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Global Inequality is Falling. So what?

Jan 7, 2015

Concern about inequality has been at a recent high, particularly since the publication of Thomas Piketty's Capital in the 21st Century—a book that has been described as "marshaling the evidence that 21st-century capitalism is on a one-way journey towards inequality." Yet there is an ambiguity at the heart of recent research on inequality. As Stephen Lakner and Branko Milanovic report:

Most of global inequality is accounted for by differences between countries, although this contribution has declined over time, suggesting that countries have become more similar. The within-country component of global inequality, however, has increased continuously over this 20-year period [1988-2008]. In other words, inequality is rising within countries, but is falling for the world as a whole1 . The rich are moving further away from the poor within the United States and Europe, but the gap between the global rich and the global poor has narrowed. This is explained by the fact that while the middle classes in rich countries have seen relatively low income growth in the past 20 years, they remain relatively rich by global standards. Thus the rapid growth of poorer countries, particularly China, has contributed to lower global inequality.

What are we to make of this finding? Does the reduction in global inequality in recent years compensate for higher domestic inequality? The question takes on particular importance because of the evidence that the two might be linked, raising the possibility of a policy trade-off. Tyler Cowen suggests that "Policies on immigration and free trade, for example, sometimes increase inequality within a nation, yet can make the world a better place and often decrease inequality on the planet as a whole," (though we should be wary of taking this at face value, as both claims are controversial).

Cowen's view is that recent developments have been for the best:

Although significant economic problems remain, we have been living in equalizing times for the world—a change that has been largely for the good. That may not make for convincing sloganeering, but it's the truth. However, Cowen moves too quickly. There are a number of knotty moral and empirical questions involved in weighing global against domestic inequality.

The first philosophical question to resolve is whether global inequalities have any moral salience at all. This is one of the major points of contention in contemporary political philosophy: what is often termed the global justice debate.2 On one side of the debate there are egalitarians who deny that the principles of equality they espouse within nations are applicable across borders. Philosophers in this camp, such as David Miller, Michael Blake, Andrea Sangiovanni, and John Rawls, can be referred to as Liberal Nationalists. On the other side, there are those who insist that inequality between citizens of different states is morally objectionable—philosophers such as Peter Singer, Charles Beitz, and Simon Caney, who are commonly called Cosmopolitans.

The natural inference to draw from this debate is that Cosmopolitans will see the recent decline in global inequality as cause for celebration, while Liberal Nationalists will be dismayed by the rise of inequality within nations. However, it is not as clear cut as that. Liberal Nationalist philosophers are not so hard hearted as to say that the conditions of people in poor countries do not matter at all. Typically, they only deny that they are morally due equality with those in rich countries. In other words, they believe that the absolute position of the global poor is morally significant, but not their relative income in global terms.

So, for example, Andrea Sangiovanni, despite arguing against global equality, at the same time claims that:

all plausible criteria of distributive justice, whether national, international, or global, must at least require raising all human beings to a minimal threshold defined in terms of access to basic goods, including clothing, shelter, food, and sanitation. And Michael Blake, in another Liberal Nationalist article, expresses the view that: "Much international poverty can be condemned in terms of absolute deprivation." This is in fact a common theme amongst Liberal Nationalists.3

There is a bit of ambiguity as to how poor a person needs to be below the threshold of moral concern for Nationalists, but wherever they draw the line, they should take heart from the progress that has been made in recent years. If we take the much-cited World Bank poverty line of $1.25 per day, poverty has declined dramatically:

According to the most recent estimates, in 2011, 17 percent of people in the developing world lived at or below $1.25 a day. That's down from 43 percent in 1990 and 52 percent in 1981.

However, living on even $1.25 a day still involves doing without a number of basic goods. If Liberal Nationalists accept that benefiting people above this poverty line is also morally important, there is still more reason for celebration. According to Branko Milanovic, "the winners' of globalization had incomes ranging between $3 and $8."

But if the last few years have not been all bad news for Liberal Nationalists, we should not assume that they have been unambiguously good for Cosmopolitans either. While Cosmopolitans seek equality between all human beings, they may still see inequalities between compatriots as particularly bad. Thus, contrary to Tyler Cowen's position, some Cosmopolitans might be more concerned about growing inequality within countries than pleased by global trends.

Cosmopolitans should be particularly concerned about intra-national inequality because the harms it causes are especially acute. Martin O'Neill has produced a useful taxonomy of five of the most common objections to inequality. If we go through them, we see that each is more likely to occur between people from the same country: 1. Excessive differences in income and wealth lead to attenuated and strained communal relations, as people struggle to empathize with and understand those who live dramatically different lives from them.

Those who are geographically close to one another have greater need of mutual understanding, as there is greater scope for friendship and building communities between them.

2. Major inequalities lead to unacceptable forms of power and domination. This is especially clear in bargaining situations, such as wage negotiations, where the rich are in a stronger position because they have less to lose. However, it is also relevant to concerns about the excessive influence of the rich in political or judicial matters.

Those in the same country are more likely to interact, and are part of the same political and judicial system, and so the rich have greater scope to dominate the poor in their own country than in others

3. Inequality can weaken self-respect. Seeing participants in the same economic system being better rewarded is likely to make you feel devalued and unappreciated. If others fail to see your worth, it is difficult to maintain your self-esteem.

