by Michael Roberts
Branco Milanovic is the former chief economist at the World Bank,
where he became recognised as the expert on global inequality of
incomes. After leaving the bank, Milanovic wrote a definitive study on
global inequality which was updated in a later paper in 2013 and finally came out as a book last year, Global Inequality.
In his earlier papers and in the new book, Milanovic presented his now
famous ‘Elephant chart’ (shaped like an elephant) of the changes in
household incomes since 1988 from the poorest to the richest globally.
Milanovic shows that the middle half of the global income distribution
has gained 60-70% in real income since 1988 while those nearer the top
group have gained nothing.
Milanovic found that the 60m or so people who constitute the world’s
top 1% of income ‘earners’ have seen their incomes rise by 60% since
1988. About half of these are the richest 12% of Americans. The rest of
the top 1% is made up by the top 3-6% of Britons, Japanese, French and
German, and the top 1% of several other countries, including Russia,
Brazil and South Africa. These people include the world capitalist class
– the owners and controllers of the capitalist system and the
strategists and policy makers of imperialism.
But Milanovic found that those who have gained income even more in
the last 20 years are the ones in the ‘global middle’. These people are
not capitalists. These are mainly people in India and China, formerly
peasants or rural workers have migrated to the cities to work in the
sweat shops and factories of globalisation: their real incomes have
jumped from a very low base, even if their conditions and rights have
The biggest losers are the very poorest (mainly in African rural
farmers) who have gained nothing in 20 years. The other losers appear to
be some of the ‘better off’ globally. But this is in a global context,
remember. These ‘better off’ are in fact mainly working class people in
the former ‘Communist’ countries of Eastern Europe whose living
standards were slashed with the return of capitalism in the 1990s and
the broad working class in the advanced capitalist economies whose real
wages have stagnated in the past 20 years.
There are many controversial points in Milanovic’s work that I have outlined in previous posts, but a new controversy has arisen now. The British think-tank Resolution Foundation has analysed the Elephant chart.
The Resolution Foundation found that faster population growth in
countries like China and India distort the conclusion that it was the
lower classes of the advanced capitalist economies that had no income
gains since 1988. Indeed, if we assume for the moment that incomes were
unchanged in every country, then the population effect alone would lead
to apparent drops of 25 per cent in parts of the global income scale
associated with poorer people in rich countries.
A revised graph that removes the effect of different population
growth would show that the lower income groups in the advanced
capitalist economies did see real incomes rise since the late 1980s –
although nowhere near as much as the top 5-10% of income earners.
This result has led the likes of the Financial Times and other
supporters of global capitalism to argue that rising inequality has not
been due to ‘globalisation’ (the shifting of capital and investment in
manufacturing and industry into ‘emerging economies’ at the expense of
the industrial proletariat of the ‘North’).
This is a comforting conclusion for the apologists of capital at a
time when populist anti-capitalist sentiment is rising and is attacking
the idea of ‘free trade’ and ‘free movement of capital’, thus
threatening the profitability of capital globally.
But the Resolution Foundation’s analysis does not do away with the
incontrovertible fact that inequality of incomes and wealth has
increased since the early 1980s in virtually every country. Milanovic’s
own work shows that inequality of income (and wealth) within the
imperialist countries has risen in the last 30 years and is now as high,
if not higher, than in 1870.
As Toby N points out,
what the Resolution Foundation finds is that a large section of Western
lower middle and working classes experienced a cumulative real income
growth of c25% (with Japanese lower income deciles experiencing
contraction, US lower income deciles experiencing low but positive
growth, and Western European lower deciles experiencing c45% cumulative
income growth). But these levels of cumulative income growth have been
lower than the income growth at the top of each of the income
distributions for the respective developed market blocs (leading in many
developed countries to higher levels of income inequality), and lower
than the income growth of the global median or global poor (leading to
lower levels of income inequality across the globe, principally due to
the rise of China).
And so, while real incomes have risen for lower middle and working
classes in absolute terms, the bottom 80% labour share of GDP in the UK
and US has declined as a proportion of GDP (defined as the labour share
of GDP multiplied by the proportion of labour income received by the
bottom 80% of the income distribution, see chart below), while the
relative cost of labour in the West vs the rest of the world has
reduced. (It is also notable that the big decline in the UK occurred in
the 1980s, with an evening out thereafter.)
And, as I have pointed out before in previous posts,
the management consultants, McKinsey found that in 2014, between 65 and
70 percent of households in 25 advanced economies were in income
segments whose real market incomes—from wages and capital—were flat or
below where they had been in 2005 (Poorer Than Their parents? Flat or Falling Incomes in Advanced Economies.
