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What’s the $10 trillion question?

Andy Sumner - 20th June 2013
What’s the $10 trillion question?

Global consumption grew by $10 trillion from 1990 to 2010. So the $10 trillion question is who benefited and how much?

In a new paper we explore who have been the winners and losers since 1990. And thus, what happened to global and national inequality since 1990.

We find that in the last 30 years falls in total global inequality are predominantly attributable to rising prosperity in China. We also identify a persistent global structure of two relatively homogeneous clusters (the poor/insecure and secure/prosperous). We detect the emergence of a ‘new global middle’ but question whether this implies the end of the historical two cluster world rather than merely a transition as some people move from the poor/insecure cluster into the secure/prosperous cluster.

We find that 15% of growth from 1990 to 2010 went to the world’s richest 1% while just a modest amount of redistribution would have ended $2 poverty. If the share of 1990-2010 global growth flowing to those who were $2 a day poor in 2010 had increased from 5% to just 12% this would have been sufficient to end $2 poverty today.

We find five different stylized patterns of national growth: pro-poor growth (eg Ethiopia); pro-middle growth (eg Brazil); anti-poor growth (eg Nigeria); anti-middle growth (eg Zambia) and equitable growth (eg Vietnam).

What just happened?

Who benefited from twenty years of growth and globalisation? In our number crunching we find the following three things:

First, one can say total global inequality was relatively static from the late 1980’s to 2005 because rising within country inequality was largely offset by falling between country inequality. Since 2005 between country inequality has been falling more quickly than before and as a result total global inequality has also fallen. We find in the last 20 to 30 years falls in total global inequality, and in global between country inequality, and rises in global within country inequality are all predominantly attributable to rising prosperity in China. The picture looks rather different when China is excluded. Throughout this entire period within country inequality in the rest of the world has overall been remarkably constant – as some countries have become less equal others have become more so – while between country inequality has actually increased slightly.

Second, one can identify a persistent global structure of two relatively homogeneous clusters (the poor/insecure and secure/prosperous) but we also detect the emergence of a rapidly changing and heterogeneous ‘new global middle’. However, most of the ‘structural’ change in the distribution of global consumption is confined to the upper middle income countries (UMICs). This leads us to question whether the emerging global middle really does represent an evolution away from the historical two cluster world or whether it simply represents a transition phase as some elements in emerging economies move from the poor/insecure cluster into the secure/prosperous cluster.

Third, one can say find that 15% of global consumption growth from 1990 to 2010 went to the richest 1% of global population. At the other end of the distribution, the 53% under $2 in 1990 benefitted from less than an eighth of that global growth; and the 37% on less than $1.25 a day benefitted by little more than a twentieth of that growth. Furthermore, a rather modest amount of redistribution would have ended $2 poverty – if the share of global growth since 1990 flowing to the 35% of the global population who are $2 poor in 2010 had increased from 5% to 12% this would have been sufficient to end poverty at $2.

What to conclude from the numbers?

At a national level one could note that different countries manage or govern growth very differently and this plays, with other factors, an important role in who benefits from economic growth and how much, which is of course important in the whole UN/post-2015/MDG/etc/etc debate on ending world poverty by 2030. Further, that ending poverty is rather more revolutionary than it sounds because it is only achievable with real declines in within-country inequality. Funnily enough income inequality got rather neglected in the recent UN report. Which raises the question of whether ending poverty is actually a back door inequality goal or inequality remains the elephant in the room.

 

This post first appeared on Global Dashboard.