Can We Have Both Domestic and Global Income Equality?

This week the Organization for Economic Cooperation and Development (OECD), a think-tank in Paris, came out with a report titled How Was Life? Global Well-Being Since 1820. The past two centuries capture the major parts of the demographic transition and the economic transformation of the world and the OECD study attempts to track the income inequality within nations during that time, and also the income inequality between nations. The story has some twists and turns, but as the Economist notes, there is a disturbing lesson in here when it comes to inequality. First, though, the good news:

For the most part, the findings confirm what is suspected, if not known in such detail. The number of years in education has increased everywhere. Average heights have risen almost everywhere (by 1.1cm more in America in 1820-1990 than in China). The purchasing power of construction workers’ wages has grown everywhere, though in Britain the rise was tenfold in 1820-2000; in Indonesia it was only twice.

Now, the less good news:

The study uses the Gini coefficient, a measure of income inequality in which zero represents perfect equality—everyone has the same income—and 100 perfect inequality—one person has everything. The global Gini rose from 49 in 1820 to 66 in 2000. But this was not caused by widening disparities between rich and poor within countries (inequality in its usual sense). Inequality of that sort fluctuated for 130 years to 1950, before falling sharply in 1950-1980, in what the report calls an egalitarian revolution. Since 1980 it has risen again (as Thomas Piketty, a French economist, has shown), back to the level of 1820.

As globalization increased throughout the 19th century, income inequality within nations tended to increase. But, the report argues that globalization ebbed between 1914 and 1970 and during that period of time:

...rich countries had more freedom to steer domestic policies and used it to narrow differences between rich and poor. As globalisation spread again after 1980, the opposite happened: “globalisation contributed to higher income inequality within countries,” the report concludes, “while at the same time leading to a decline of income inequality between countries.”

Thus history suggests that trends in global and domestic income inequality move in opposite directions. As we globalize, domestic income inequality increases and vice-versa. From this follows the conclusion (speculative, to be sure) that when globalization slows down, we can get back to the business of creating less unequal income distributions within nations. If you have read my book, you know my view that globalization in the modern era is associated especially with population growth in developing nations, so when that stops, the world may get back to the business of improving well-being for everyone, not just an elite few.