Why the drop in income inequality?
Even as it rises in many countries, income inequality has fallen worldwide, a result of pro-poor trends in places from Africa to China. A better focus on growth, innovation, and greater opportunities can help countries close the income gap.
For many in the US and elsewhere, it has become easy to see red or feel blue about income inequality. The Panama Papers revelations about hidden riches feeds this global glum. So does a focus in the US presidential race on charges of a “rigged” economy. Indeed, within many countries, inequality has risen. But not everywhere.
Worldwide, in fact, inequality is actually going down.
Humanity, it seems, is not leaving its poorest behind.
This conclusion comes from the work of an eminent expert on inequality, Branko Milanovic. He spent decades studying data at the World Bank and now works at City University in New York. In a new book, “Global Inequality: A New Approach for the Age of Globalization,” he makes a case that the rapid growth of poorer countries since 1988 has brought the first decline in inequality since the Industrial Revolution.
Mr. Milanovic is pessimistic about the US reducing its inequality soon. But he finds many pro-equality trends will continue to grow the world’s new middle class. One trend is what he calls “pro-poor” innovation, such as the ability of African farmers to use cellphones to check on farm prices. Another is the use of online courses to educate poor people in skills sought by global companies.
China and other Asian countries have led the way in forging development policies that have helped close the global income gap. The best inequality-buster is economic growth, Milanovic says, but other efforts are needed, such as equality in opportunities. In Brazil, for example, inequality has gone down because of better education.
Milanovic’s findings are reinforced by new research from Tomáš Hellebrandt and Paolo Mauro of the Peterson Institute for International Economics. They find global inequality fell between 2003 and 2013. And they project the number of people in poverty will fall from 12.3 percent of the total population to 3.6 percent by 2035.
“The ability to participate in and benefit from economic growth has immediate and tangible impacts on the lives of the bulk of the world’s population,” the two economists conclude.
The very rich or the very corrupt may still hide their wealth in tax havens. Politicians in developed countries may decry rising inequality. But global trends and new data tell an alternative story about the progress already made to lift the poor.