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The Landscape of Global Inequality

Income inequality is rapidly turning to becoming the most virulent political issue of our time, not least because more people feel affected by it than by climate change. We wonder: Where in the world has income inequality risen over past quarter century?

A. Between countries worldwide
B. Within countries
C. Within some regions

A. Between countries worldwide … is not correct.

Income inequality between countries has actually declined over the past quarter-century — and indeed the gap narrowed among all the world’s rich and poor people taken on average. In fact, the period since about 1990 marks the first time since 1820 that the global gap between the average incomes in rich and poor countries has begun to narrow somewhat, according to the World Bank.

Until the onset of the industrial revolution, people around the world lived in remarkably similar circumstances. While some people benefited from a more propitious climate, most people worked in the agricultural sector at a subsistence level.

The race by European powers and the United States to industrialize in the 19th and 20th centuries, along with the colonial exploitation of other nations for cheap resource extraction that had begun much earlier, in the 1500s, left many countries behind. During that centuries-long time period, the gap between rich countries and poor countries grew rapidly.

Today, while there are still many very poor countries, nearly every country has begun the process of industrialization, as opposed to relying primarily on subsistence agriculture or mineral wealth extraction.

The biggest factor in narrowing the global income gap over the past several decades was primarily the economic rise of the very populous poor nations China and India.

This lifted upward the average incomes of more than a billion people across the two countries, narrowing the gap with average income in richer countries.

B. Within countries … is correct.

On average, income inequality between people within a given country was wider in 2013 than in 1988. That average level of in-country inequality grew sharply from 1988 to 1998 – the last decade of the 20th century by 6 points on the so-called GINI index.

It only declined by just 1 point over the full 15 years that followed.

Despite all the debate about rising inequality in advanced countries, inequality within the populations of developing countries, still in the process of industrialization, remains the focal point of global inequality.

The ten most unequal countries are all found in Latin America/Caribbean (including Brazil, Chile, Colombia and Mexico, among others) or sub-Saharan Africa (just Rwanda and South Africa).

Along with Haiti, South Africa is the most unequal country in the world among those for which data exist.

However, income inequality is also on the rise within some wealthy, post-industrial economies, too. The United States saw double-digit increases in the share of income going to the top 1%. Back in 1975, this share was below 10% after a long decline over the preceding 75 years. By 2015, it was close to 20%.

Overall, the recent trend for all countries is good, though. Twice as many countries experienced internal improvements in equality, as opposed to increases in inequality, from 2008 to 2013, according to The World Bank.

C. Within some regions … is also correct.

Regional income inequality grew from 1990 to 2013 in some parts of the world. This occurs when the residents of some countries on average experience faster real income growth than the residents of other countries within their given region.

The region in which inequality between countries grew the most over that span is South Asia. This is primarily due to the rise of India’s middle class. As it emerged and brought average income levels up within India, its economic gains outstripped the progress in income growth in much poorer neighboring countries like Bangladesh and Pakistan.

Industrialized economies on the whole (mostly located in Europe) also experienced an increase in regional inequality from 1990 to 2013. The wealthy countries’ average incomes were diverging, as some entire nations got richer and some stagnated or declined.

Ex-Soviet/Communist states in Eastern Europe and Central Asia experienced a big surge in regional inequality initially in the late 1980s and early 1990s.

Some of those nations saw incomes rise rapidly under market economies, while others struggled to get back on their feet under a new system. However, after an initial surge, the level of inequality in the region declined modestly over the remainder of the period to 2013.

Up until about 2008, the Middle East/North Africa region was experiencing regional economic convergence. Inequality between countries was reduced. However, it deteriorated just ahead of the Arab Spring uprisings.

Latin America and sub-Saharan Africa have both made modest strides as regions in that span, as poorer countries caught up to their wealthier neighbors.

The East Asia/Pacific region largely maintained a static level of regional inequality between countries from 1990 to 2013, apart from a temporary surge around the time of the 1998 financial panic in Asia.

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