Economic inequality seems to be Topic A for the global chattering classes. Even at the Davos World Economic Forum Meetings, where billionaires go to compare aircraft sizes, talk turned away from self-congratulation to sobering topics like where the next 600 million jobs will be coming from.
The big worry is that economic growth and inequality go together like doughnuts and heart attacks. And not just in rich countries, but across the developing world. That concern is surely justified: Developing economies that have outperformed the pack in recent decades have generally also experienced enormous increases in the gap between poor and rich. But this lock can be picked -- and has been in a few big countries. The question is whether governments have the political will.
Step back for a moment. It’s critical to distinguish inequality between countries from inequality within countries. The explosive growth of Asia, combined with tepid growth in Europe and North America, is almost certainly narrowing the difference in average incomes between nations. But with a few significant exceptions, inequality within developing countries has risen sharply since the 1980s. By one standard measure, the Gini Index, inequality has increased by about one-fifth in India and China. And extreme wealth has become ever more extreme. In 2002, India was home to four billionaires ($US); today the number is 55. In 2002, China claimed only one billionaire. Last time Forbes added up the numbers, China clocked in with 115 -- more than Germany, France and Japan combined.Should you care? The answer isn’t as straightforward as you might expect. Rapid growth in emerging markets largely explains why at least a half-billion fewer people live in poverty today than in the 1980s. So if the leap to affluence can’t be sustained unless a disproportionate piece of the growth dividend goes to the rich -- and if the rising tide still more or less carries all boats -- glaring inequality is hardly the worst of possible worlds. Or to switch metaphors: Most people, one suspects, would prefer the crumbs from a very large pie to a thin slice from a small one. And that’s what they’re generally getting.
It’s one thing to say, though, that growing inequality hasn’t stopped advancement at the low end of the pecking order, and quite another to say it should be a minor concern in the context of rapid growth. Other things equal, most of us would rather live in a society that invests in upward mobility for those who are capable, and shares the bounty with those who aren’t. Besides, other things aren’t equal: In emerging market countries, even modest amounts redistributed from the haves would pay for a hefty increase in living standards for the have-nots.
It’s good news, then, that rapid growth has coexisted peacefully with declining inequality in one large, emerging market county. That country is Brazil, where in the years 2000-2008, the incomes of the bottom-fifth grew at an average annual rate of six percent, compared to two percent for the top-fifth.