While much of the economics profession spent the weekend in Philadelphia discussing Larry Summers’s “secular-stagnation” thesis and other issues at the annual meeting of the American Economic Association, I was reading Angus Deaton’s new book, “The Great Escape: Health, Wealth, and the Origins of Inequality.” This is how Chapter 1 starts:
Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die.
Deaton, a Princeton economist who is renowned for his meticulous approach, has spent decades studying health, inequality, and economic development. During the past thirty or forty years, he reminds us, rapid rates of economic growth in parts of the developing world, particularly China and India, have dragged many, many people out of abject poverty. According to the World Bank, which is the recognized authority in this area (although some critics question its methods), between 1981 and 2008, the number of people living on the equivalent of a dollar a day fell by about seven hundred and fifty million—and this at a time when the over-all population in low-to-middle-income countries has been growing rapidly. Consequently, Deaton notes,
the fraction of the world’s population that lives below a dollar a day has fallen from more than 40 percent to 14 percent.… Not everywhere and not at all times, but a quarter century of growth has done much to reduce global poverty.
One of the many merits of Deaton’s book is that it doesn’t focus exclusively on G.D.P. Money represents but one dimension of human well-being, he points out; health and longevity are just as important—arguably more important. There is nothing as unequal as people in some parts of the world living to grand old ages while others, in poorer countries, are systematically deprived of a normal life span. In 1950, according to U.N. figures, the average life expectancy in less developed parts of the world was just forty-two years.
Thanks to improvements in education, medicine, and health-care delivery systems, things have changed quite a bit. By 2010, Deaton reports, the average life expectancy in less developed regions had risen to sixty-six years—a jump of more than fifty per cent compared to 1950. To be sure, most residents of poor and middle-income countries don’t live as long as people in northern Europe, where the average life expectancy is now close to eighty years, but the gap has narrowed quite a bit.
Of course, there are exceptions, particularly in sub-Saharan Africa, where the scourge of H.I.V. and AIDS has had a big impact on over-all mortality rates. Take Botswana, a country often regarded as one of the best-run on the continent. During the postwar decades, the life expectancy there rose from forty-nine years to sixty-four years; by 2005, largely thanks to H.I.V./AIDS, it had fallen back to forty-nine years. To see a comparable drop, you have to go back to China’s Great Famine of 1958-62, which killed perhaps thirty-five million people. Still, in most parts of Africa, fewer people are dying at very young ages, and over-all longevity has increased. Even in the Democratic Republic of Congo, which is one of the poorest and most benighted countries in the world, infant-mortality rates have been declining at a rate of about one per cent a year. And throughout the region, changes in behavior and the availability of retroviral drugs are finally reducing the number of deaths from H.I.V./AIDS. As this process continues, life-expectancy rates should rise considerably.
Back in the nineteen-sixties and seventies, many experts were concerned that a big increase in the earth’s population would doom mankind to widespread impoverishment, malnutrition, and deprivation. As Deaton rightly says, this Malthusian vision turned out to be ill-founded: “The world has done much better than the pessimists predicted.”
That’s the good news. But how far has the progress extended? While many people have made the “Great Escape” from chronic poverty and short lives, as Deaton calls it, many of them haven’t moved very far, and perhaps a billion have been left behind completely.
If you set aside China and India, which admittedly isn’t very wise, you find that, worldwide, the gap between rich and poor countries is as large as it’s ever been, maybe even larger. And even if you do include China and India, the two great success stories, it’s surprisingly hard to find evidence that inequality has fallen on a global basis.
Deaton acknowledges this reality, but I’m not sure he confronts it adequately. At one point, he writes, “There has been little or no narrowing of income inequality between countries; for every country with a catch-up story there has been a country with a left-behind story.” Elsewhere, though: “The rapid growth of China and India has not only enabled hundreds of millions of the world’s citizens to make The Great Escape but made the world a more equal place.” Theoretically, these statements could both be correct: if you lined up all the people in the world, rather than all the countries, you might expect to find a narrowing in income dispersion thanks to the contribution of all those newly middle-class Chinese and Indians.
