Tuesday, November 18, 2014
Analyzing Global Inequality: Past Evolvement, Current Trends and Impact on Global Affairs
By Bakampa Brian Baryaguma
[Dip. Law (First Class)–LDC; PG Cert. Oil & Gas–Mak; LLB (Hons)–Mak; GC Candidate–GCA]
Very many things can be said about the world. One is that it ‘... is a very unequal place ....’ ironically, life is characterized by a number of sharply contrasting episodes – rich or pauper, wise or fool, brave or coward, strong or weak, master or servant/slave, among others. These social differentiations ultimately cause inequality.
Global inequality refers to inequality among citizens of countries in the whole world, looked at as if it were one country. Income variations are the main dimension of inequality, though not the only one. Indeed, Professor Stiglitz says that there are many dimensions to inequality – income, wealth, health, exposure to environmental hazards and access to justice. Nevertheless, this essay mainly discusses the dimension of income inequality.
2. Past Evolvement of Global Inequality
In the past, prior to the industrial revolution, global inequality was based on class, as determine by successive socio-economic stages that human society has gone through in the course of development, each with different modes of production.
One’s location or situation in the relevant stage determined his or her production level and consequently his or her social class. Different placements on the social scale automatically resulted into unequal productivity, thus translating into inequality in all its forms.
3. Current Trends of Global Inequality
The emergence of the industrial revolution in about 1820 (at the end of Napoleon’s reign in France and his wars in 1815) enabled many countries to accumulate enormous wealth. But the industrial revolution was not evenly spread globally, because it was concentrated in Europe and North America, which enabled some countries to become richer than others, leading to enormous global inequality. Thus, a study showed that, ‘Wealth is heavily concentrated in North America, Europe and high income Asia-Pacific countries, [where] ... People ... collectively hold almost 90% of total world wealth.’
Due to disparities in global development, the Human Development Report 2009 (hereinafter ‘the HDR 2009’) noted that, ‘The world distribution of opportunities is extremely unequal.’ Consequently, today’s inequality is largely premised on geographical location; most of it ‘... stems from very different average incomes among countries. One’s income thus crucially depends on citizenship, which in turn means ... place of birth. All people born in rich countries thus receive a location premium or a location rent; all those born in poor countries get a location penalty.’
4. Impact on Global Affairs
Global inequality has immense impact on global affairs, which Professor Stiglitz says are intertwined, explaining that societies in which many individuals believe that there are fundamental inequities – that the system is not fair – don’t function well, such that individuals and the economies suffer.’ Unfortunately, most impacts are negative. The major ones include the following:–
Global inequality drives migration. The HDR 2009 found that, ‘Every year, more than 5 million people cross international borders to go and live in a developed country.’ It stated that, ‘... inequality is a key driver of human movement and thus implies that movement has a huge potential for improving human development.’ Migration improves people’s global income position; and is considered the single most important trend to alleviate poverty and reduce inequality.
But the HDR 2009 also stated that, ‘Yet movement is not a pure expression of choice—people often move under constraints that can be severe, while the gains they reap from moving are very unequally distributed.’ Migration is also very risky.
B. Undermining Democracy
Inequality incites feelings of marginalization among those affected. They pull back and withdraw from participation in public affairs, including elections, leading to corruption, non-transparency, impunity, poor accountability and incompetence, among others. These erode democratic values.
C. Fuelling Social Disintegration
Perceptions of inequality stir gradual embitterment among people living on the peripheral of society, which causes social disintegration, particularly between the haves and the have-nots. In some instances, social disintegration descends into chaos and violence.
For example, in December 2007, Kenyans took to cutting themselves with machetes, following a disputed presidential election, at the heart of which lay a bitter tribal rivalry between Kikuyus and Luos, over distribution of national resources – the latter accused the former of marginalization. In other instances, social disintegration has taken a truly national dimension, eliciting somewhat highhanded national responses. For example, the land reform programme in Zimbabwe that confiscated large chunks of land owned by whites, whom majority blacks accused of economic marginalization.
D. Weakening Economies
The International Monetary Fund (IMF) has found that inequality is one of the hindrances to economic growth. Inequality denotes lack of opportunity for many people; meaning that with it, human resources are underutilized, which weakens economic growth, because from a political economy perspective, the more divided a society is, the more difficulty it faces in getting political consensus behind important public investments. Moreover, increased inequality lowers aggregate demand, which curtails production of commodities in an economic system.
Global inequality is costly. Among others, first, we pay a high price for it, as we could have more growth, more stability and more equality, but we do not. Second, it poses a vicious circle, where more economic inequality leads to more political inequality; and more political inequality leads to amplified economic inequality. Third, global inequality undermines national, regional and international stability, because it induces intense feelings of segregation and deprivation that find expression in physical and other forms of overt violence.
The net effect of these ills on the human mind is so horrendous that inequality is a sticky and most dreaded subject to talk about, which calls for more effort in curtailing it.
Fortunately, there is some good news: the world is getting less unequal, which trend may be accelerated in the coming years, with the emergence of a global middle class. The growth and expansion of international trade contributes to the gradual reduction of global inequality.
