Milanovic - Worlds Apart Measuring International and Global Inequality

WORLDS APART

MEASURING INTERNATIONAL AND
GLOBAL INEQUALITY

Branko Milanovic

Copyright 2005 by Princeton University Press

Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540

In the United Kingdom: Princeton University Press, 3 Market Place, Woodstock,

Oxfordshire OX20 1SY

All Rights Reserved

Second printing, and first paperback printing, 2007

Paperback ISBN-13: 978-0-691-13051-4

Paperback ISBN-10: 0-691-13051-5

The Library of Congress has cataloged the cloth edition of this book as follows

Milanovic, Branko.

Worlds apart : measuring international and global inequality / Branko Milanovic.

p. cm.

Includes bibliographical references and index.

ISBN 0-691-12110-9 (alk. paper)

1. Income distribution. 2. Economic development. 3. Globalization. 4. Equality.

I. Title.

HC79.I5M55 2005

330.9dc22 2004058312

British Library Cataloging-in-Publication Data is available

This book has been composed in Palatino Typeface

Printed on acid-free paper.

pup.princeton.edu

Printed in the United States of America

10 9 8 7 6 5 4 3 2

THIS BOOK has been under construction for several years. For me, it all started with the idea that I had in the mid-1990s of combining the many household surveys available at the World Bank for almost all of the less developed countries in the world with those, generally available, of the rich countries, thus creating the first true world income distribution of all individualsin the same way as if state-level distributions were collated to obtain the all-U.S. distribution of income among individuals. The process took several years, and in 1999 the first draft of the paper was published. The results showed both a very high level of global inequality (Gini index of inequality of about 66 in 1993), and a rather significant increase of some three Gini points between 1988 and 1993. The first finding is more important, but it was not surprising: previous approximations have all come up with a Gini number in the mid-sixties range. The second finding generated much discussion. Some people saw it as proof that globalization was leading to increased inequality in the world (although I did not deal with causality), and it seemed to agree with many peoples feeling of rising inequities. Others criticized the finding and felt compelledusing at time dubious statistical practicesto come up with numbers that showed global inequality on the decline. Some papers and magazines peddled this Pan-glossian vision with even less inhibition that the authors of the original papers.

During the ensuing debate I realized not only the highly contentious nature of these calculations but also the tendency to use the same terms (international, global, world inequality) to mean different things. As in any other branch of human knowledge, no progress is possible until we all agree at least on what different terms mean. So, I tried both to clear some misunderstandings, for example, to distinguish inequality in mean incomes of the countries from inequality among all individuals living on this Earth, and to proceed to additional calculations.

The need for the methodological clarity, as well as the debate on global inequality into which I was at first somewhat reluctantly drawn (although later I joined it, at times with gusto), have led me to the two areas that I originally did not plan to cover. First to the issue of differences in economic performance among the countries, the so-called convergence debate, since, obviously, convergence (or divergence) in countries mean incomes indicates that inequality among countries is decreasing (or increasing). And second, to the long-term relationship between, on the one hand, globalization and, on the other hand, inequality in mean countries incomes and inequality among world individuals.

The book is very much organized along the lines that I have sketched here. After the first three chapters, which deal with definitions and measurement, in chapters 4 through 8, I discuss the empirics of incomes and growth of some 140 countries over the last fifty years, using National Accounts data (GDP per capita). In chapters 9 through 10, using household survey data, I deal with incomes of individuals in the world during the past two decades. Both parts deal with figures, facts, calculations. In the concluding comments (), I look at the evolution of several types of inequality during the past two centuries, and briefly address the issues of associationI dare not say causalitybetween different inequality outcomes and the two globalization episodes. I also address some more speculative questions as to the perception of inequality during the era of globalization, why inequality may (or may not) matter, and, finally, what to (or not to) do about it.

It is truly a difficult, or more exactly an impossible, task to acknowledge the help of so many individuals whom I often consulted or sought out for data, and to make sure that no one is omitted or forgotten. Literally dozens of my colleagues in the World Bank helped with the household survey data, providing many hard-to-obtain surveys, explaining how income or consumption aggregates were constructed, and, in some cases, even doing decile calculations from the micro data themselves (when the micro data could not be released). They are acknowledged in the detailed Data Sources, a companion database (available at http://www.worldbank.org/research/inequality/data.htm ) that provides disaggregated statistics (mostly deciles) from some 360 surveys I have used to calculate global inequality in 1988, 1993, and 1998. Without my colleagues generous help and assistance, this book literally would not have been possible.

Then, Prem Sangraula, and, at an earlier stage, Costas Krouskas and Dimitri Kaltsas, provided excellent research assistance. As the reader will appreciate, the data intensity of the book is very high. It was not always easy for them, or for me, to keep all these files straight, to avoid mistakes as far as possible, to link many distributions together, and to do the same calculations many times over just because we had received a new survey or added a new country. I am extremely grateful to all of them.

I have also benefited from comments that I have received from many of my colleagues in the World Bank and elsewhereat conferences and talkswhere I have presented this book at its various stages: from very early to almost complete. Let me mention some: the Bellagio conference on global inequality in February 2001; lectures at the Royal Institute of International Affairs in London and at Nuffield College in Oxford in May 2001; the World Bank ABCDE Conference in May 2001; the Globalization and (In)equality Conference at Warwick University in March 2002; Globalization and Inequality workshops at the Brookings Institution and World Bank, both in June 2002; the Institute G17 Summer School in Belgrade in July 2002; and talks at the Economic Policy Institute in Washington and at the Kennedy School of Government at Harvard, both in September 2002, at the Institute for Social Studies at the Hague in October 2002, at Yale in February 2003, at a conference on globalization and inequality at Brisbane, Australia in February 2003, at a meeting on global poverty at Columbia University in New York in March 2003, at the Siena Summer School, and at the Observatoire Franais de Conjonctures conomiques in July 2003. I am grateful to participants at these conferences as well to many people with whom I have corresponded for their comments and suggestions. Again, I can mention only some of them: Sudhir Anand, Isabelle Bensidoun, Nancy Birdsall, Franois Bourguignon, Samuel Bowles, Ian Castles, William Cline, Guillaume Daudin, Yiri Dikhanov, Steven Durlauf, Dag Ehrenpreis, Francisco Ferreira, Glenn Firebaugh, James K. Galbraith, Carol Graham, Mansoob Murshed, Barrie Pittock, Thomas Pogge, Graham Pyatt, Gustav Ranis, Martin Ravallion, Sanjay Reddy, Robert Wade, Michael Ward, Bernard Wasow, and Shlomo Yitzhaki. I am particularly grateful to K. S. Jomo, who has consistently supported me in my work and has encouraged me to address in writing some of the issues that we have discussed informally. It is also a pleasure to thank Tim Sullivan, associate editor at Princeton University Press, who helped shape the book from its very early stages, Linda Truilo, who did an excellent editing job, and Jill Harris, who skillfully directed the books production.