But when Branko Milanovic, the World Bank’s leading expert in this area, and a colleague, Christoph Lakner, recently carried out such an exercise, they couldn’t identify any appreciable fall in inequality. Their study, which has just been published as a working paper, was based on household surveys that they compiled from around the world. Allowing for possible statistical errors and gaps in the surveys, they concluded that between 1989 and 2008 the over-all level of global inequality basically remained the same. Their initial estimate was that it had gone down a bit. When they adjusted their figures for the underreporting of top incomes, which is a common problem in household surveys, they found it had risen a bit. Either way, they wrote, “our results confirm earlier findings that the level of global inequality remains high.”
In fact, the extent of inequality that Milanovic and Lakner found was even greater than estimates from previous studies, including some carried out by Milanovic himself. A commonly used measure of income inequality is the Gini coefficient, which ranges from zero (perfect equality: everybody gets the same income) to one (perfect inequality: one person gets all the income). According to Milanovic and Lakner’s calculations, in 2008 the global Gini coefficient was somewhere between sixty-eight per cent and seventy-six per cent, depending on which specification they used. Previous studies mostly found global Ginis in the mid-sixties. If the new calculations are right, the world is an even more unequal place than we thought.
How is it possible that the rapid growth of countries like China, India, and Brazil hasn’t done more to equalize incomes throughout the world? Nobody has provided a full explanation, but part of the story is an internal one. While globalization and technological progress have enabled some poor countries to engage with the global economy and catch up to their more advanced rivals, these same forces are generating big increases in inequality within countries. For every Chinese rural resident who moves off the land and seeks employment in factories, there is an entrepreneur, or a Party official, who builds himself a McMansion, buys a fancy car, and opens an offshore bank account. As was the case in the United Kingdom and the United States, industrialization begets rising inequality.
To quote Milanovic and Lakner:
Most of global inequality is accounted for by differences between countries, although this contribution has declined over time, suggesting that countries have become more similar. The within-country component of global inequality, however, has increased continuously over this twenty-year period.
This de-levelling process is taking place in medium-income and rich countries as well as in poor ones, and it is not just a matter of money. As successful Chinese and Indians and Brazilians get richer and richer, they gain access to goods and services that most of their countrymen and countrywomen are denied. Deaton, who is far from blind to inequities, cites the example of health care:
First-world medicine has certainly sharpened local health inequalities in poor countries. In cities like Delhi, Johannesburg, Mexico City, and São Paulo, first-world state-of-the-art medical facilities treat the wealthy and powerful, sometimes within sight of people whose health environment is not much better than that of seventeenth-century Europe.
It is pretty well established that highly unequal countries have poorer health outcomes. One of Deaton’s many helpful charts shows life expectancy mapped against per-capita G.D.P. As is to be expected, there is a positive connection between the two variables. More interesting is the fact that, among countries that are roughly as rich as each other, the unequal ones fare worst. For example, in Angola average life expectancy is about twenty years lower than it is in Vietnam, even though per-capita incomes in the two countries are similar. Residents of the United States, another unequal nation, live shorter lives, on average, than residents of comparably advanced countries like Japan.
As Deaton notes, inequality is not always a bad thing. Sometimes, it is an inevitable consequence of economic progress, such as in industrialization. At other times, it spurs progress. (Deaton cites as example that “Indian children see what education can do and go to school too.”) But when inequality becomes too acute, and too glaring, it can threaten to undermine support for the private enterprise system that lifts some, if not all, boats. In parts of India, this already appears to have happened. In China, it is a great fear of the regime. Even in the United States, there are murmurings of discontent.
Deaton remains an optimist, partly based on his own experience: his father grew up in a South Yorkshire mining town; Deaton went to Cambridge on a scholarship. Deaton’s daughter is a financial planner; his son is a partner in a hedge fund. His grandchildren live in “a world of wealth and opportunity that would have seemed a far-fetched fantasy in the Yorkshire coalfield.”
With rising rates of literacy and participation, Deaton insists, the economic system that enabled this transformation for his family can do the same for women in rural India and tribesmen in sub-Saharan Africa. “None of these things can be expected to improve everywhere, or to so uninterruptedly,” he writes. “Bad things happen, and new escapes, like old ones, will bring new inequalities. Yet I expect those setbacks to be overcome in the future, as they have in the past.”
Photograph by Sim Chi Yin/VII Mentor Program.