Inequality, Global

After decades of self-conscious development and market liberalization, the average income for the global South in the early 2000s was only around 15% of that of the global North in purchasing power parity terms and more like 5% in foreign exchange rate terms (see Figure 1). Also, growth in the South has been typically much more erratic than in the North, with periods of relatively fast growth followed by deeper and longer recessions.

To make these gaps more tangible, take as an index of economic hardship the number of hours (hr) that an adult male entry-level employee of McDonald's must work to earn the equivalent of one Big Mac. In the core zone of western Europe, North America, and Japan, the figure in 2007 was in the range of 15 to 30 minutes (min); in Seoul-Taipei-Singapore, 47–51 min; San Jose (Costa Rica) and Santiago (Chile), 1 hr 25 min; Shanghai, 1 hr 48 min; Delhi, 3 hr; Hyderabad (India), 3 hr 54 min. A job in McDonald's is well up the prestige ranking in low-income countries; most people work in less desirable jobs.

Figure 1 shows the distribution of world population by average country income (in purchasing power parity [PPP] dollars rather than market exchange rate dollars). Notice the “twin peaks” and “missing middle.” One peak contains the 70% of the world's population living in countries whose gross domestic product (GDP) per capita is below PPP$5,000. The [Page 902]other peak is the 14% who live in countries with GDP per capita above PPP$20,000—the rich world. Only 4% live in the missing middle, in countries with average incomes between PPP$8,000 and PPP$20,000. Talk of the middle-income countries can be misleading, for it suggests, wrongly, that they are midway between the low-and the high-income countries. In fact, the middle-income countries fall toward the low end. The distribution of world population by the income of individuals or households is much more skewed toward the tail than the distribution by countries’ average income.

Figure 1 International income distribution. The distribution of people according to the GDP per capita of the country in which they live (year 2000). GDP is shown in 1995 international dollars.

Source: Milanovic (2005, p. 129). Reprinted by permission of Princeton University Press.

Weighting countries by population, income level, and growth rates, we get a “1:3:2” world. There are roughly 1 billion people in the high-income countries; 3 billion in countries where growth rates have been substantially faster than in the high-income countries over the past two decades, although starting from very low income levels and remaining at low levels (mainly China and India); and 2 billion where growth rates have been lower than in the high-income countries, some of these in middle-income countries, others in low-income countries. The large majority of developing countries are in the non-catch-up category.

Two hundred years ago, in the early decades of the industrial revolution, most of the income inequality between the world's people was due to class inequality within each state, reflecting the relative equality of average incomes between states. The global expansion of capitalism since the industrial (or energy) revolution has generated a steep rise in income inequality between countries, described by some scholars as the Great Divergence. Today, most of the inequality between individuals is due to geographical inequality in average incomes between developed and developing states and regions. Cecil Rhodes, the 19th-century champion of British imperialism, captured the point when he declared, “Remember that you are an Englishman, and have consequently won first prize in the lottery of life.”

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