It’s Not Just You, America
Economic inequality is today’s hot-button issue -- whether you live in a wealthy country or a poor one.
We love to ruminate about globalization and how we’ve all become citizens of a worldwide community, but it’s not always clear what these grand abstractions have to do with our everyday lives. So perhaps it’s worth noting that right now there happens to be one particular issue that is prompting passionate debate in all countries, regardless of their living standards. Well-off Westerners are just as exercised about it as Pakistanis and Egyptians.
The topic I have in mind is the apparently widening gap between rich and poor. We used to worry obsessively about the divide between wealthy countries and less-developed ones, but the spread between them is arguably diminishing as once-poor giants like China and India grow, edging towards living standards in the developed world and adding billions to the global middle class. At the same time, though, political debates about inequality are heating up inside many countries, and this seems to be true regardless of where each nation stands in the GDP tables.
Americans, of course, are agonizing over astronomical CEO compensation, institutions that give disproportionate political influence to the wealthy, and the fate of the 99 percent. Europeans are fixated on skyrocketing youth unemployment and the challenge of sustaining bankrupt welfare systems. Japanese and Koreans, proud of their past success at lifting all boats, now fret about a growing gulf between haves and have-nots.
But these privileged populations are not the only ones who are worried. "If you look at most of the countries that have grown rapidly, absolute annual growth rates have been quite robust," says Glenn Firebaugh, a sociology professor at Penn State University who has studied the issue for years. "But it hasn’t been distributed proportionately. The rich people have been getting rich faster. That’s been the case in most countries."
Last week saw the appearance of two reports on completely separate parts of the world that advance strikingly similar themes. The Asian Development bank’s latest annual study of economic development in that region, Outlook 2012, bears the subtitle "Confronting Rising Inequality in Asia" – a phenomenon the ADB attributes to "technological change, globalization, and market-oriented reform." As the report notes, these are precisely the factors that have contributed to the rapid growth in Asia over the past few decades. According to the report’s findings, inequality widened in 11 of the 25 countries covered in the survey — including China, India, and Indonesia, the three giants that have shown some of the strongest growth.
A similar finding emerges from another paper, The State of East Africa 2012, published last week by the Society for International Development. The local newspapers who wrote about it zeroed in on a particularly revealing factoid: the rise in the number of the region’s poor, from 44 million to 53 million, over the six-year period covered in the study. Yet, just as in Asia, this comes against a background of otherwise encouraging figures on growth. The report observes, for example, that the number of mobile phone subscriptions in the region rose from 3 million in 2002 to 64 million in 2010 – which means that those subscribers now have easy access to a whole range of services (such as mobile banking) that they may not have enjoyed before.
Take Uganda. According to yet another recent study (this one by the World Bank), it’s a country that can look back on a recent record of rising GDP, averaging between four and five percent over the past two decades. And yet, as the experts point out, 94 percent of that growth has come from urban areas, which are home to only 13 percent of the population lives. The difference is easy to see with the naked eye. If you live in Kampala, the capital, you’ll have no problem finding a private school for your kids, good internet access, or a perfectly fine hospital (assuming you can afford them, of course). None of these things would have been a given a decade or two ago. Even today, though, you only have to travel a few miles into the countryside to find situations that haven’t really changed in years: minimal electricity, no running water, limited opportunities for economic advancement.
It shouldn’t come as a surprise that the sense of widening inequity has become a sensitive political issue in Uganda — and not just because many of those who are enjoying the fruits of relative prosperity belong to the political elite as well. (In Uganda, they often turn out to be members of the ruling party of President Yoweri Museveni.) One area where this tension manifests itself is in the debate over public education, which is viewed by many Ugandans (quite rightly, say economists) as the great leveler. If the local public school is failing to give your child the means to compete, you’re probably going to be upset about it. Many Americans can undoubtedly identify.
Some might object that such problems are more or less inevitable in a developing country like Uganda. But that’s just not true. East Asia’s experience over the past fifty years has shown that rapid growth and social equality don’t have to be mutually exclusive. So it’s all the more disturbing when you hear that people in precisely those countries are complaining about the same problems as Ugandans.
Case in point: Singapore. Over the years the little city-state in Southeast Asia has turned business success into something like a national mission, and its living standards are among the highest in the world. Perhaps even more importantly, no one got left behind. Like so many other East Asian tigers, Singapore managed to spread the wealth even as it created it, maintaining a remarkable societal consensus about the equitable distribution of growth.
So it’s all the more surprising that voters in Singapore chose to deliver a startling rebuke to the ruling party last year. While there were undoubtedly many reasons for the result, perhaps the most important, according to this remarkable paper from Singapore National University, was popular discontent fueled by rising economic inequality. Regardless of which measure you take, the authors of the study note, "Singapore has become more unequal in the last ten years or so." Stagnating wages and decreasing social mobility, they say, potentially threaten the remarkable social compact — implicitly based on the principle of "growth with equity" — that has characterized Singapore’s development for so long.
So what does all this mean? First, there are some reasons for hope. Firebaugh argues that the world as a whole is probably becoming less unequal — mostly thanks to the gravitational pull of those upwardly mobile Asian giants. And even while globalization has been fueling rising competitive pressures, countries around the world have also been busily devising and sharing effective policies for countering social stratification. Smart spending on education is one of the most obvious. Cash transfer programs that target the poor are another. Even improving infrastructure, access to finance, or health care can help. (Who knows, maybe that’s why President Obama picked Jim Yong Kim, who wrote a book about the relationship between health and inequality, as his choice to run the World Bank.) Latin America has actually improved its record on inequality over the past decade, for example. Those countries must be doing something right.
What these examples suggest, though, is that the ultimate solutions are likely to be political rather than economic. Those cronies from Uganda’s ruling party and America’s politically influential gazillionaires aren’t as dissimilar as they might seem at first sight. There are a lot of obvious ways to level out the playing field, but most of them are contingent on politicians being persuaded to make the right decisions. Until they start doing that, don’t expect matters to improve any time soon.