The Rising Inequality of World Income Distribution

• Author: Robert Hunter Wade
• Position: Professor of Political Economy at the London School of Economics

Does it matter what is happening to world income distribution (among all 6.2 billion people, regardless of where they live)? Amartya Sen, the recent Nobel laureate in economics, warns that arguing about the trend deflects attention from the central issue, which is the sheer magnitude of inequality and poverty on a world scale. Regardless of the trend, the magnitude is unacceptable (Sen, 2001). He is right, up to a point. The concentration of world income in the wealthiest quintile (fifth) of the world's population is indeed shocking and cannot meet any plausible test of legitimacy. The chart shows the distribution of world income by population quintiles. Ironically, it resembles a champagne glass, with a wide, shallow bowl at the top and the slenderest of stems below.

But still, the trend does matter. Many champions of free trade and free capital movements say that world income distribution is becoming more equal as globalization proceeds, and on these grounds they resist the idea that reducing world income inequality should be an objective of international public policy. Moreover, many theories of growth and development generate predictions about changes in world income distribution; testing them requires information about trends. Indeed, the neoliberal paradigm-which has supplied the prescriptions known as the Washington Consensus that have dominated international public policy about development over the past twenty years-generates a strong expectation that as national economies become more densely interconnected through trade and investment, world income distribution tends to become more equal. And it is a fair bet that if presented with the statement, "World income distribution has become more equal over the past twenty years" and asked to agree, agree with qualifications, or disagree, a majority of Western economists would say, "agree" or "agree with qualifications."

If they are right, this would be powerful evidence in favor of the "law of even development," which says that all national economies gain from more integration into international markets (relative to less integration), and lower-cost, capital-scarce economies (developing countries) are likely to gain more from fuller integration than higher-cost, capital-abundant economies (developed countries). Developing countries wishing to catch up with standards of living in the West should therefore integrate fully into international markets (by lowering tariffs, removing trade restrictions, granting privileges to foreign direct investment, welcoming foreign banks, enforcing intellectual property rights, and so on) and let the decisions of private economic agents operating in free markets determine the composition and volume of economic activities carried out within the national territory. This "integrationist" strategy will maximize their rate of development; put the other way around, their development strategy should amount to an integrationist strategy-the two things are really one and the same.

[ SEE THE GRAPHIC AT THE ATTACHED RTF ]

Fortunately, the self-interest of the wealthy...