Inequality and Globalization

How the Rich Get Richer as the Poor Catch Up

A farmer in Narayangaon, India, September 2012. Vivek Prakash / REUTERS

When it comes to wealth and income, people tend to compare themselves to the people they see around them rather than to those who live on the other side of the world. The average Frenchman, for example, probably does not care how many Chinese exceed his own standard of living, but that Frenchman surely would pay attention if he started lagging behind his fellow citizens. Yet when thinking about inequality, it also makes sense to approach the world as a single community: accounting, for example, not only for the differences in living standards within France but also for those between rich French people and poor Chinese (and poor French and rich Chinese).

When looking at the world through this lens, some notable trends stand out. The first is that global inequality greatly exceeds inequality within any individual country. This observation should come as no surprise, since global inequality reflects the enormous differences in wealth between the world’s richest and the world’s poorest countries, not just the differences within them. Much more striking is the fact that, in a dramatic reversal of the trend that prevailed for most of the twentieth century, global inequality has declined markedly since 2000 (following a slower decline during the 1990s). This trend has been due in large part to the rising fortunes of the developing world, particularly China and India. And as the economies of these countries continue to converge with those of the developed world, global inequality will continue to fall for some time.

Even as global inequality has declined, however, inequality within individual countries has crept upward. There is some disagreement about the size of this increase among economists, largely owing to the underrepresentation of wealthy people in national income surveys. But whatever its extent, increased inequality within individual countries has partially offset the decline in inequality among countries. To counteract this trend, states should pursue policies aimed at redistributing income, strengthen the regulation of the labor and financial markets, and develop international

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