World Inequality and Globalization by Bob Sutcliffe

1. World Inequality and Globalizationby Bob Sutcliffe Presented by Meg Spearman April 13, 2007 PUAF 699I Professor Milanovic

2. Outline 1. Introduction 2. Three Approaches 3. Data Alternatives 4. Inter-Country Distribution 5. Global Distribution 6. Another Method: ‘True Distribution’ 7. Using a Different Statistic: Ratio of Extremes 8. Adding Another Indicator: Life Expectancy 9. Adding Even More Indicators: The HDI 10. Summing Up the Evidence • Inequality and Globalization • A Globalization Index? • Questions/Comments

3. Three Approaches 1.Distribution of income alone 2.Measure world distribution of a more complex indicator than income 3.Examine ratios between income groups Data Alternatives 1.How to compare incomes (exchange rate v. PPP) 2.Weighted or un-weighted figures 3.Inter-country or global 4.Poverty or Distribution 2. Approaches & 3. Data Types

4. 4. Inter-Country Distribution • Convergence and Divergence of Country Averages • Population-Weighted Convergence and Divergence • Converging and Diverging Blocs

5. Slow convergence Rapid divergence Only exception to the pattern.

7. Strong convergence Stationary… (population weighted) Slow divergence Slight convergence

8. Two Limitations of Inter-Country Comparisons • Within country distribution unaccounted • Assumes national income is equivalent to welfare

9. 5. Global Distribution Historical Up to 1980, within-country contribution toward inequality falls and inter-country contribution rises. Recent After 1980, within-country contribution toward inequality rises and inter-country contribution falls.

10. 6. ‘True Distribution’ via Household Surveys (Milanovic) • Eliminates the problems of national income estimates BUT: It doesn’t account for amounts received from social spending on ‘free’ services that contribute to welfare. • Calculations for 1988 (.63) & 1993 (.66) very close to nat income Gini calculations • The world has a level of inequality scarcely encountered in national economies. • The calculation that differs (1993) implies there is a rise between ‘88-’93. This is attributed to increasing urban-rural inequality.

11. 7. Ratios of Extremes

12. Most Striking: ratio of richest to poorest 1% rises in both datasets. WDI is not strictly comparable to 2 sets above because they lack earlier distribution estimates, but they are the most recent and complete picture (92.5% world’s population, WB, 125 countries).

13. 8. Adding Life Expectancy Problems: Quality does not necessarily rise with quantity. Since 1990, life exp. in 42 countries steady or fell due to AIDS.

14. There is a tendency for greater loss of healthy life years in countries with lower life expectancy. Thus, the distribution of healthy life expectancy is more unequal than the distribution of life expectancies as a whole.

15. 9.The HDI Three indicators: Log income/head Life expectancy Education - Divergence nearly “impossible” - Index of welfare is not an index of growth Countries worse-off in 1975 had the greatest % increase by 2001

16. Inequality has increased more or declined less: Use unweighted national GDPph Compare national values using exchange rates (but not since ‘95) When using PPP, use Maddison instead of PWT 6.1 or WDI Use data directly derived from household studies rather than ‘processed GDP ph figures’ Compare ratios of extremes rather than (or at least as well as) integral measures Inequality has declined more or increased less: Use population-weighted national GDPph Compare national values using PPP estimates (but not since 1995) When using PPP data, use WDI or PWT 6.1 instead of Maddison Use GDPph figures ‘processed’ by distribution figures If comparing ratio extremes, look at the less extreme (50/50, 20/20) Add another variable, especially life expectancy 10. Summing up the Evidence

17. 11. Inequality and Globalization • Since 1950, there has been a large increase in movement of goods, services and capital, though not so much people (i.e. labor). • BUT if the answer of what globalization is cannot be summed up with a single variable (just as there cannot be just one variable to define inequality). • Kevin O’Rourke points to the individual endowments of countries, which means individual cases are more instructive. • Disaggregation is needed to consider either incomes or inequalities. • Shape of global inequality still unclear (i.e. uni-modal - one big capitalistic world, OR bi-modal - imperialism is still alive!)

18. A.T. Kearney “Measuring Globalization: Who’s up? Who’s down?” (2003) (62 countries, by the Carnegie Endowment for International Peace) Argues that causes of globalization are confused with its effects Nevertheless, technological and personal integration continue even if a country’s overall economic integration is minimal 12. A Globalization Index?

19. Ireland!

20. Green: Globalization Index Yellow: Manufacturing labor cost/worker (1995-1999)

21. Questions/Comments • “The jury’s still out” on a single over-arching pattern between globalization and welfare or income • How do we define globalization? Is it a cause or an effect? • Should it be tied to existing or new definitions of welfare, security, income, political stability… etc?