Notes and References
1. Branko Milanovic, The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality (2010), at 120.
2. Surprisingly, upon close scrutiny, one finds that God or as the atheists would have it, Nature, may be the ultimate source of this inequality. Indeed, the Bible, in the book of Proverbs 10:22 states that, ‘It is the Lord’s blessing that makes you wealthy. Hard work can make you no richer.’ So, we may as well take it that the world’s paupers are poor because God wishes it, by not blessing them; conversely, the wealthy are rich because God wills it. In this regard therefore, He is the source and cause of financial and material inequality.
3. Branko Milanovic, in his Week 10 lecture on ‘Global Inequality,’ in the Global Civics lecture series, of the Global Civics Academy.
4. Christian Morrisson & Fabrice Murtin, ‘The World Distribution of Human Capital, Life Expectancy and Income: a Multi-dimensional Approach’ (2005), at 1. To them, longevity and education are also interesting components of welfare, after income and should be duly paid attention to, although they are completely different.
5. Professor Joseph E. Stiglitz, ‘Causes and Consequences of Growing Inequality and What Can be done about It’ (2014). He was speaking during the fourth Annual Oxford Fulbright Distinguished Lecture on International Relations, on 23 May 2014. According to him, inequalities in many of these areas are greater than in income.
Professor Stiglitz also says that there are many aspects of inequality: more income and wealth going to the top; hollowing out of the middle class in many advanced countries, with more people in tails of distribution; increases in poverty in some advanced countries; and worsening of income distribution in most countries.
According to him, each aspect of inequality has its cause – social, economic, political – although they are interrelated. He however, emphasizes that the problem is not just in the economics, but in the policies and politics too, that seem to matter most, yet whose inadequate and often haphazard response makes matters worse. For instance, it is assumed that growth benefits all and that there is always a trickle down effect in the economy, which is not necessarily true. Professor Stiglitz says that these aspects of inequality result into two broad categories of inequality: inequality of opportunity and inequality of outcomes. These are closely linked, because the one leads to the other and vice versa.
6. Branko Milanovic, Global Inequality Lecture, supra note 3.
7. Ernest K. Beyaraza, Social Foundations of Law: A Philosophical Analysis (2 edn), at 33-34, lists and explains the different socio-economic stages of human growth.
First was the primitive or communalist society, in which existed no social classes, since the modes of production were communally owned. Here, everybody was equal.
Second was the slave society – the first socially stratified or differentiated society – where human beings belonged to other human beings. Slaves were acquired, owned, used and disposed of by their masters. Slaves owned nothing and comprised part of the masters’ property. This social differentiation resulted into unequal wealth and power relations among people.
Third was feudal society, which was premised on land ownership by one group of people, the nobles – monarchs, royals (especially princes) and aristocrats – doubling as landlords, on the one hand; and landless peasants, doubling as tenants, on the other. Peasants were socially marginalized and disempowered vis-a-vis nobles who were highly privileged and powerful, thus translating into unequal power relations.
Fourth is capitalism that is characterized by the existence of owners of the means of production (capitalists, controlling land, money and raw materials) and their workers (supplying labour), whereby the former extract value from the latter for a wage. This inevitably results into inequality.
Fifth is socialism, which presupposes a classless society where the means of production are socially owned, emphasizing predominance of the majority working group. This premise of socialism, at the heart of which is the idea that from each according to his ability; and to each according to his needs, is an impractical hoax, which, even if it were real and feasible, still encourages inequality in the form of predominance of one group of people (the workers) over others.
One’s social status in each of these stages determined his or her financial and material prosperity. Since all people could not have occupied the same position, inequality was inevitable.
8. United Nations University World Institute for Development Economics Research, ‘Richest 2% own half the world's wealth’ (2006). Available at http://archive.unu.edu/update/issue44_22.htm (accessed on 8 November 2014, at 00:26 hrs). The study found that, ‘Although North America has only 6% of the world adult population, it accounts for 34% of household wealth. Europe and high income Asia-Pacific countries also own disproportionate amounts of wealth,’ yet, ‘In contrast, the overall share of wealth owned by people in Africa, China, India, and other lower income countries in Asia is considerably less than their population share, sometimes by a factor of more than 10.’
But it should be noted that even the rich countries succumbed to high rates of internal inequality that are subsisting to this day. For example, Professor Joseph E. Stiglitz, supra note 4, gives shocking information and statistics on inequality in the United States of America, which he says has the highest level of inequality among advanced economies, where the top 1% of US income earners take home 22.5% of income; the top 0.1% take home 11.3% of income; the top 0.01% take home 5.5% of income; and 95% of increase in income went to the upper 1% between 2009-2012.
Professor Mohammed Razeen, speaking in his Week 3 lecture on ‘International Trade,’ in the Global Civics lecture series, of the Global Civics Academy, said that this level of inequality is ‘obscene.’
Professor Stiglitz further says that countries that have emulated the US economic model are seeing increases in inequality, for example, the United Kingdom, which now ranks second in inequality.
