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Social Development

The Ebenezer Scrooge Economy: The Dickensian Divide Between Concentrated Wealth and Intensifying Poverty

Christopher Colford's picture

Source: Branko Milanovic

If you thought the wealth gap was vast between the miser Ebenezer Scrooge and the oppressed Bob Cratchit in “A Christmas Carol,” then lend a Christmastime thought for the desperate Dickensian divide that’s now afflicting the global economy.

The biggest economic-policy issue of 2014 has certainly been the outpouring of alarm about the chronically intensifying divide between wealth and poverty – an uproar that has had a transformational effect on the worldwide debate on economic policy. As a seminar at the Center for Global Development recently discussed, the precise statistics on inequality (and the perception of inequality) are subtle, with many nuances of measurement (whether data should be derived, for example, from tax-return filings or from household surveys). Yet this year’s irrefutable interpretation among economists and business leaders has been driven by a landmark of economic scholarship: the bombshell book “Capital in the Twenty-First Century” by Thomas Piketty. “Capital” has forced economists, policymakers and scholars to reconsider the inexorable trends that are driving the modern-day economy toward an ever-more-intense concentration of capital in fewer and fewer hands.

No wonder Piketty’s “Capital” was hailed as the Financial Times/McKinsey “Business Book of the Year.” Piketty’s analysis has fundamentally changed the parameters of the public-policy debate, and many of its ideas challenge conventional economic theory.

To explore the implications of the alarming trends in income and wealth inequality, there’s no analyst more insightful than Branko Milanovic, the former World Bank economist who is now a scholar at the LIS Center (working on the authoritative Luxembourg Income Study) at the City University of New York. Milanovic has justly won acclaim for his work, “The Haves and the Have-Nots,” which pioneered the territory now being explored by Piketty.

Confirming the trends that Piketty identified in “Capital” – and taking those insights one significant step further, to measure the wealth gaps both within countries and between countries – Milanovic recently led a compelling CGD seminar on “Winners and Losers of Globalization: Political Implications of Inequality.”

The seminar’s sobering conclusion: If you think the wealth-and-incomes gap is painful now, just wait a decade or two. If allowed to go unattended, the widening economic divide will soon become a dangerous social chasm. That data-driven projection is leading many analysts to dread that inequality (whether between countries or within the same country) threatens topose a stark challenge to social stability, and even to the survival of democracy.

The breakthtaking “a-ha!” moment of Milanovic’s CGD presentation was the chart (see the illustration, above) – praised as "the Chart of the Century" by seminar chairman Michael Clemens of CGD and discussant Laurence Chandy of the Brookings Institution – that plotted-out the pattern of how globalization has exerted relentless downward pressure on the incomes of the global upper-middle class, which roughly corresponds to the Western lower-middle class.

Globalization has helped promote the prosperity of skilled workers in developing nations, Milanovic explained, with the dramatic surge of China’s economy being the greatest driver of global “convergence.” Yet globalization has had an undeniable downward effect on the wealth and incomes of low- and medium-skilled workers in developed, industrialized nations. That certainly helps explain the angry mood among voters in Western Europe and North America, whose overall incomes and wealth have been stagnating for perhaps 40 years.

At the same time – reinforcing the significance of Piketty’s iconic formula that r>g (that the returns on capital are destined to be greater than overall economic growth) – a vast proportion of the world’s wealth has been concentrated in just the very top echelons of society. Milanovic’s meticulous data (see the illustration, below) confirm the extreme concentration of global absolute gains in income, from 1988 to 2008, in the top 5 percent of the world’s income distribution. Rigorous empirical evidence from multiple sources indeed confirms that most of the global gains in wealth have accrued to the already-vastly-wealthy top One Percent. The data on increasing socioeconomic stratification are, by now, so well-established that only the predictable claque of free-market absolutists and dogmatic denierscling (with increasing desperation) to the notion that the inequality gap is merely a myth.

Source: Branko Milanovic

Reinforcing Milanovic’s analysis, yet another well-documented study – this time, by the OECD– asserted this month that economic inequality is intensifying within the world’s developed nations. That within-country trend accompanies the yawning inequality gap between developed and developing economies. The OECD thus joined the chorus that includes the World Bank Group, the International Monetary Fund, the United Nations’ Department of Economic and Social Affairs and the U.S. Federal Reserve System in sounding the alarm about the way that income and wealth disparities are becoming socially explosive. Even on Wall Street, many pragmatists are warning with increasing urgency that “too much inequality can undermine growth.”

