In a new paper, Branko Milanovic depicts the recent history of global incomes:
The vertical axis shows changes in real income between 1988 and 2008, measured in 2005 international dollars, i.e. adjusted for inflation and how the cost of things varies in different countries. The horizontal axis divides the incomes of the world into percentiles. Note that Prof Milanovic, the World Bank’s lead economist, is looking at the distribution of people’s incomes, not that of countries’.
On the far right of the chart is one of the two biggest “winners”: the 60m or so people who constitute the world’s top 1 per cent. About half of these are the richest 12 per cent of Americans. The rest of the top 1 per cent is made up by the top 3-6 per cent of Britons, Japanese, French and German, and the top 1 per cent of several other countries, including Russia, Brazil and South Africa.
The even bigger “winner” is the new global middle class, particularly in China and India. In 1988, a median earner in China would be richer than only 10 per cent of the world’s population. Twenty years later, that median income would put the average Chinese in the top half of the global income distribution.
On the far left of the chart is one of the two biggest “losers”: the very poorest. (This picture is probably too rosy given problems with data collection. Researchers find it tough to get data from people at the very bottom and very top of the global income scale.) The other, around the 80th percentile, is what Prof Milanovic calls “a global upper middle class” – including many people from former Communist countries, “as well as those citizens of rich countries whose incomes stagnated”.
“It was probably the profoundest reshuffle of people’s economic positions since the industrial revolution,” Prof Milanovic writes of these 20 years.
Among other things, the paper offers a broader context for stagnant real median incomes in the UK and the US. If current trends continue, or accelerate as many believe, “we should not be surprised to find that the median individual in the ‘rich world’ becom[es] globally somewhat poorer”, Prof Milanovic writes. I also wonder whether London is acting as a something of a microcosm for the trends described in the paper.
Actually, one more chart but it is important, too
The whole paper is recommended reading. It is full of other insights, just one of which I’ll mention in passing here, in light of the Lampedusa tragedy – location is now much more important than class when it comes to determining whether someone will be poor, globally speaking.
Prof Milanovic finds that about half of one’s income depends on the average income of the country in which that person was born. This is different to the situation 100-150 years ago when it made at least some sense for Leon Trotsky, the revolutionary of “deep-water greatness” according to Saul Bellow’s Augie March, to think of a common proletariat predicament. Today the incomes of poor people in rich countries are just so much higher than the incomes of poor people in poor countries – as the chart below suggests.
The vertical axis refers to the distribution of global incomes. The horizontal axis segments citizens of different countries by 20 income groups. As you can see, even the poorest people in Italy are very much richer than those in Albania, for example. (The Germany-Italy split is fascinating, too.) Prof Milanovic provocatively asks “if most of global inequality is due to differences in location, can we treat location, and thus citizenship, as rent?”
I think the world would be a better place if we reflected and acted on the sheer fortune of where we are born. The politics of Milanovic’s idea would be almost unimaginable. Nevertheless, this is a vital point of context to debates about whether welfare states and mass immigration are compatible. For to slightly adapt Prof Milanovic’s concluding slogan, in the future either poor countries will get richer or more poor people will want to move to rich countries.