Inequality Is a Choice
By JOSEPH E. STIGLITZ
It’s well known by now that income and wealth inequality in most rich
countries, especially the United States, have soared in recent decades
and, tragically, worsened even more since the Great Recession. But what
about the rest of the world? Is the gap between countries narrowing, as
rising economic powers like China and India have lifted hundreds of
millions of people from poverty? And within poor and middle-income
countries, is inequality getting worse or better? Are we moving toward a
more fair world, or a more unjust one?
These are complex questions, and new research by a World Bank
economist named Branko Milanovic, along with other scholars, points the
way to some answers.
Starting in the 18th century, the industrial revolution produced
giant wealth for Europe and North America. Of course, inequality within
these countries was appalling — think of the textile mills of Liverpool
and Manchester, England, in the 1820s, and the tenements of the Lower
East Side of Manhattan and the South Side of Chicago in the 1890s — but
the gap between the rich and the rest, as a global phenomenon, widened
even more, right up through about World War II. To this day, inequality
between countries is far greater than inequality within countries.
But starting around the fall of Communism in the late 1980s, economic
globalization accelerated and the gap between nations began to shrink.
The period from 1988 to 2008 “might have witnessed the first decline in
global inequality between world citizens since the Industrial
Revolution,” Mr. Milanovic, who was born in the former Yugoslavia and is
the author of “The Haves and the Have-Nots: A Brief and Idiosyncratic
History of Global Inequality,” wrote in a paper published last November.
While the gap between some regions has markedly narrowed — namely,
between Asia and the advanced economies of the West — huge gaps remain.
Average global incomes, by country, have moved closer together over the
last several decades, particularly on the strength of the growth of
China and India. But overall equality across humanity, considered as
individuals, has improved very little. (The Gini coefficient, a
measurement of inequality, improved by just 1.4 points from 2002 to
So while nations in Asia, the Middle East and Latin America, as a
whole, might be catching up with the West, the poor everywhere are left
behind, even in places like China where they’ve benefited somewhat from
rising living standards.
From 1988 to 2008, Mr. Milanovic found, people in the world’s top 1
percent saw their incomes increase by 60 percent, while those in the
bottom 5 percent had no change in their income. And while median incomes
have greatly improved in recent decades, there are still enormous
imbalances: 8 percent of humanity takes home 50 percent of global
income; the top 1 percent alone takes home 15 percent. Income gains have
been greatest among the global elite — financial and corporate
executives in rich countries — and the great “emerging middle classes”
of China, India, Indonesia and Brazil. Who lost out? Africans, some
Latin Americans, and people in post-Communist Eastern Europe and the
former Soviet Union, Mr. Milanovic found.
The United States provides a particularly grim example for the world.
And because, in so many ways, America often “leads the world,” if
others follow America’s example, it does not portend well for the
On the one hand, widening income and wealth inequality in America is
part of a trend seen across the Western world. A 2011 study by the
Organization for Economic Cooperation and Development found that income
inequality first started to rise in the late ’70s and early ’80s in
America and Britain (and also in Israel). The trend became more
widespread starting in the late ’80s. Within the last decade, income
inequality grew even in traditionally egalitarian countries like
Germany, Sweden and Denmark. With a few exceptions — France, Japan,
Spain — the top 10 percent of earners in most advanced economies raced
ahead, while the bottom 10 percent fell further behind.
But the trend was not universal, or inevitable. Over these same
years, countries like Chile, Mexico, Greece, Turkey and Hungary managed
to reduce (in some cases very high) income inequality significantly,
suggesting that inequality is a product of political and not merely
macroeconomic forces. It is not true that inequality is an inevitable
byproduct of globalization, the free movement of labor, capital, goods
and services, and technological change that favors better-skilled and
Of the advanced economies, America has some of the worst disparities
in incomes and opportunities, with devastating macroeconomic
consequences. The gross domestic product of the United States has more
than quadrupled in the last 40 years and nearly doubled in the last 25,
but as is now well known, the benefits have gone to the top — and
increasingly to the very, very top.
Last year, the top 1 percent of Americans took home 22 percent of the
nation’s income; the top 0.1 percent, 11 percent. Ninety-five percent
of all income gains since 2009 have gone to the top 1 percent. Recently
released census figures show that median income in America hasn’t budged
in almost a quarter-century. The typical American man makes less than
he did 45 years ago (after adjusting for inflation); men who graduated
from high school but don’t have four-year college degrees make almost 40
percent less than they did four decades ago.
American inequality began its upswing 30 years ago, along with tax
decreases for the rich and the easing of regulations on the financial
sector. That’s no coincidence. It has worsened as we have under-invested
in our infrastructure, education and health care systems, and social
safety nets. Rising inequality reinforces itself by corroding our
political system and our democratic governance.
And Europe seems all too eager to follow America’s bad example. The
embrace of austerity, from Britain to Germany, is leading to high
unemployment, falling wages and increasing inequality. Officials like
Angela Merkel, the newly re-elected German chancellor, and Mario Draghi,
president of the European Central Bank, argue that Europe’s problems
are a result of a bloated welfare spending. But that line of thinking
has only taken Europe into recession (and even depression). That things
may have bottomed out — that the recession may be “officially” over — is
little comfort to the 27 million out of a job in the E.U. On both sides
of the Atlantic, the austerity fanatics say, march on: these are the
bitter pills that we need to take to achieve prosperity. But prosperity
Excessive financialization — which helps explain Britain’s dubious
status as the second-most-unequal country, after the United States,
among the world’s most advanced economies — also helps explain the
soaring inequality. In many countries, weak corporate governance and
eroding social cohesion have led to increasing gaps between the pay of
chief executives and that of ordinary workers — not yet approaching the
500-to-1 level for America’s biggest companies (as estimated by the
International Labor Organization) but still greater than pre-recession
levels. (Japan, which has curbed executive pay, is a notable exception.)
American innovations in rent-seeking — enriching oneself not by making
the size of the economic pie bigger but by manipulating the system to
seize a larger slice — have gone global.
Asymmetric globalization has also exerted its toll around the globe.
Mobile capital has demanded that workers make wage concessions and
governments make tax concessions. The result is a race to the bottom.
Wages and working conditions are being threatened. Pioneering firms like
Apple, whose work relies on enormous advances in science and
technology, many of them financed by government, have also shown great
dexterity in avoiding taxes. They are willing to take, but not to give
Inequality and poverty among children are a special moral disgrace.
They flout right-wing suggestions that poverty is a result of laziness
and poor choices; children can’t choose their parents. In America,
nearly one in four children lives in poverty; in Spain and Greece, about
one in six; in Australia, Britain and Canada, more than one in 10. None
of this is inevitable. Some countries have made the choice to create
more equitable economies: South Korea, where a half-century ago just one
in 10 people attained a college degree, today has one of the world’s
highest university completion rates.
For these reasons, I see us entering a world divided not just between
the haves and have-nots, but also between those countries that do
nothing about it, and those that do. Some countries will be successful
in creating shared prosperity — the only kind of prosperity that I
believe is truly sustainable. Others will let inequality run amok. In
these divided societies, the rich will hunker in gated communities,
almost completely separated from the poor, whose lives will be almost
unfathomable to them, and vice versa. I’ve visited societies that seem
to have chosen this path. They are not places in which most of us would
want to live, whether in their cloistered enclaves or their desperate
Labels: Inequailty, injustice, justice, Stilitz, top 1%, wages