Least satisfactory was the outcome for the people in the 75th to 90th percentile of the global income distribution, who saw zero growth in their real income. Those people represent a global upper-middle class, including the lower-middle class of rich countries, as well as many people in Latin America and former Communist countries in Eastern Europe.
Inequality between nations also grew, despite the recent drop in global inequality between individuals. In fact, the divisions between countries are more pronounced than those between different income classes within countries, Milanovic said. More than half of the variability in people’s incomes across the globe is simply due to one factor: the place where one lives.
The reality that opportunities are highly unequal, depending on where you live raises a question: How can we reduce global inequality? Milanovic pointed out three paths. First, high growth rates among poor and middle-income countries. That would be the best path, but it’s not easily achievable. It also largely depends on China and India maintaining their high growth rates. In fact, the decline of global inequality so far is largely due to the high growth rates of China and India – what Milanovic called “two big sumo wrestlers” tilting the scales in the fight to reduce global poverty and inequality.
A second path would be a global redistribution scheme pushing ever larger amounts of money to poor countries. That isn’t likely to happen, as development assistance is just a little more than $120 billion a year, and isn’t showing any signs of increasing.
The third path would be to promote migration, which can be an expeditious way for people to improve their fortunes. That means development should be seen through the prism of people, not countries. From a global point of view – though not necessarily from a nation-state political point of view – what matters is that people should prosper, wherever they end up.
“Either poor countries will become richer, or poor people will move to rich countries,” Milanovic said.
Augusto Lopez-Claros, director of the World Bank Group’s Global Indicators and Analysis Group, said at the event that Milanovic made income distribution, a complex subject, easy to understand. Policy makers, he said, can benefit from the research by, for example, making sure that energy subsidies, which are highly regressive and benefit largely the middle- and higher-income groups, are phased out. The resources can then be used in more productive ways, such as educating 800 million people with low levels of literacy skills, or ensuring that girls have greater access to education.