9. United Nations Development Programme, Overcoming Barriers: Human Mobility and Development (2009), at 8.
10. Branko Milanovic, Global Inequality Lecture, supra note 3.
11. Branko Milanovic, The Haves and the Have-Nots, supra note 1. According to him, place of birth determines most of one’s lifetime income and explains more than 60% of variability in global incomes.
Speaking elsewhere, Branko Milanovic, Global Inequality Lecture, supra note 3, gives an example comparing the income variations of the United States of America and the Congo: while the former has more than USD 4000$ per capita, the latter has less than USD 400$ per capita, which translates into a ratio of 100:1. This means that a person living in the United States earns more than his or her Congolese counterpart and so the US resident is more empowered than the Congolese resident, because of the many privileges that come with financial prosperity, including enhanced literacy, greater access to information, ability to enforce one’s human rights and living a healthy and wholesome life.
12. Professor Joseph E. Stiglitz, supra note 5. He submits that inequality in health undermines economic performance.
13. United Nations Development Programme, supra note 9.
14. Ibid. According to the report, at page 9 thereof, ‘A person’s opportunities to lead a long and healthy life, to have access to education, health care and material goods, to enjoy political freedoms and to be protected from violence are all strongly influenced by where they live. Someone born in Thailand can expect to live seven more years, to have almost three times as many years of education, and to spend and save eight times as much as someone born in neighbouring Myanmar. These differences in opportunity create immense pressures to move.’
15. Branko Milanovic, The Haves and the Have-Nots, supra note 1, at 123. According to Mr Milanovic, ‘... one’s own efforts, one’s country doing well, and migration are three ways in which people can improve their global income position,’ but he stresses that, ‘The role a person’s effort plays is small; he cannot influence his country’s growth rate, so the only alternative that remains is migration.’ See, ibid.
16. Hakan Altinay, in his follow-up remarks to the Week 10 lecture on ‘Global Inequality,’ in the Global Civics lecture series, of the Global Civics Academy.
Unfortunately, according to Branko Milanovic, Global Inequality Lecture, supra note 3, the rich countries are placing large obstacles to migration, because the temptation for people to migrate from poor countries are very high; and writing elsewhere, Branko Milanovic, The Haves and the Have-Nots, supra note 1, at 164, he has warned of consequences that this will have on the crucial subject of globalization, saying that, ‘... if both large income gaps between countries persist and rich countries limit or prevent migration, globalization may have to be scaled back.’
17. United Nations Development Programme, supra note 9. The report observes, at page 9 thereof, that, ‘For people who move, the journey almost always entails sacrifices and uncertainty. The possible costs range from the emotional cost of separation from families and friends to high monetary fees. The risks can include the physical dangers of working in dangerous occupations. In some cases, such as those of illegal border crossings, movers face a risk of death. Nevertheless, millions of people are willing to incur these costs or risks in order to improve their living standards and those of their families.’
18. For more information, see, Wikipedia, ‘Land Reform in Zimbabwe’ (2014), available at http://en.wikipedia.org/wiki/Land_reform_in_Zimbabwe (Accessed on 6 November 2014, at 00:07 hrs).
19. Professor Joseph E. Stiglitz, supra note 5.
20. Ibid. For instance, the Professor says that children of poor people are not living up to their potential.
25. Ibid. Professor Stiglitz refers to one American presidential candidate who reportedly said that you only talk about inequality in economics behind closed doors, in quiet voices.
26. Per Hakan Altinay, supra note 16; Professor Stiglitz, supra note 5.
Christian Morrisson & Fabrice Murtin, supra note 4, reveal a lot of good news on reduction of inequality. They state that, ‘Inequality in life expectancy has increased from 1820 to 1930 and fallen considerably from 1930 to the present day.’ (See page 2 thereof); that, ‘The world in 1870 was characterized by a huge gap between the literate and illiterate populations which we hardly can think of today.’ (See page 4 thereof); that, ‘education inequality has decreased steadily since 1870 whereas income inequality has reached its maximum in the middle of the 20th century and lessened only slightly since 1980.’ (See page 5 thereof); and that the extreme poverty rate has decreased from 75% to 20% since 1870 (See page 5 thereof). Overall, they say that, ‘The period between 1870 and 1930 is characterized by an increasing gap in income, life expectancy and education between Western Europe and the rest of the world, particularly Asia and Africa. There are some important interactions between the three components of human development : the success of industrialization and exports of manufactured goods in Western Europe results partially from the technological pace and the gains in productivity induced by important investment in education. The longevity could increase rapidly because average consumption of food improved and health services progressed thanks to education improvement. So that Western Europe populations were involved in a virtuous circle of human development which was out of reach of most other countries before 1950, even if small minorities had access to the same income or education.
But since 1930 and especially since 1950-1960, several other countries have progressively combined accumulation of human capital and increasing income. As a result they have obtained longer longevity and higher human development....’ (See page 12 thereof).
27. Professor Mohammed Razeen, speaking in his Week 3 lecture on ‘International Trade,’ in the Global Civics lecture series, of the Global Civics Academy, argued that trade has enabled an upsurge of foreign investments in many countries, bringing with it a string of several benefits like capital, human resource skills, technology, management expertise and global networks in marketing, finance, etc. These benefits contribute to the reduction of global inequality.