in many countries. But the global trend is clear: around the world, people earn more equal incomes, not less.
The decline in inequality happened because of one incredibly powerful force: the huge economic leaps forward in incomes in some of the largest (and previously poorest) countries in the world. China, notably, went from being a low-income country to an upper-middle-income38 one since its Reform and Opening-Up. By its own calculation, it lifted some 740 million people out of poverty.39 India, too, knew various periods of rapid growth, and thereby managed to raise the income of many of its people.
The impact of these two countries on global inequality has been all-encompassing: economist Zsolt Darvas of the Bruegel Institute showed that without the changes in China and India, global inequality would have remained exactly where it was, or even gone up quite a bit, depending on the calculation method (see Figure 2.3).
This clarifies the real problem posed by inequality today. Global inequality may have declined, but inequality within nations has drastically worsened.
Figure 2.3 The Impact of China and India on Global Income Inequality (Measured in Gini Indices)
Source: Redrawn from Zsolt Darvas, Global income inequality is declining – largely thanks to China and India, April 18, 2018.
In many people's experience, it matters much more how they fare compared to their fellow citizens than to the rest of the world population. In all but a few countries, national inequality has been rising and often rather fast.
The traditional measure of inequality, the Gini coefficient, doesn't do justice to the severity of the problem. The Gini coefficient translates the degree of inequality into a number from 0 (everyone has the same income) to 1 (one person has the entire economy's income). While a higher score over time tells us that inequality has risen, it's difficult to understand what that means in practice. In the US, for example, the Gini coefficient rose from its low point of 0.43 in 1971 to a post-war high of 0.58 today.40 It is an increase, of course, but precisely how good or bad is either number?
Thomas Piketty, a French economist, laid out the problem in a better way. In his 2013 book Capital in the Twenty-First Century,41 he revealed how the share of income that went to the top 10 percent of earners evolved over time. In 1971, his data showed the top 10 percent earners took home one third of national income. In the early 2010s, they took half of income. This leaves the vast majority of workers—the remaining 90 percent—with only half of the national income to divvy up among themselves.
Later numbers from the World Inequality Report, of which Piketty is a co-author, showed how the trend was even more pronounced for the top 1 percent. Over the same period, 1971 to the early 2010s, their income share doubled42 and their incomes more than tripled. This means that in the early 2010s, more than 20 percent of the national income went to the top 1 percent of earners. For those at the bottom of the income pyramid, the situation was much bleaker. Many workers saw their real incomes and purchasing power decline since the early 1980s (Figure 2.4). In the UK a similar shift took place.
The social and economic outcomes of this worsening inequality in the US have been highly problematic. There are again many working poor in America, a painful outcome in the wealthiest country the world has ever known. Guy Standing, a British economist, even coined the term precariat, to point to “an emerging class, comprising the rapidly growing number of people facing lives of insecurity, moving in and out of jobs that give little meaning to their lives.”43
Seen from this perspective, it is no wonder that in 2011, a one-page call for action in an activist magazine led to one of the most supported American protest movements of this century. The page in AdBusters read, “17 September. Wall Street. Bring Tent.” Protestors did in fact show up in lower Manhattan on that day, they brought tents, and with that, Occupy Wall Street was born. Referencing the extreme inequality in America, the movement's rallying cry became “We are the 99 percent,” and the protestors decried the wealth, income, and power accumulated by the 1 percent richest individuals and corporations in America. As you can see from Figure 2.4, this dichotomy between the 1 percent and the rest of income earners was not imaginary.
The same pattern exists in other parts of the world, and in some countries the outrage over these inequalities has erupted with equal force as it has in the English-speaking world. In fact, it was movements in the Mediterranean and Middle East that inspired Occupy Wall Street, Kalle Lasn, one of the founders of Occupy, told one of us in a 2012 interview.44 There, in the early years of this decade, Spanish Indignados took to the streets in protest. A year later, Arab Spring protesters in Tunisia, Egypt, Syria, and other countries took the streets to express their anger over economic inequities within their countries. In Tunisia, they forced a regime change.
Figure 2.4 In the US, Income Inequality Has Risen Sharply
Source: Redrawn from Piketty, Saez and Zucman (2018), World Inequality Report 2018..
“We saw what happened in Tunisia, with the regime change, and started to brainstorm about what that would look like in America,” Lasn said. A “soft regime change” in the US, he said, would be to take away power and money from large corporations, which decided “every part of my life. We felt that we had reached a situation—with unemployment of young people, huge student debt, and no good jobs—where if we didn't fight for our future, we wouldn't have a future. That was the core impulse behind Occupy Wall Street.”
In other countries, particularly in emerging Asia, the social outrage over rising inequality has been less pronounced. In China, India, and many ASEAN nations, national inequality also rose. However, overall economic growth in that region was much higher, so a rising tide did in fact lift most boats. Still, the specter of class tensions looms over some of these countries as well (see Chapter 3).
As author James Crabtree highlighted in his book The Billionaire Raj, India is now one of the most unequal societies in the world, to the point of embodying a new Gilded Age society. Unlike in India, in China, most of the population started on the same footing when the country opened to the world. Despite this, China has seen its inequality surge, too, with the top 10 percent now capturing 41 percent of their nation's income.45 In many other emerging markets, the situation is even worse. Just as in the United States, the top 10 percent are taking home more than half their nation's income in countries across the Middle East, Sub-Saharan Africa, and many Latin American countries, including Brazil.
Inequality in continental Europe is slightly less pronounced, with 37 percent of income captured by the top 10 percent of earners. While inequality has been rising, it has done so at a considerably slower pace than in most other leading economies. This is partially due to Europe's greater system of check and balances to facilitate income distribution and redistribution.
But
