Global Inequality

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Global Inequality

• Jan Luiten van Zanden
• UU/Groningen/Stellenbosch

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Three issues

• Global Inquality long-term trends in world
  economy 1500-2010 the GDP evidence
• Beyond GDP OECD report
• Why theories and speculations

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The questions

• Why are some countries rich and others poor?
• Why are some countries less unequal than others?
• Are we measuring economic performance correctly?

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Recent trends in research

• Trying to get the big picture, and searching
  for the deep roots of development and
  underdevelopment (Engermann Sokoloff, Acemoglu
  et.al., Nunn)
• New research on non-western world China, Japan,
  India (Great Divergence debate)
• The problem of Africa

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Recent trends in research

• From research focused on nation state to
  international-comparative and global research
• Need for large global datasets, example Maddison
  estimates of GDP and population
• To answer questions about when (did global
  inequality begin to increase?) and why?

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What we need

• Better estimates of the usual indicators (such
  as GDP)
• Alternative indicators real wages, life
  expectancy, biological standard of living,
  agency (Sen)
• Datasets about proximate and ultimate causes of
  growth and stagnation human capital,
  institutions, family systems, culture and
  religion, knowledge production (books?),
  geography etc.
• How does growth affect sustainability?
• For the period 1500-2010, for the whole world

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Approach CLIO INFRA

• Set of specialized hubs that produce global
  datasets
• Central website at International Institute for
  Social History (IISH)
• Cooperation with Gapminder and Statplanet
• And with Data Archive DANS for datastorage

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CLIO INFRA

• Total budget 4.2 M
• For 2011-2014
• Stages 2011 design central hub, and
  requirements of data uploaded from datahubs
• June 2012 first version on-line available first
  sets of data from hubs
• 2012/2013 work on datasets and on refinements
  central hub
• 2014 final version of all websites

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CLIO INFRA consists of

• Thematic datahubs
• National Accounts the Maddison project
  (Groningen)
• Biological Standard of Living and Age heaping
  (Tuebingen)
• Human Capital Formation (Debrecen/Utrecht)
• Demography, Gender, Labour Status (IISH)
• Prices and Wages (IISH)
• Institutions Agency (UU)
• Sustainability (UU)

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CLIO INFRA-OECD cooperation

• OECD
• Maddison strong links with OECD (Development
  Center)
• Resulting in major publications (The World
  Economy 2006)
• Continuation of this kind of historical work?
• OECD Better Life initiative on well-being
  indicators multidimensional measures of
  development

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Industrial Revolution
Black Death
1086
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Golden Age
Black Death
French Occupation
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Stable growth between 1348 and 1800
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Sung peak
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Peak Arab World
Ottoman Empire
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Results

• Charting long-term trajectories of various parts
  of world economy 1000-2000
• Also Middle East/Ottoman Empire, India, Japan
• Transition from Malthusian economy to modern
  growth in North Sea area in two steps Late
  Middle Ages (Black Death), ca. 1800 (Industrial
  Revolution)
• Rest of the world gradual spread of Industrial
  Revolution
• Combination with dataset of income inequality
  within countries global inequality

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The aim various dimensions of inequalityGlobal
Income Inequality 1820-2000
GDP per capita
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World income inequality
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Within-country income inequality
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GDP and Beyond

• OECD Better Life Initiative multi-dimensional
  approach to well-being, resulting a.o. in the
  Hows Life? report
• Clio Infra project, global network of economic
  historians to measure various dimensions of
  long-term evolution of world economy 1500-2010.

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Well-being and the OECD
Better policies for better lives
Better measures
Subjective well-being Social contact Governance
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The Hows Life Well-being Framework
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Measuring well-being
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Aim of cooperation

• Present state-of-the-art estimates on various
  dimensions of development of well-being in world
  economy from 1820 to present (GDP and beyond)
• Contribute to the discussion about the broadening
  of the welfare concept used to characterize
  socio-economic development
• Indicate relevance of going beyond GDP, also in
  historical analysis

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The importance of historical statistics
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Dimensions covered in How Was Life? book
Dimension Indicator(s)
Economic standard of living GDP per capita
Inequality Income inequality Real unskilled wages
Health Status Life Expectancy Height
Education and Skills Educational attainment
Personal security Homicide, Incidence of warfare
Civic Engagement and Governance Political institutions
Environmental Quality SO2 CO2 Species abundance
Gender Inequality Various indicators composite index
Overall indicator of Well-Being  Composite indicator (experimental)
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Statistical Quality

• Data for 25 major countries and another 100
  since 1820.
• Important issue of quality of underlying sources
• Four levels of statistical quality indicated for
  each data point based on credibility of source,
  accuracy of method and comparability across
  countries and over time

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Results

• In general very strong correlation of each
  indicator with GDP per capita, though less
  unequally distributed
• Exceptions low/negative correlations in
  Inequality, Security, and Environmental quality
  domains
• Relationship between GDP per capita and other
  measures of well-being changes over time

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Correlation with GDP/c over time
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Changing relationship

• 19th century early growth paradox
• Rapid industrialization and growth did not result
  in increased well-being
• Early urbanization and industrialization had
  strong negative externalities
• Standard of Living debates
• Changes after about 1870

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Changing Relationship

• After 1950 increases in well-being become
  (increasingly) autonomous
• Africa after 1970 Latin America 1980s Japan
  after 1990 slowdowns of economic growth do not
  necessarily result in slowdown increase
  well-being
• Different ranking of western Europe and Offshoots
• Relevant for Europe after 2007?

