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The income of the world’s poor is going up, but they’re $1 trillion poorer. What’s going on?

Duncan Green's picture

Oxfam number cruncher Deborah Hardoon tries to get her head round something weird – according to the stats, the poorest half of the world is getting poorer even though the incomes of these people are rising.

It has become something of a tradition that in January every year we take a look at the Forbes list of billionaires and the Credit Suisse Global Wealth databook and calculate how many billionaires it takes to have the same amount of wealth as the bottom 50% of the planet. Since we started doing these calculations, we have watched the wealth of the top grow at the same time as the wealth of the bottom 50% has fallen. The data tells us that the bottom 50% have approximately $1 trillion (that’s $1,000 billion) less wealth than they did 5 years ago, whilst the richest 62 have about $0.5 trillion more.

The extremely wealthy are able to accumulate more wealth in a day than a whole factory full of workers could earn in a year. On 21stApril, in a 24 hour period, Carlos Slim made more than $400 million. Thomas Piketty famously points out that the rate of return on capital is higher than the general growth rate, such that capital owners are at a distinct economic advantage.

Meanwhile those 3.6 billion people in the bottom 50% include people in debt, people with nothing and people with a net wealth of up to about $5,000. People with little, no, or negative wealth, especially in developing countries with poor social insurance mechanisms (four out of five people in the bottom 50% live in Africa or Asia – including China and India), will not only find it hard to respond to financial shocks – like a poor harvest or a medical bill, but will also find it much harder to invest in their families’ future. Having little wealth may be concerning, but having less and less wealth year to year is even more worrying.

Quote of the week: Angus Deaton

Sina Odugbemi's picture

Angus Deaton at a press conference at the Royal Swedish Academy of Sciences"Politics is a danger to good data; but without politics data are unlikely to be good, or at least not for long."

- Angus Deaton, a British-American economist. In 2015, he was awarded the Nobel Memorial Prize in Economic Sciences for his analysis of consumption, poverty, and welfare. The Nobel Prize website writes, "To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics."

Quote of the week: Lawrence Summers

Sina Odugbemi's picture

"The core of the revolt against global integration, though, is not ignorance. It is a sense, not wholly unwarranted, that it is a project carried out by elites for elites with little consideration for the interests of ordinary people — who see the globalisation agenda as being set by big companies playing off one country against another."

-Lawrence Summers, an American economist who currently serves as President Emeritus and Charles W. Eliot University Professor of Harvard University.  He worked as Chief Economist at the World Bank from 1991 to 1993 before being appointed as Undersecretary for International Affairs of the United States Department of the Treasury. In 1999, he became Secretary of the Treasury, a position he held until 2001. Summers later joined the Obama administration, serving as Director of the White House United States National Economic Council for President Barack Obama from January 2009 until November 2010. In mid-2013, his name was floated as a potential successor to Ben Bernanke as Chairman of the Federal Reserve, though after receiving pushback, Obama nominated Federal Reserve Vice-Chairwoman Janet Yellen for the position.

Tackling inequality is a game changer for business and private sector development (which is why most of them are ignoring it)

Duncan Green's picture

Oxfam’s private sector adviser Erinch Sahan is thinking through the implications of inequality for the businesses he interacts with.

Mention inequality to a business audience and one of two things happens. They recoil in discomfort, or reinterpret the term – as social sustainability or doing more business with people living in poverty. Same goes for the private sector development professionals in the aid community (e.g. the inclusive business crowd).

A good example is the UN Global Compact, which steers companies on how to implement the SDGs. They completely side-step the difficult implications of inequality on business and redefine the inequality SDG as boiling down to social sustainability or human rights / women’s empowerment goal. All good things that we at Oxfam also fight for, but these can all happen simultaneously with increasing concentration of income and wealth amongst the richest – i.e. rising inequalityWe know that rising inequality is one of the great threats to our society and economy. So why is business and the aid world so uncomfortable with tackling it head on?

Man picks tea leaves at Kitabi Tea Processing FacilityInequality is a relative rather than an absolute measure. This often makes it a zero-sum game – to spread wealth and income more equally, someone probably has to lose. But the intersection of business, sustainability and development has become locked into an exclusive focus on win-win approaches where there are no trade-offs and everyone gets their cake and eats it too. Addressing inequality often hits the bottom line – meaning changes to the prices paid to farmers, wages paid to workers, taxes paid to government and prices charged to consumers. But there is hope. Through a new lens (or metric) that should drive how business addresses inequality: share of value.

Don’t confuse this with Creating Shared Value, which is focused on the win-win (without commenting on how the created value is shared). What I’m proposing is a measure that compares businesses on how they share value with workers, farmers and low-income consumers. In fact the concept dates back to the original principles underpinning the fair trade movement some decades ago.

Quote of the week: Angus Deaton

Sina Odugbemi's picture

Angus Deaton at a press conference at the Royal Swedish Academy of Sciences"Statistics are far from politics-free; indeed, politics is encoded in their genes. This is ultimately a good thing."

- Angus Deaton, a British-American economist. In 2015, he was awarded the Nobel Memorial Prize in Economic Sciences for his analysis of consumption, poverty, and welfare. The Nobel Prize website writes, "To design economic policy that promotes welfare and reduces poverty, we must first understand individual consumption choices. More than anyone else, Angus Deaton has enhanced this understanding. By linking detailed individual choices and aggregate outcomes, his research has helped transform the fields of microeconomics, macroeconomics, and development economics."

Policy to research to policy in difficult places

Humanity Journal's picture

This post was written by Alex de Waal, the Executive Director of the World Peace Foundation and a Research Professor at The Fletcher School. It is a contribution to an online symposium on the changing nature of knowledge production in fragile states. Be sure to read other entries by Deval Desai and Rebecca TapscottLisa Denney and Pilar Domingo, Michael WoolcockMorten Jerven.