Economic inequality – both the perception and the reality of the egregious global gap – has surely been the key economic theme of 2014, and Milanovic’s CGD presentation capped the year with what the seminar-goers recognized as authoritative data distilled into “the Chart of the Century.” Milanovic thus echoed warnings by National Economic Council chairman Jason Furman and Canadian Member of Parliament Chrystia Freeland (both of whom have led recent World Bank seminars), who cautioned Washington policymakers about the potential dangers of runaway inequality.

Energized by Milanovic’s latest calculations and analysis, scholars and development practitioners at the World Bank Group and beyond should approach 2015 with a renewed commitment to building prosperity that is truly shared – and that avoids the potential social explosion that might await many economies if runaway inequality is allowed to continue unchecked.


Celebrating World Universal Health Coverage Day in Sri Lanka

Owen Smith's picture

Back in the 1930s, Sri Lanka thought it would be a good idea to give everyone free access to health care. More than 75 years later, as the global health community bangs the drum for universal health coverage (UHC), Sri Lankans can be forgiven for letting out a yawn and wondering what all the fuss is about. But as shown by a workshop organized in Colombo last week to mark the first World UHC Day, the concept of universal health coverage (“all people receive the health services they need without suffering financial hardship”) does still have relevance here. 

Start with the history. By 1960 Sri Lanka’s health indicators were already well above the curve for its income level, and it was close to having the best health outcomes in developing Asia. It started the MDG era in 1990 with a level of child mortality that was lower than where most Asian countries – including Vietnam, Philippines, Indonesia, and its South Asian neighbors India, Pakistan and Bangladesh – will finish it in 2015. Vaccination rates are above 99%. And all this was achieved without results-based financing, conditional cash transfers, or today’s other proposed silver bullet solutions for improving health. 

Can an index ever be a good measure of social inclusion?

Maitreyi Bordia Das's picture

I really don’t like indices, particularly those that claim to measure what are termed “social issues”. And they seem to be everywhere. Ok, the Human Development Index did a lot to push countries to do more on health and education, and its rankings serve to pit countries in good competition with each other.  Single measures are also intuitive and easy for monitoring purposes.

Just to stop my initial train of thought here, I have two problems with indices that measure “well-being”: first, they are often weighted and the weights assigned to individual components expose the subjectivity of their creators.  If you think primary education is more important than reproductive health, and you assign weights that way, that’s what your index will pick up. 

All About My Age

Wolfgang Fengler's picture

And Why I’m Much Older than I Thought I was
When my kids became teenagers I began to feel old: I saw myself as fit, healthy and (relatively) young but they, clearly, didn’t and it began to be un-cool to be around them. I’m now in my 40s in a world that is growing older and older (the global life expectancy is now at 72) … so what’s the big deal?

I may be young in absolute terms but definitely not in relative ones! If you’re my age – 43 years – there are 5.1 billion (in a world of almost 7.3 billion) youngsters for whom that’s old. Seen otherwise, you are part of the world's 30 percent oldest people! It was a long time ago that I was in the middle of the global age distribution: today the “median human” is only 29 years old.

Does Culture Matter for Development?

Augusto Lopez-Claros's picture

For a variety of reasons, economists have avoided getting too closely involved with the concept of culture and its relationship to economic development. There is a general acceptance that culture must have a role in guiding a population along a particular path, but, as Landes (1998) points out, a discomfort with what can be construed as implied criticism of a particular culture has discouraged broader public discourse.
As we discuss in a recent paper, the role of culture in economic development is not an easy subject to get a handle on. To start with, one faces issues of definition. The more all-encompassing the definition, the less helpful it tends to be in explaining patterns of development. Economists tend to narrowly define culture as “customary beliefs and values that ethnic, religious, and social groups transmit fairly unchanged from generation to generation” (Guiso, Sapienza and Zingales, 2006). This approach is largely dictated by the aim to identify causal relationships, by focusing on aspects of culture that are constant over time. Not surprisingly, some of the most insightful writing on the subject has been done by anthropologists. Murdock (1965) argues that a culture consists of habits that are shared by members of a society. It is the product of learning, not of heredity. Woolcock (2014) highlights how the sociologic scholarship has evolved to consider culture as “shaping a repertoire or ‘tool kit’ of habits, skills, and styles from which people construct ‘strategies of action” (Swidler, 1986, p.273).

