Growth and Inequality

Thomas Pogge in Dissent:

Consider two large poor countries that, thanks to their resources, have achieved enormous growth in the 2000-2005 period. Nigeria’s reported GNI per capita jumped from $260 in 2000 to $560 in 2005 and Angola’s from $240 to $1,350. Is this progress? Yes, if the additional money eased the plight of the poor. No, if it was spent to prop up oppressive and corrupt rulers: on military equipment and on perks and payments to officers to ensure their loyalty. Where the second scenario is closer to the truth, impressive growth in GNI per capita may be detrimental by strengthening the power of a ruling elite over a population whose severe poverty was barely reduced.

There is considerable international diversity in the evolution of intranational inequality over the last twenty-five years. The WIDER database on the subject lists 4,981 surveys for 156 countries and areas. Available data for 108 of these jurisdictions are spotty or show no clear trend. In Brazil, France, Mauritania, and Sierra Leone, income inequality appears to be clearly lower this decade than in the 1980s—in the remaining forty-four jurisdictions, clearly higher. The United States is fairly typical here: households in the top 1 percent of the income hierarchy expanded their share of national pre-tax income from 9 percent to 21.2 percent since 1979. The bottom eight deciles sustained corresponding losses. The bottom five deciles collectively declined from 26.4 percent to 12.8 percent of national consumption expenditure.

When growth is accompanied by rising inequality, this matters for the poor in two ways: It reduces or even negates gains in their absolute share that would otherwise result from economic growth. And it also diminishes their relative share. Many things money can buy are positional or competitive: political influence, for instance, and access to education and even health care depend not merely on how much money one has to spend but also on how much others are willing and able to spend on those same goods.