Global Inequality and Global Finance

1
Global Inequality and Global Finance

• A Presentation to the
• IDEAS Workshop on Financial Crime and Fragility
  under Financial Globalization
• New Delhi
• December 19, 2005

2
by James K. Galbraith The University of Texas at
Austin
The University of Texas Inequality Project
http//utip.gov.utexas.edu
3
The Standard Question Has Inequality been Rising
or Falling? Three ways to measure it, per
Milanovic, 2002

• Un-weighted Between-Country
• (has been rising in all studies)
• Weighted Between-Country
• (has fallen mainly because of China)
• Within-country True(disputed territory)

?
4
Stanley Fischer compares inequality types 1 and
2, 1980-2000. ( 2003 Ely Lecture)
Note that this approach says nothing about
inequality within countries
5
Existing studies of true world income
inequality give conflicting results, recently
surveyed by Milanovic
Including Sala-i-Martins claim that inequality
has been steadily decliningbased on Deininger
and Squire.
Figure borrowed from Milanovic
6
Coverage of Deininger and Squire
Version of DS used by Dollar and Kraay, Growth
is good for the poor.
7
Rank and Distribution of DS Gini for 20 OECD
countries
8
Trends of Inequality in the Deininger-Squire Data
Set
9
(No Transcript)
10
Inequality in Asia according to Deininger and
Squire
Indonesia and India have highly unequal pay. So
how do they arrive at highly equal incomes more
equal than Australia or Japan? Through a strong
redistributive welfare state? Probably not. Or,
if low Ginis in those countries reflect
egalitarian but impoverished agriculture as
many who use these data believe -- then why are
the DS Ginis so high in agrarian Africa?
11
The U.T. Inequality Project

• Measures Global Pay Inequality
• Uses Simple Techniques that Permit Up-to-Date
  Measurement at Low Cost
• Uses International Data Sets for Global
  Comparisons, especially UNIDOs Industrial
  Statistics
• Has Many Regional and National Data Sets as well,
  including for Europe, Russia, China, India, and
  the U.S.

12
A brief review of the Theil Statistic
The Between-Groups Component
n employment average income j
subscript denoting group
13
First Advantage
Said the Bi-Colored Python Rock Snake
Many Observations
14
(No Transcript)
15
Lets look at the average values in the
UTIP -UNIDO data set, with averages taken over
all available observations, 1963-1999.
UTIP-UNIDO measures show China and Australia as
the most egalitarian countries in the Asian
region India and Indonesia show high inequality
on these measures.
16
(No Transcript)
17
Lowest Inequality In the Americas
18
(No Transcript)
19
Second Advantage
Plentiful Historical Detail
20
Revolution
War
Tiananmen
Banking Crisis
Falklands War
Military Coup
Data for China drawn partly from State
Statistical Yearbook
21
Start of Liberal Reforms
22
Between sector within state inequality, 1979-80
23
Between sector within state inequality, 1991-92
24
Between sector within state inequality, 1997-98
25
(No Transcript)
26
Third Advantage
Worldwide Patterns
27
With the UTIP data, we can review changes in
global inequality both across countries and
through time.
28
The Scale Brown Very large decreases in
inequality more than 8 percent per year. Red
Moderate decreases in inequality. Pink Slight
Decreases. Light Blue No Change or Slight
increases Medium Blue Large Increases --
Greater than 3 percent per year. Dark Blue
Very Large Increases -- Greater than 20 percent
per year. h
29
1963 to 1969
30
1970 to 1976
The oil boom inequality declines in the
producing states, but rises in the industrial
oil-consuming countries, led by the United States.
31
1977 to 1983
32
1981 to 1987
the Age of Debt
Note the exceptions to rising inequality are
mainly India and China, neither affected by the
debt crisis
33
1984 to 1990
34
1988 to 1994
The age of globalization Now the largest
increases in inequality in are the post-communist
states an exception is in booming Southeast
Asia, before 1997
35
Fourth Advantage
Finding A Global Pattern
36
Simon Kuznets in 1955 argued that while
inequality could rise in the early stages of
industrialization, in the later stages it should
be expected to decline. This is the famous
inverted U hypothesis. Recent studies based on
Deininger and Squire find almost no support for
any relationship between inequality and income
levels. We believe, however, that in the modern
developing world the downward sloping
relationship should predominate, particularly in
data drawn from the industrial sector.
37
A regression of pay inequality on GDP per capita
and time, 1963-1998.
The downward sloping income-inequality relation
holds, but with an upward shift over time
38
Milanovic Unweighted Inequality Between Countries
Collapse of Bretton Woods
Debt Crisis
39
Actual and Simulated Mean Pay Inequality in Rich
and Poor Countries
Without Global Component
Actual UTIP-UNIDO
40
Conclusions
Inequality rose in most countries in the age of
globalization
Rising inequality is an issue of global finance.
It is a matter of global, not national
governance, especially high interest rates and
debt crises.
Some day, well need a new world financial system
to deal with this Meanwhile sauve qui peut .
41
Type Inequality into Google to find us on the
Web