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Composite variable/region
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Per capita GDP
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Composite indicator std. GDP/c
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Preston-curve GDP/c life expectancy
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Segmented relation per capita GDP combined
wellbeing indicators
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New results

• Changing link between GDP per capita and Income
  Inequality
• 19th century rich countries are more unequal
  (have larger surplus that can be distributed)
• After 1980 poor countries are more unequal
• Rich countries went through egalitarian
  revolution
• Recent increase in inequality (after 1980) more
  marked in poor countries

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Resulting HDI
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Resulting HDI
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Resulting HDI
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Resulting HDI
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Resulting HDI
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But why?

• Explain success and failure in world economy
• Institutions versus Geography
• Agency

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Jared Diamond Guns, Germs and Steel

• Importance geography
• Why did Neolitihic revolution start in Middle
  East?
• EurAsia easy spread crops and ideas first
  cities, states, iron technology

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Daron Acemoglu en James Robinson

• Institutions extractive versus inclusive
• Reversal of Fortune 1500-present (Peru versus
  North America)

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Amartya Sen

• Development as Freedom
• Capabilities approach
• Agency enhances economic development
• Female Agency smart economics
• Quality-Quantity switch

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Institutions as explanation

• New Institutional Economics (North, Acemoglu
  Robinson) most promising explanation of such
  trends
• Institutions rules of the game of society
  informal (customs) vs. formal (laws)
• Determine how people interact
• Related to trust
• Embedded in culture, religion

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Institutions and power

• Institutions are related to power
• They determine who are powerholders and how much
  power they have, and whether it is constrained or
  not
• At various levels the state, the firm, the
  family
• NIE power structures determine economic
  development (Acemoglu Robinson)

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How to test these ideas

• Example did female agency matter
• Classification family systems on basis of
  antropological data
• Inheritance, monogamy/polygamy,
  consensus/arranged marriage, nuclear/extended
  families
• Female-friendly index Eurasia

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Agency of women in historic family systems
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Hypothesis Emmanuel Todd

• Original family system of hunter-gatherers was
  relatively female friendly
• Rise of settled agriculture resulted in decline
  position women (heavy plough)
• State formation after Neolithic Revolution
  reinforced this process
• Strong position of women only in marginal
  regions EurAsia, at distance from centers
  Neolithic Revolution (Middle East, Northern
  India, North China)

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Example marriage system

• Europe rise of European Marriage Pattern (EMP)
  marriage based on consensus between spouses, who
  select their partner themselves and set up their
  own household (De Moor and Van Zanden 2010)
• China patriarchical marriage system, where
  marriage is arranged by family, and girl moves in
  with household boy

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Consequences

• Age of Marriage low in China (women 12-15),
  high in Europe (women 25-28)
• Son-preference in China, no gender preferences in
  Europe
• Europe more agency for women
• China all education invested in sons (for
  exams) Europe education more balanced between
  males and females
• Europe gradual rise of overall level of human
  capital China stagnation?

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Age at marriage ca. 1900
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Marriage and agency

• balanced power relations in Europe led to high
  age of marriage, no son preference, more
  investment in education women, and gradual shift
  from quantity to quality
• Less balanced power relations in China
  resulted in high fertility for women (who married
  very early)

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Effects on human capital formation

• China highly trained civil servants, but big gap
  between men and women (Qing 40/10)
• China stagnation state demand for public service
  leads to stagnation in level of human capital
  formation (van Leeuwen et.al. 2013)
• Europe gender gap much smaller, women also
  receive (basic) education better preconditions
  for quantity-quality shift

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Results of recent work
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Example 2 State Formation

• Reversal of fortune in state formation
• China from very strong state under Sung to weak
  state during Qing (Liu Guanglin 8 of GDP to
  2-3 of GDP)
• Europa process of state formation resulting in
  high state capabilities of 19th/20th centuries
  (8-12 of GDP in 19th century)
• Rooted in different relationships between state
  and inhabitants

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Fundamental problem of the state

• Agency state is agent of population, should work
  in common interest
• But may turn against citizens has its own
  logic/independence
• Why support a state (by paying taxes) which can
  use its power against its own citizens?
• Required institutions that constrain power of
  the executive
• Or institutions that ensure that power state will
  be used for interest of citizens

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State formation in Western Europe

• Tradition of citizenships cooperative
  relationship between citizens and state emerged
  in city states of Middle Ages
• Feudal tradition of power sharing and bargaining
  between King and his nobles between King and
  cities (in Parliaments), between state and church
  
• Most successful European states (England after
  1688 Netherlands after 1572 France after 1789)
  combine these traditions taxation and
  representation resulting in democratization

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State Formation in China

• State based on professional bureaucracy,
  recruited via examination system guarantee
  against using state for own interest
• But all power in principle concentrated in
  emperor
• No contract between subjects and state
• Dramatic changes in relationship between state
  and citizens (for example early Ming late Ming)
• Problem of legitimacy of foreign dynasties such
  as Manchus
• Qing stagnation state, growing corruption

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Conclusion

• Much work on measuring global inequality
  1500-2010 GDP and beyond GDP
• Exciting theories about development paths of
  regions/countries
• Western Europe balance between agency and
  institutions (freedom and rules)
• Old Centres of Neolithic Revolution too much
  hierarchy (ergo reversal of fortune)