On disability: we all have some skills, we all lack some others –and we all can contribute

Maninder Gill's picture

 Masaru Goto/World BankAround 1 billion people worldwide are estimated to live with some form of disability, and for 185 million of those, they are severe enough that they have serious difficulty functioning.

As the World Bank renews its commitment to doing more to support people with disabilities, I thought I’d take a moment to reflect on the evolution of my own thinking on disability.  When I was in my teens I thought of disability in black and white terms – there were people with disabilities and there were others, without.

 As I grew up in a small town (by Indian standards) in northern India, my perspectives began to evolve, both through routine observation of the numerous failings of people we see as “able”, and through highly inspiring interactions with people who had so called “disabilities”.  I must say I am in a very different place today than I was as a child.

Reflections on International Day of Persons with Disabilities

Maitreyi Bordia Das's picture
"Disability is no barrier. Landmine victims play volleyball." Photo: AusAID

I am often asked how “we” – development professionals and practitioners at large - can make a difference to social exclusion. It is an opportune day to reflect on this by thinking about a diverse group of historically excluded people. The focus of today’s International Day of Persons with Disabilities is appropriately on Sustainable Development: The Promise of Technology.” Because the power of technology in rehabilitation and hence, for inclusion, is uncontested. Let me quickly add that technology is a necessary, but by no means a sufficient condition for enhancing the functional ability of persons with disabilities. 

Technology attenuates many barriers that disability raises. It has changed the way persons with disabilities live, work and study. The seminal World Report on Disability emphasizes the role of technology for the inclusion of persons with disabilities in markets, in services and in physical, political and social spaces. It points out for instance, that assistive devices can substitute or supple­ment support services, possibly even reduce care costs. The National Long-Term Care Survey in the United States found that higher use of technology was associated with lower reported disabil­ity among older people. The fascinating Digital Accessible Information SYstem (DAISY) consortium of talking-book libraries aims to make all published information acces­sible to people with print-reading disabilities. And the examples could go on.

Bangladesh and Cambodia Collaborate on Higher Education Development

Shiro Nakata's picture
The Cambodian Delegation Visiting the Veterinary and Animals Science University in Chittagong on September 2, 2014

Global partnerships often inspire higher education development. Partnerships were traditionally formed between universities in developed and developing countries. Increasingly important, however, are university partnerships across emerging economies where the common challenges of increasing access and ensuring quality are shared. Tested solutions and good practices may be applicable to address similar challenges in another country. Against this backdrop, there has been a close cross-country collaboration between the Higher Education Quality and Capacity Improvement Project (HEQCIP) in Cambodia and the Higher Education Quality Enhancement Project (HEQEP) in Bangladesh since 2010. Inspired by the success stories of HEQEP in recent years, a Cambodian delegation working for HEQCIP visited Bangladesh from August 30 to September 4, 2014 to learn from the experience of the HEQEP, which has had a few years head-start on implementing a competitive research grant program for universities.

Why Economics Today Should Give Us Hope: An Outsider’s View

Dani Clark's picture

At 23, starting graduate school for international relations, the prospect of taking economics frightened me. Having just spent my college career as a history major that marched for peace probably had something to do with it. There was also that time in 4th grade when I got a D in math, but we won’t go there.

Anyway, it was a very nice surprise when I found that the math and logic of economics made sense to me. I was proud of myself for “getting it.” And of course, for starting my own subscription to the Financial Times. Ah, the conspicuous consumption patterns of a newly-minted student of economics.

Recognizing Prior Competence: Increasing Skilled Manpower in Bangladesh

Ahamad Tanvirul Alam Chowdhury's picture

Sweety, Liza, Asad, Zulfikar and many others like them had a common dream – to have good careers and let their families have a better life. Realization of that dream should have been simple – incomes that matched their accumulation of skills and years of job experience. They however, found this hard to achieve because they did not have accreditation that could assure prospective employers that they could actually deliver. What was needed – for both sides in the employee-employer relationship – was a mechanism to open the pathway to professional empowerment. That mechanism came about in the form of the Recognition of Prior Learning (RPL) policy of the Government of Bangladesh. Sweety, Liza, Asad and Zulfikar can now proclaim to the world – openly and without reservation – that they possess skills and expertise certified by the Bangladesh Technical Education Board (BTEB).