- Global inequality trends reveal divergence between rich and poor nations
- Rich country middle classes have taken a big hit in recent years
- Millions lifted from poverty in emerging world, especially China
Income inequality is rising. It is also falling. It all depends on your search parameters.
That is, inequality has been rising sharply in rich nations, with the middle-class taking a big hit, even as millions of poor residents in the developing world have edged their way into their own country’s middle-income strata.
Nancy Birdsall, veteran development scholar and senior fellow at the Center for Global Development in Washington, explains how both things came to be true.
“In the last three decades, the opening and integration of markets — the phenomenon we loosely call ‘globalization’ — has had opposite effects on the psyche of the middle class in the rich relative to the developing world,” she writes in a new essay published in the Spanish newspaper La Vanguardia. This is how Birdsall explains the diverging but related trends:
“The opening of markets, since about 1990, has created and inspired a new, small but growing and forward-looking, middle class in the developing world, still relatively poor compared to the middle class in the West, but enjoying the kind of material security and sense of good prospects for their children associated with the idea of the postwar Western middle class. During the same period, the larger (and still far richer) middle class in the West has declined in size, and the prevailing mood among many of its members is one of anxiety and pessimism about their future prospects including those of their children. It does not help that their social standing at home has also declined, with the emergence of a new wealthy ‘elite’ with global connections and ‘globalist’ attitudes.”
Birdsall was basing her remarks in part on the research of Branko Milanovic of the City University of New York (CUNY), whose “Elephant Chart” below has gained a lot of attention among economists who study inequality. It essentially helps explain the disaffection among poorer Americans and Europeans with the concept of globalization and open trade — this group feels, with good reason, that it was a victim of the process rather than its beneficiary.
The chart depicts the income gains of the world’s population between 1988 and 2011, with income groups from poor to rich arranged to reflect each group’s share of total global income over that time.
“The middle classes in the developing world (the pale and dark yellow broad back of the elephant) have been the big winners of open and globalized markets, growing in size and enjoying (with many having moved out of poverty into the middle class) income gains, on average, between 20% and over 100% over the 20-year period,” Birdsall writes.
The rich world’s middle class in contrast, represented in orange on the chart, managed average real income gains of less than 20% over 20 years — around 1% a year.
“Meanwhile, in many Western economies the middle class was hollowed out; in the United States, it declined as a share of population from 62% to 59% in the last 20 years. In relative terms, the rich world middle class appears stuck at the bottom of the elephant’s trunk,” Birdsall adds.
She also cites a Pew Research study showing that, between 1991 and 2010, “the size of the middle class, defined in these studies as those households with income between two-thirds and double each country’s median household income, fell in the United States, Germany, Italy, Norway, Denmark and Spain (though not in the United Kingdom and France).”
What about the tip of the elephant’s trunk, marked in red? That’s the infamous 1% — “a tiny ‘world’s rich’ group.”