UNAMID Police Officer Patrols IDP Camp in DarfurThere’s a commendable search for rigor in social science. But there’s also an illusion that numbers ipso facto represent rigor, and that sophisticated mathematical analysis of the social scientific datasets can expand the realm of explanatory possibilities. Social scientific researchers working in what the Justice and Security Research Programme calls “difficult places”—countries affected by armed conflict, political turbulence and the long-lasting uncertainties that follow protracted crisis—should be extremely cautious before setting off on this path.

There’s a simultaneous search for policy relevance: for bridging the gap between the academy and the executive. We want our research to be useful and to be used; we want policy-makers to listen to us. But we risk becoming entrapped in a self-referential knowledge creating machine.

The holy grail seems to be to emulate economists and epidemiologists, whose highly technical analyses of real world data—and in the case of the latter, double-blind clinical trials—set a gold standard in terms of methodological rigor, alongside a truly enviable record of influencing policy and practice. But before embarking on this quest, it would be advisable to examine what social scientific scholarship might look like, if it actually reached this goal.

The infinite loop failure of replication in economics

Markus Goldstein's picture
In case you missed it, there was quite a brouhaha about worms and the replication of one particular set of results this summer (see Dave's anthology here).   I am definitely not going to wade into that debate, but there is a recent paper by Andrew Chang and Phillip Li which gives us one take on the larger issue involved:  the replication of published results.   Their conclusion is nicely captured in t

Quote of the Week: Thomas Piketty

Sina Odugbemi's picture

Thomas Piketty"This idea, according to which no one will accept to work hard for less than $10m per year... It's OK to pay someone 10, 20 times the average worker's salary but do you really need to pay them 100 or 200 times to their arses in gear?"

- Thomas Piketty, a French economist who works on wealth and income inequality. He is the author of the best-selling book Capital in the Twenty-First Century (2013), in which he argues that the rate of return on capital (wealth) in developed countries is persistently greater than economic growth. Other things being equal, he states, faster economic growth diminishes the importance of wealth in a society, while slower growth increases it. To counter the steady concentration of wealth, Piketty proposes a global tax on wealth. Piketty is also a professor at the École des hautes études en sciences sociales (EHESS), professor at the Paris School of Economics and Centennial professor at the London School of Economics.
 

Quote of the Week: Thomas Piketty

Sina Odugbemi's picture

Thomas Piketty"The success of my book shows there are a lot of people who are not economists but are tired of being told that those questions are too complicated for them." [...] “ What pleases me is that this book reaches ‘normal’ people, a rather wide public.”

- Thomas Piketty, a French economist who works on wealth and income inequality. He is the author of the best-selling book Capital in the Twenty-First Century (2013), in which he argues that the rate of return on capital (wealth) in developed countries is persistently greater than economic growth. Other things being equal, he states, faster economic growth diminishes the importance of wealth in a society, while slower growth increases it. To counter the steady concentration of wealth, Piketty proposes a global tax on wealth. Piketty is also a professor at the École des hautes études en sciences sociales (EHESS), professor at the Paris School of Economics and Centennial professor at the London School of Economics.

Have technology and globalization kicked away the ladder of ‘easy’ development? Dani Rodrik thinks so

Duncan Green's picture

Dani RodrikEconomic transformation is necessary for growth that can lead to poverty reduction. However, economic transformation in low-income countries is changing as recent evidence suggests countries are running out of industrialization options much sooner than once expected. Is this a cause for concern? What does the past, present, and likely future of structural transformation look like? Read on to find out why leading economist Dani Rodrik is pessimistic and what some possible rays of light are. 

Dani Rodrik was in town his week, and I attended a brilliant presentation at ODI. Very exciting. He’s been one of my heroes ever since I joined the aid and development crowd in the late 90s, when he was one of the few high profile economists to be arguing against the liberalizing market-good/state-bad tide on trade, investment and just about everything else. Dani doggedly and brilliantly made the case for the role of the state in intelligent industrial policy. But now he’s feeling pessimistic about the future (one discussant described it as ‘like your local priest losing his faith’).

The gloom arises from his analysis of the causes and consequences of premature industrialization. I blogged about his paper on this a few months ago, but here are some additional thoughts that emerged in the discussion. He’s also happy for you to nick his powerpoint.

Dani identified two fundamental engines of growth. The first is a ‘neoclassical engine’, consisting of a slow accumulation of human capital (eg skills), institutions and other ‘fundamental capabilities’. The second, which he ascribed to Arthur Lewis, is driven by structural differences within national economies – islands of modern, high productivity industry in a sea of traditional low productivity. Countries go through a ‘structural transformation’ when an increasing amount of the economy moves from the traditional to the modern sector, with a resulting leap in productivity leading to the kinds of stellar growth that has characterized take-off countries over the last 60 years.

Simulated Manufacturing Employment SharesManufacturing has been key to that second driver. It is technologically dynamic, with technologies spreading rapidly across the world, allowing poor countries to hitch a ride on stuff invented elsewhere. It has absorbed lots of unskilled labour (unlike mining, for example). And since manufactures are tradable, countries can specialize and produce loads of a particular kind of goods, without flooding the domestic market and driving down prices.

But that very dynamism has produced diminishing returns in terms of growth and (especially) jobs. Countries are hitting a peak of manufacturing jobs earlier and earlier in their development process (see graph). And it could get much worse – just imagine the impact if/when garments, the classic job-creating first rung on the industrialization ladder, shift to automated production in the same way as vehicle production.
 


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