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Inequality: The Haves and Have-nots

  • How much of our income is determined at birth?
  • Are all Danes richer than all Ugandans?
  • Story of global inequality: the three generations of Obamas

January 28, 2010—To the young and ambitious in the world, Branko Milanovic has a sober message: your income and global status mostly aren’t in your control.

In fact, more than 80% of your likely income is determined at birth by your citizenship and the income class of your parents, says Milanovic, an economist at the World Bank’s Development Research Group.

With intelligence, hard work and luck, you can move up in your country’s income distribution, but it may do little to improve your ranking among the almost 7 billion people in the world unless your country, too, forges ahead. Sometimes, if constrained by access to education and income mobility, you can’t even pull ahead in your own country.

That, in a nutshell, is the story behind global inequality. And, at a time when the incomes of the world’s top 1.75% earners exceed those of the bottom 77%, it raises all sorts of questions, such as the role of development, international migration and the global equality of opportunity, says Milanovic, one of the world’s leading experts on inequality.

"We need to realize how important it is to have high growth in poor countries, particularly in Africa," he says. "Because if your country is doing well, you are put in a faster lane. If your country goes backward, you can run, but you won’t move forward globally. And that assumes that institutions in your country do allow for some upward mobility. Unfortunately, as we know, in many countries they do not."

The issue is explored in Milanovic's new book, The Haves and the Have-Nots, a Brief and Idiosyncratic History of Global Inequality (Basic Books, $27.95). The book taps into literature (such as Anna Karenina), history (say, ancient Rome), current events (for instance, the global financial crisis) and other engaging questions (who was the richest person ever, for example) to explain the ever-widening gap between the haves-nots, haves, and "have-mores."

Milanovic says he wrote the 215-page book in 70 days, drawing on data he collected and lectures he gave during more than 20 years of studying income distribution. A native of Yugoslavia, he earned a doctorate degree in economics of inequality from the University of Belgrade. He joined the World Bank's Development Research Group in 1991, with a focus on poverty and income distribution in Communist and post-Communist countries, topics hardly anybody studied back then. His research has since expanded to inequality around the world.

Inequality, of course, is as old as human society itself. And it’s mostly seen as the wealth gap between individuals or families. In his book, Milanovic delves into the income gap between Elizabeth Bennet and Mr. Darcy in Jane Austen’s Pride and Prejudice. The annual per-capita income for the Bennets is £430, which would drop to less than £50 for Elizabeth if her father dies without a direct male heir. Mr. Darcy, on the other hand, has an annual income of £10,000. "One would really have to hate Mr. Darcy to reject the deal he is tacitly offering," Milanovic concludes. The book, along with Anna Karenina, also illustrates gender inequality. "In very unequal societies, when decisions to marry are made, money will often trump love," he says.

While the wealth gap within nations has generally declined from what it was a century or two ago, Milanovic says, inequality between nations has become more important. The poorest Danes, for example, are richer than 82% of the world’s population, but the richest Ugandans, Tanzanians, Malians are just around the 70th percentile. "In other words, practically all Danes are richer than all Ugandans", he says.

Graph: Income leves in $PPP

That statement, while provocative, may also expose limitations of the data that Milanovic relies on in the book, says Peter Lanjouw, research manager of the Poverty and Inequality team in the World Bank's Development Research Department.

"We struggle sometimes with non-response when conducting household surveys, especially among richer segments of society in developing countries," Lanjouw says. “Do we really know how wealthy the wealthiest Ugandans are? There is an urgent need to scrutinize and strengthen our methods of data collection, and probe Branko's arguments with new and improved data as these become available."

Nevertheless, Lanjouw says the book is "a delight to read." "Branko vividly demonstrates how economic ‘station’ and relative wealth are long-standing concerns that resonate deeply in society," Lanjouw says.

In the book, Milanovic also explores ways to reduce inequality between nations. Economic growth of poor countries certainly helps. It would also require much greater redistribution of income between nations through aid, if it’s practical at all. Migration, meanwhile, is another—and probably the most potent—way to reduce inequality between nations and individuals, as more people move to richer countries for better opportunities.

"We can’t look at immigration without linking it to failure of growth in some parts of the world," such as Africa, Eastern Europe, and parts of Asia and Latin America, Milanovic says. "For an ever-closer integration of economies and peoples to proceed, either poor people’s incomes have to be raised in the countries where they currently live, or they will come, in ever greater numbers, to the rich world."

In his book, Milanovic looks with alarm at immigration barriers, while goods, technology and ideas move ever more freely around the world. Millions of euros are spent to stop thousands of poor and desperate African youths on their way to the E.U. At least 1,000 die every year while trying to cross the Mediterranean.

Milanovic uses three generations of Obamas to illustrate the complexities of inequality. The paternal grandfather of President Barack Obama suffered from inequality in colonial Kenya: as a servant to the British, he was better off than most Africans, but his salary was far below Europeans living there. Obama’s father came to the U.S. to study, but returned when post-colonial Kenya was filled with hopes and promises of growth and Africans finally could move up to better jobs from which they were previously banned. Obama spent several years in Indonesia as a child, but his mother, aware of the opportunity gap between the countries, sent him to live with his grandparents in Hawaii. The rest is history.

Obama's life story shows "the rising ‘citizenship premium’ that is acquired by those fortunate enough to be born in the rich world," Milanovic writes.

 




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