I blogged on this topic late last year – Inequality and the Elephant Curve – but is it correct? – and see that Paul Solman of PBS news has done his own evaluation on the topic – see video and image below. The curve shows the % change in income on the vertical axis and on the horizontal axis is the entire world population, arranged by their incomes – poorest over to the left, the richest to the right. The time period is from 1988 to 2008.
We knew that people in China and large numbers of groups in Asia who were not rich, compared to Americans, have done very well. We knew that lower and middle class Americans and Japanese and Germans have not done well. And that’s exactly what the chart shows. And we also knew that the top 1 percent in the rich countries have done well.
Everybody on that chart is above the point where we actually have zero growth. If you really were to be very cosmopolitan and look at the world as if it were one country, you would say, “Look, we have a situation that a large hunk of people — two and a half billion — have done extremely well. The level of global poverty has actually gone down. These people not only now have sewage and electricity, some have even become tourists. They have better jobs.” This is mainly resurgent Asia.
So then you say, “Well, what’s the big deal?”
The problem is that this is a very abstract view of the world, which doesn’t take any cognizance of the political reality. Because the political reality is there are all these people who have done poorly relative to the rest of the world. They feel poor people in Asia breathing down their necks because of outsourcing, because of imports and so on. And then they also see that the top 1 percent in their own countries have done very well.
They are feeling fear from both ends — from one end because the other people are catching up to them and from the other, as people from their own countries are moving further and further ahead.
Source: Branko Milanovic Author, “Global Inequality”:
Below is a very interesting video from the FT about the Globalisation and Income Inequality. Globalisation is often held responsible for the problems of inequality in the world today. The elephant chart seems to explain why globalization has been blamed – see below. The chart shows income growth across the globe from 1988-2008 and how middle income people across the world (e.g.China) have had a significant growth in income as have the super rich. However some income groups have suffered namely the lower middle classes who have experienced almost no growth over the last 30 years.
However the Resolution Foundation in the UK produced a paper entitled “Examining an elephant: globalisation and the lower middle class of the rich world” which focused on whether and to what extent the conclusions from the graph are justifed, by digging into the data underpinning the elephant curve.
Policy makers and commentators looking to understand how income growth has actually been experienced risk drawing the wrong, or overly- strong, conclusions without a detailed understanding of what lies behind the elephant curve. Their analysis of the underlying data shows:
- Overall income growth is understated because of changing country selection. The chart is not about the income growth rates of particular people. For example, the globally poor in 1988 and those in 2008 are not necessarily the same groups of people – so growth doesn’t refer to individuals. But furthermore, different countries are included in the 1988 and 2008 datasets that underpin the elephant curve.
- Uneven population shifts suppress the recorded income growth of parts of the global distribution. Population changes, rather than just income changes, have driven the income growth distribution in the elephant curve. Because the population of poorer countries has grown disproportionately, and the population share of mature economies has shrunk, average incomes have been dragged down.
- The aggregate data hides big variation between developed economies. Further exploring the apparent losers of globalisation, the weak figures for the mature economies as a whole are driven by Japan (reflecting in part its two ‘lost decades’ of growth post-bubble, but primarily due to likely awed data) and by Eastern European states (with large falls in incomes following the collapse of the Soviet Union after 1988).