THREATS OF GROWING INCOME INEQUALITIES AND POSSIBLE SCENARIOS. Vladimir Popov

Transcription

1 THREATS OF GROWING INCOME INEQUALITIES AND POSSIBLE SCENARIOS Vladimir Popov

2 There are at least two threats of growing income inequalities: social tension within countries backlash against globalization

3 Past and recent research shows that inequalities are associated with the array of negative social consequences (Wilkinson, Pickett, 2010). - decline in the institutional capacity of the state - increase in crime and mortality - decline in educational attainments - proliferation of psychological disorders - obesity - worse attitude to democracy Besides, inequalities undermine social mobility and lead to the conservation of social stratification: the higher the inequalities: The higher the probability that ones incomes will closely resemble that of their parents (the Great Gatsby curve).

4 Fig. 4. Murder rate in 2002 and income inequalities in (WHO, WDI). Namibia Botswana Lesotho Sierra Leone Boliv Swaziland Central Af rican Republic iahaiti Chile Paraguay Brazil South Af rica Panama Peru Guatemala Argentina Honduras Dominican Republic El Salv ador Costa Malawi Malay Gambia, Mexico Zimbabwe Rica Mali Niger Papua The New Guinea sia Madagascar Guinea-Bissau Nepal Philippines China Uruguay Turkey Cameroon Ecuador Cote d'iv oire Iran, Islamic Nicaragua Rep. Nigeria Venezuela, RB Singapore ZambiaThailand Keny Burundi auganda Georgia Ghana Senegal Burkina Cambodia FasoGuinea Israel Morocco Tunisia United Jamaica Jordan Macedonia, Mozambique Trinidad Turkmenistan States and Tobago Mauritania FY R Russian Federation Portugal Latv ia United Italy New Benin Egy Australia Lithuania Vietnam Zealand Kingdom Algeria Estonia Ireland Greece Belgium Armenia pt, Lao Arab Rep. France Switzerland Spain Poland Canada India Indonesia PDR Moldov akazakhstan Tanzania Yemen, Netherlands Korea, Tajikistan Sri Rep. Lanka Bangladesh Rep. Mongolia Romania Pakistan Ky rgy Austria Croatia Bulgaria Belarus z Republic Ethiopia Germany Slov enia Albania Ukraine Rwanda Czech Bosnia Hungary Finland and Herzegov ina Japan Norway Slov Uzbekistan ak Republic Denmark Sweden Colombia Azerbaijan Murders per inhabitants (WHO)

5 Georgia Bolivia Zimbabwe Panama Azerbaijan Tanzania Nigeria Peru Haiti Ukraine Belarus Cambodia Thailand Moldova Sri Armenia Lanka Benin Honduras Guatemala Russian Senegal Zambia Nicaragua Uruguay Federation El Salvador Central African Republic Kazakhstan Cote d'ivoire Ethiopia Burkina Mozambique Uganda GhanaFaso Philippines Brazil Colombia Kyrgyz RepublicGuinea Burundi Madagascar Malawi Mali Niger Sierra Leone Rwanda Pakistan Bangladesh Estonia Latvia Jamaica Bosnia Bulgaria Albania Croatia and Herzegovina Egypt, Algeria Arab Macedonia, Mauritania Morocco Tunisia Nepal Rep. FYR Papua New Guinea Uzbekistan Romania Kenya Ecuador Venezuela, RB Cameroon Dominican Republic Lao PDR Turkey Botswana Lesotho Lithuania Malaysia Mexico Paraguay Namibia Slovenia Korea, Greece Argentina Costa Rica Hungary India Yemen, Poland Rep. Rep. South Africa Indonesia Italy Mongolia Belgium Spain Portugal Israel Jordan Czech Iran, Islamic Rep. Chile Denmark Sweden Norway Slovak Republic Finland Germany Canada Hong China Kong, China France Ireland Vietnam Netherlands Australia United Japan Austria New Zealand Kingdom Singapore Switzerland United States Gini coefficient of income inequalities in , % Shadow economy as a % of GDP in 2005

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7 Attitude toward democracy and inequality in some Latin American countries Source: Latinobarometro, cited in: Economist, November 17, 2007; Word Development indicators, 2007; Davies, Sandstrom, Shorrocks, Wolf, 2007

8 There are at least two threats of growing income inequalities: social tension within countries backlash against globalization

9 Fig. The share of 10% richest households in total personal income in European countries in , % Source: The World Wealth and Income Database.

10 20 50 Share of profits with IVA and CCAdj after taxes Top 10% income share

11 PPP GDP per capita in Britain as a % of average level of 30 West European countries

12 Fig. Increase in the pride index, times, and annual average growth rates of per capita GDP, %, in Source: World Values Survey; World Development Indicators database.

13 Fig. 6. Increase in the pride index, times, and increase in the Gini coefficient of income distribution, p.p., in Fig. 6. Increase in the pride index, times, and increase in the Gini coefficient of income distribution, p.p., in Source: World Values Survey; World Development Indicators database.

