Stop Obsessing About Inequality. It’s Actually Decreasing Around the WorldPosted: January 12, 2015
Many Americans point to globalization as a bogeyman, robbing our country of good jobs and resources. But really, the phenomenon has ushered a period of unprecedented prosperity in many poor countries.
Marian L. Tupy writes: Is inequality increasing or decreasing? The answer depends on our point of reference.
In America, the income gap between the top 1 percent and the rest has grown. But if we look not at America, but the world, inequality is shrinking. We are witnessing, in the words of the World Bank’s Branko Milanovic, “the first decline in global inequality between world citizens since the Industrial Revolution.”
For most of human history, incomes were more equal, but terribly low. Two thousand years ago, GDP per person in the most advanced parts of the world hovered around $3.50 per day. That was the global average 1,800 years later.
But by the early 19th century, a pronounced income gap emerged between the West and the rest. Take the United States. In 1820, the U.S. was 1.9 times richer than the global average. The income gap grew to 4.1 in 1960 and reached its maximum level of 4.8 in 1999. By 2010, it had shrunk by 19 percent to 3.9.
That narrowing is not a function of declining Western incomes. During the Great Recession, for example, U.S. GDP per capita decreased by 4.8 percent between 2007 and 2009. It rebounded by 5.7 percent over the next 4 years and stands at an all-time high today. Rather, the narrowing of the income gap is a result of growing incomes in the rest of the world.
Consider the spectacular rise of Asia. In 1960, the U.S. was 11 times richer than Asia. Today, America is only 4.8 times richer than Asia.
To understand why, let’s look at China.
Between 1958 and 1961, Mao Zedong attempted to transform China’s largely agricultural economy into an industrial one through the “Great Leap Forward.” His stated goal was to overtake UK’s industrial production in 15 years. Industrialization, which included building of factories at home as well as large-scale purchases of machinery abroad, was to be paid for by food produced on collective farms.
But the collectivization of agriculture resulted in famine that killed between 18 and 45 million people. Industrial initiatives, such as Mao’s attempt to massively increase production of steel, were equally disastrous. People burned their houses to stoke the fires of the steel mills and melted cooking wares to fulfil the steel production quotas. The result was destruction, rather than creation of wealth.
Marian L. Tupy is a senior policy analyst at the Cato Institute’s Center for Global Liberty and Prosperity and editor of http://www.humanprogress.org.