gap refers to the observed disparity on a number of educational measures between the performance of groups of students, especially groups defined by gender, race/ethnicity, ability, and socioeconomic status...
- Digital gap
- Generation gap
The generation gap is a popular term used to describe differences between people of a younger generation and their elders, especially between a child and his or her parent's generation....
- Marriage gap
The marriage gap describes observed economic and political disparities between those who are married and those who are single. The marriage gap can be compared to, and should not be confused with, the gender gap.-Politics and marriage:...
- Opportunity gap
Opportunity gap can refer to:*in business, a Market opportunity a company or individual is not addressing*in politics, a euphemism for a lack of equal opportunity-See also:*Business opportunity*Market Intelligence*Marketing management*Marketing plan...
- Working Class Education
Children of the working class have a completely different educational experience than children of the middle and upper classes. Because of this, working class children can start out life already behind the curve...
- Split labor market theory
-Theory Overview:A split labor market is a three-way conflict between the Capitalist and two labor groups with the Capitalist seeking to displace higher paid workers by cheaper labor. A split labor market occurs when the price of labor for the same work differs for at least two groups or would...
- Race and Inequality
- Economic mobility
Economic mobility is the ability of an individual or family to improve their economic status, in relation to income and social status, within his or her lifetime or between generations...
- Gini coefficient
The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variability and Mutability" . It is commonly used as a measure of inequality of income or wealth...
- Wealth inequality in the United States
Wealth inequality in the United States refers to the unequal distribution of financial assets among residents of the United States. Wealth includes the values of homes, automobiles, businesses, savings, and investments. Those who acquire a great deal of financial wealth do so primarily through the...
- Expenditure cascades
-Definition:Over the past few decades, income inequality in the United States has risen dramatically. Top earners have experienced a remarkably rapid income growth while those with lower earnings have experienced much less increase in their income. An expenditure cascade occurs when the swift...
External links