14 The regression equation linking the increase in the pride index (Ipride) with the growth of per capita GDP (GROWTH) and the increase in inequalities (GINIincr) for the period of is Ipride = 0.18 GROWTH 0.08 GINIincr (2.08) (1.61) (1.81), N=20, R-squared = 0.32, robust estimate, T-statistics in brackets below, Ipride ratio of positive to negative answers (very proud + quite proud)/(not very proud + not proud at all) in divided by the same ratio in , GROWTH annual average growth of per capita GDP in , %, GINIincr and the increase in Gini index of income inequalities in percentage points from the beginning to

15 Income and wealth inequalities Zimbabwe Namibia Denmark Switzerland Guatemala Brazil Chile Swaziland Central African Republic Indonesia Zambia Ecuador Panama Paraguay South Colombia Bolivia Africa Lesotho Nicaragua Mali Haiti Botswana Sweden Mexico Hong El Argentina Salvador France Nigeria Kong, Honduras Burkina Faso Malaysia Costa Malawi Papua China Rica Peru New Guinea Georgia UgandaMadagascar Gambia, Niger Dominican The Republic Rwanda Benin Cambodia Turkey Cameroon Cote Philippines Thailand Iran, Venezuela, Islamic Guinea-Bissau d'ivoire Rep. Pakistan Burundi Azerbaijan Armenia Egypt, Jamaica Arab Guinea Kenya Moldova United Ghana Rep. Kyrgyz Republic Mauritania Morocco Mozambique Tunisia Russian Kingdom Senegal Uruguay RB Federation Singapore Sierra Leone Algeria Estonia Jordan Israel Germany India Latvia Bangladesh Tajikistan Belgium Sri Tanzania Vietnam Trinidad and Tobago Ukraine Lanka Lithuania Hungary Croatia Albania Austria Bulgaria Ethiopia Kazakhstan Greece Poland Portugal Macedonia, FYR Netherlands RomaniaNew Zealand Czech Norway Slovak Slovenia Belarus Republic Finland Australia Yemen, ItalyRep. Japan Korea, Ireland Rep. Spain China GINI_90_05

16 Fig. Different series for the UK top 1% wealth share Source: Facundo Alvaredo, Anthony B Atkinson, and Salvatore Morelli (2016).

17 Incomes of the richest as a multiple of average national income Marcus Crassus (53 BCE) Andrew Carnegie (1901) John D. Rockefeller (1937) Mikhail Khodorkovsky (2003) Bill Gates (2005) Carlos Slim (2009)

18 Table. Billionaires in former USSR, Eastern Europe China, and Vietnam, 2013 Source: Forbes billionaires list ( Number of billionaires Total wealth PPP GDP, 2012 Number per 1 trillion PPP GDP China Russia Ukraine Kazakhstan Czech Republic Poland Georgia Vietnam Romania Uzbekistan Wealth of billionaire s to PPP GDP, %

19 Total Forbes billionaire wealth (% national income): Russia vs other countries,

20 Number if billionaires in 2007and PPP GDP in 2005 (WDI database ; Forbes billionaires website ( The relationship is non-linear: Number of billionaires in 2007 = y y2 +2.6Y2, Where y PPP GDP per capita in thousand $ in 2005, Y PPP GDP in 2005 in trillions. N= 181, R2 = 0.95, all coefficients significant at 1% level.

21 Vertical vs. horizontal inequalities Income and wealth levels are different not withing the groups (ethnic, social, etc.), but between groups Inequalities not within regions, but between regions

22 First scenario Inequalities grow => social tensions (revolutions?) Inequalities grow => nationalism => Backlash against globalization => protectionist measures => Collapse of the world tarde and capital flows similar to the 1930s

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24 20 50 Share of profits with IVA and CCAdj after taxes Top 10% income share

25 Second scenario Some countries (Europe, East Asia, others) manage to limit the increase in inequalities => These countries become more competitive (stronger institutional capacity, lower murder rate and shadow economy, better investment climate) Other countries are compelled to change policies due to the demonstration effect

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27 Gini coefficient of income distribution in Russia and China, % 0.5 China, new series 0.45 China 0.4 Russia Source: Chen, Hou, Jin, 2008; Госкомстат; China daily, January 19, 2013.

28 Fig Gini coefficient of income distribution in China in , %, new official sample (China Daily, January 19, 2013)

29 INEQUALITY IN CHINA BETWEEN PROVINCES AND WITHIN PROVINCES It is important, though, to take into account the size of the country in terms of both territory and population. Three Chinese provinces (Guangdong, Shandong, Henan) have populations over 95 million, another seven have over 50 million, that is bigger than most states, so China should be compared with multistate regions, like the European Union or ASEAN, rather than with particular states. In the EU 27, for instance, the coefficient of income inequality around 2005 was about40% with 23 percentage points (p.p.) coming from between-country inequalities. In China (29 provinces) it was over 40% with 24 p.p. coming from between-province disparities. In the USA, the inequality coefficient was similar (over 40%), but only 6 p.p. came from disparities in income between the states (Milanovic, 2012). If China manages to reduce the income gap between its provinces (and the EU-between member countries) to a level close to the disparities between US states, the general inequality between citizens will fall to

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32 Inequalities in Latin America

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34 CONCLUSIONS Explanation of the trends in inequality dynamics Social consequences of inequalities: When growing inequality leads to a revolution? When revolutions happen without growing inequality? Scenarios: Inequality trends? Future revolutions?