This does not mean that individual households’ wages necessarily went
down but that households earned the same as or less than similar
households had earned in 2005 on average. In the preceding years,
between 1993 and 2005, this flat or falling phenomenon was rare, with
less than 2 percent of households not advancing. In absolute numbers,
while fewer than ten million people were affected in the 1993-2005
period, that figure exploded to between 540 million and 580 million
people in 2005-14. For example, 81 percent of the US population were in
groups with flat or falling market income.
However, according to the latest report by the US Census Bureau,
Americans last year (2015) reaped the largest annual gain in nearly a
generation as poverty fell, health insurance coverage spread and incomes
rose sharply for households on every rung of the economic ladder,
ending years of stagnation. The median household’s income in 2015 was
$56,500, up 5.2 percent from the previous year — the largest single-year
increase since record-keeping began in 1967. The share of Americans
living in poverty also posted the sharpest decline in decades. The
average incomes of the poorest fifth of the population increased 6.6
percent after three consecutive years of decline. And the official
poverty rate declined to 13.5 percent from 14.8 percent in 2014, the
sharpest decline since the late 1960s.
But beneath these headline figures, the story is not so sanguine. The
numbers still offer a lopsided picture, with a gargantuan share of
income rising to the top. While the bottom fifth of households increased
their share of the nation’s income, by the census’s definition, to 3.4
percent from 3.3 percent, the richest 5 percent kept 21.8 percent of the
pie, the same as in 2014.
And incomes in the middle, measured in 2015 dollars, were still 1.6
percent below the previous peak of $57,423 a household, which was
attained in 2007, just before the economy sank into what has come to be
known as the Great Recession. Today, US median household incomes are
still 2.4 percent below the absolute peak they hit in 1999 just before
the dot.com bust and global financial crash.
Indeed, according to Elise Gould of the Economic Policy Institute,
the income of American households in the middle of the distribution last
year was still 4.6 percent below its level in 2007 and 5.4 percent
below where it was in 1999. Men’s earnings from work increased 1.5
percent. But they are still lower than in the 1970s!
Households at the 10th percentile — those poorer than 90 percent of
the population — are still a bit poorer than they were in 1989. Across
the entire bottom 60 percent of the distribution, households are taking
home a smaller slice of the pie than they did in the 1960s and 1970s.
The 3.4 percent of income that households in the bottom fifth took home
last year was less than the 5.8 percent they had in 1974. By contrast,
households in the top 5 percent have profited nicely from America’s
expansions. In 2015, they took in $350,870, on average. That is 4.9
percent more than in 1999 and 37.5 percent more than in 1989!
Sure in 2015, the US poverty rate dropped by 1.2%. However, there are
still 43.1 million people living in poverty in the US, up from 38 million in 2007. The poverty rate has hardly budged since the 1980s.
So let’s sum up; what does all the analysis of global and national inequality tell us?
First, that global inequality has increased since the early 1980s, when ‘globalisation’ got moving. Second,
that global growth of incomes has been concentrated in China, and to a
lesser extent and more recently, India. Otherwise average global
household income growth would have been much lower. Third,
there has been a rise in average household incomes in the major advanced
capitalist economies since the 1980s, but the growth has been much less
than in China or India (starting from way further down the income
levels) and much less than the top 1-5% have gained. Fourth,
since the beginning of the millennium, most households in the top
capitalist economies have seen their incomes from work or interest on
savings stagnate and must rely on transfers and benefits to improve
These outcomes are down partly to globalisation by multinational
capital taking factories and jobs into what used to be called the Third
World; and partly due to neo-liberal policies in the advanced economies
(i.e. reducing trade union power and labour rights; casualization of
labour and holding down wages; privatisation and a reduction in public
services, pensions and social benefits). And it is also down to regular
and recurrent collapses or slumps in capitalist production, which lead
to a loss of household incomes for the majority that can never be
restored in any ‘recovery’, particularly since 2009.
In other words, rising inequality is the result the drive of capital
to reduce labour’s share and raise profits and to the recurrent and
periodic failures of capitalist production. That is something that the
likes of FT and mainstream economics wishes to ignore.
For more on inequality: see my booklet:
- AFSCME Local 444 negotiations assesment 1997
- Preparing for Revolution: A discussion document
- The Internal lives of Revolutionary Organizations
- Socialist Alternative members: Questions and Answers
- Sanders: Our Alternative
- The Nature of the New European Left
- Catastrophic Climate Change: Caused by Capitalism
- University of California workers and Unions
- An Invitation to Our Readers