There is reason to suspect that people's self-respect is more tied to people within the same ‘reference group' as themselves, and that these people are likely to be in the same country.

4. Inequality can lead to servile and deferential behavior, which might be seen as violating the value of dignity.

Again, this is a function of interaction, which is greater between rich and poor within a country. There is simply more scope for poor people to be forced into undignified positions when interacting with the rich in their own country.

5. Inequality can conflict with equality of status, leading the rich to consider themselves superior in dimensions unrelated to their wealth.

Equality of status is a fairly global ideal, so this is less tied to physical proximity. However, as with the other objections to inequality, interaction and reference groups make comparisons between rich and poor more salient within a country. On top of this, there is evidence to suggest that these relational harms resulting from inequality within a nation have significant material consequences. Richard Wilkinson and Kate Pickett have documented a litany of ill effects suffered by less equal countries. They tend to suffer more from obesity and have lower life expectancies. They produce more teenage births, with higher infant mortality and more underweight babies. A higher proportion of their population suffers from mental illness. Drug abuse and murder are more common in countries where income and wealth are less evenly spread. Among rich countries, these effects are independent of the level of absolute income. Relatively equal Greece is poorer and spends less on healthcare than the more stratified United States does, and yet Greeks have a higher life expectancy and lower infant mortality.

Thus from a Cosmopolitan perspective, recent years have seen a decline in a less harmful type of inequality—global inequality—but a rise in a more harmful type of inequality—domestic inequality. However, this information by itself is not enough to judge whether or not this is a change for the better. There are a couple of other relevant considerations: the absolute starting level of inequality, and the magnitude of the change.

On the first consideration, it seems plausible that reducing inequality has greater moral priority the higher inequality is. Thus if we have to choose between a small reduction in inequality in a very unequal society (such as Portugal) and slightly higher reduction in inequality in a more equal society (like Sweden), my intuition is that the Portuguese intervention is more desirable. On the second consideration, the size of the improvement also seems important—obviously the bigger the effect, the better it is.

So how do global and domestic inequality compare on these metrics? In terms of the absolute level of inequality, there is no comparison: global inequality is far higher than the level in almost any single country. Lakner and Milanovic estimate the global Gini coefficient—a standard measure of inequality—to be 70.5 percent, and observe that among the nations in their dataset, only Jamaica and Namibia have higher Gini coefficients than this. For perspective, Brazil and the United States are considered relatively unequal countries, and have Gini coefficients of 53 and 41 percent, respectively. Norway and Denmark have Gini coefficients of 27 percent. Comparing the magnitude of the change is difficult because there are so many different countries with such different effects—however, taking the three biggest countries should give us a good indication of the shift. Lakner and Milanovic find that global inequality fell by 2 percent between 1988 and 2008. This is equivalent to the rise in inequality in India. However, inequality rose by 4 percent in the United States and 11 percent in China over a similar period.4

So to sum up, from the cosmopolitan perspective, all else being equal, global inequalities are less harmful than domestic inequalities. However, because global inequalities are so much higher than inequalities within most countries, there is reason to believe they deserve greater moral priority. At the same time, the magnitude of the decline in global inequality is smaller than the rise in many countries.

It is hard for Cosmopolitans to weigh these countervailing moral and empirical considerations. However, on balance I believe that they ought to come to a similar conclusion to the Liberal Nationalists—namely, that inequality is less relevant than absolute deprivation. Just because Cosmopolitans believe that global equality is important doesn't mean that this is the only thing that they believe has moral value. Indeed, concern for the relative position of the worst-off seems perverse without acknowledgement that their absolute circumstances are also important, and possibly more important. Thus Cosmopolitans almost certainly favor reducing global poverty. And as we have seen, absolute poverty has fallen dramatically in the last 30 years.

The question of whether recent inequality trends have been for the better—of whether the decline in domestic equality is worth trading off against global improvements—is clearly a fraught one. To begin with, it involves a judgement on whether global inequalities have moral significance at all—in other words, whether we should be Cosmopolitans or Nationalists. Even if we are Cosmopolitans, we have to face the possibility that domestic inequalities are more harmful than global inequalities. Yet we need to balance this against the facts that global inequality is much worse than inequality in almost all countries, but that the improvements in the global Gini coefficient are generally smaller than the rise in national Gini coefficients.

In my view, though, regardless of your moral position, it is the change in the absolute position of the global poor that is the critical fact. In the last 30 years, we have moved from a world where over half of people lived in dire poverty, to one where only 17 percent suffer the worst deprivations. However much moral concern we may have about inequality within countries, I find it hard to see that as anything but good news.


1 The view that global inequality is declining appears to be the consensus view, though there is some evidence to the contrary. For example Anand and Segal find that "there is insufficient statistical evidence to reject the null hypothesis of no change in global interpersonal inequality over 1970-2000"

2 Note that the positions described here are drawn primarily from the liberal egalitarian school of political philosophy. While there are other prominent groups of theories, liberal egalitarianism is probably the dominant one (at least in English-speaking countries), and is also particularly exposed to the egalitarian dilemma discussed here. Moreover, it is the area of philosophy that I am personally most familiar with.

3 See also Rawls (1999: 105-13), Miller (1999: 198-204)

4 These data points all come from Milanovic and Lakner's paper, except for the statistics on U.S. inequality, which comes from the World Bank.

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