Poverty and inequality
In 2021, after three decades of trade and financial globalization, global inequalities remain extremely pronounced: they are about as great today as they were at the peak of Western imperialism in the early 20th century. In addition, the Covid pandemic has exacerbated even more global inequalities. The data shows that the top 1 percent took 38 percent of all additional wealth accumulated since the mid-1990s, with an acceleration since 2020. More generally speaking, wealth inequality remains at extreme levels in all regions.
The bottom 50 percent of the global population in 2021 held 8 percent of global income (measured at Purchasing Power Parity-PPP) and only 2 percent of global wealth (at PPP). The middle 40 percent of the global population in 2021 captured 39 percent of global income and 22 percent of global wealth. The top 10 percent of the global population in 2021 held 52 percent of global income and 76 percent of global wealth. The top 1 percent of the global population in 2021 captured 19 percent of global income and 38 percent of global wealth. Note that the top wealth holders are not necessarily top income holders; income is after pension and unemployment benefits are benefits are received by individuals, and before taxes and transfers.
“The COVID crisis has exacerbated inequalities between the very wealthy and the rest of the population. Yet, in rich countries, government intervention prevented a massive rise in poverty, this was not the case in poor countries. This shows the importance of social states in the fight against poverty.”, explains Lucas Chancel, lead author of the report.
Gabriel Zucman states: "The World Inequality Reports address a critical democratic need: rigorously documenting what is happening to inequality in all its dimensions. It is an invaluable resource for students, journalists, policymakers, and civil society all over the world." Lucas Chancel adds “If there is one lesson to be learnt from the global investigation carried out in this report, it is that inequality is always political choice.”
The key findings of the World Inequality Report 2022 (released on 7 December, 2021) are as follows (please click here, here, here, here, here and here to access):
• The period from 1945 or 1950 till 1980, was a period of shrinking inequality in many parts of the world (US, UK, France, but also India and China). For the countries of the West these were also covered the thirty odd years of fast productivity growth and increasing prosperity, never matched since—in other words there is no prima facie evidence for the idea that fast growth demands or necessarily goes hand in hand with growing inequality. The reason why that was possible had a lot to do with policy—tax rates were high, and there was an ideology that inequality needed to kept in check, that was shared between the corporate sector, civil society and the government.
• For most of the world, the defining experience turned out to be the panicked reaction to the slowdown of growth in US and UK in the 1970s, that led to the conviction that a big part of the problem was that the institutions that kept inequality low (minimum wage, union, taxes, regulation, etc.) were to blame, and that what we needed was to unleash an entrepreneurial culture that celebrates the unabashed accumulation of private wealth. We now know that as the Reagan-Thatcher revolution and it was the starting point of a dizzying rise in inequality within countries that continues to this day. When state control was (successfully) loosened in countries like China and India to allow private sector-led growth, the same ideology got trotted out to justify not worrying about inequality, with the consequence that India is now among the most unequal countries in the world (based on this report) and China risks getting there soon.
• Income and wealth inequalities have been on the rise nearly everywhere since the 1980s, following a series of deregulation and liberalization programs which took different forms in different countries. The rise has not been uniform: certain countries have experienced spectacular increases in inequality (including the US, Russia and India) while others (European countries and China) have experienced relatively smaller rises. These differences, which we discussed at length in the previous edition of the World Inequality Report, confirm that inequality is not inevitable, it is a political choice.
• The world map of inequalities reveals that national average income levels are poor predictors of inequality: among high-income countries, some are very unequal (such as the US), while other are relatively equal (e.g. Sweden). The same is true among low- and middle-income countries, with some exhibiting extreme inequality (e.g. Brazil and India), somewhat high levels (e.g. China) and moderate to relatively low levels (e.g. Malaysia, Uruguay).
• Extreme income inequalities in India: The average national income of the Indian adult population is €PPP7,400 (or INR204,200). While the bottom 50 percent earns €PPP2,000 (INR53,610), the top 10 percent earns more than 20 times more (€PPP42 500 or INR1,166,520). While the top 10 percent and top 1 percent hold respectively 57 percent and 22 percent of total national income, the bottom 50 percent share has gone down to 13 percent. India stands out as a poor and very unequal country, with an affluent elite.
• Income inequality in the long run: a historical high Indian income inequality was very high under British colonial rule (1858-1947), with a top 10 percent income share around 50 percent. After independence, socialist-inspired five-year plans contributed to reducing this share to 35-40 percent. Since the mid-1980s, deregulation and liberalization policies have led to one of the most extreme increases in income and wealth inequality observed in the world. While the top 1 percent has largely benefited from economic reforms, growth among low and middle income groups has been relatively slow and poverty persists. Over the past three years, the quality of inequality data released by the government has seriously deteriorated, making it particularly difficult to assess recent inequality changes.
• Wealth inequality: Average household wealth in India is equal to €PPP35,000 or INR983,010 (compared with €PPP81,000 in China). The bottom 50 percent own almost nothing, with an average wealth of €PPP4,200 (6 percent of the total, INR66,280). The middle class is also relatively poor (with an average wealth of only €PPP26,400 or INR723,930, 29.5 percent of the total) as compared with the top 10 percent and 1 percent who own respectively €PPP231,300 (65 percent of the total) and over €PPP6.1 million (33 percent) i.e., INR6,354,070, and INR32,449,360.
• Gender inequality: Gender inequalities in India are very high. The female labor income share is equal to 18 percent. This is significantly lower than the average in Asia (21 percent, excluding China). This value is one of the lowest in the world, slightly higher than the average share in Middle East (15 percent). The significant increase observed since 1990 (+8 p.p.) has been insufficient to lift women’s labor income share to the regional average.
• Carbon inequality: India is a low carbon emitter: the average per capita consumption of greenhouse gas is equal to just over 2 tCO2e. These levels are typically comparable with carbon footprints in sub-Saharan African countries. The bottom 50 percent, middle 40 percent and top 10 percent respectively consume 1, 2, and 9 tCO2e/capita. A person in the bottom 50 percent of the population in India is responsible for, on average, five times fewer emissions than the average person in the bottom 50 percent in the European Union and 10 times fewer than the average person in the bottom 50 percent in the US.
• MENA (Middle East and North Africa) is the most unequal region in the world, Europe has the lowest inequality levels. Nations have become richer, but governments have become poor, when we take a look at the gap between the net wealth of governments and net wealth of the private and public sectors.
• Wealth inequalities have increased at the very top of the distribution. The rise in private wealth has also been unequal within countries and at the world level. Global multimillionaires have captured a disproportionate share of global wealth growth over the past several decades: the top 1 percent took 38 percent of all additional wealth accumulated since the mid-1990s, whereas the bottom 50 percent captured just 2 percent of it.
• Gender inequalities remain considerable at the global level, and progress within countries is too slow
• Ecological inequalities: World Inequality Database (WID) data shows that these inequalities are not just a rich vs. poor country issue, but rather a high emitters vs low emitters issue within all countries.
• T10/B50 ratio is the ratio between the average income of the top 10 percent and the average income of the bottom 50 percent. In Africa, income gaps vary from 13 to 15 in Nigeria, Ethiopia, Guinea and Mali, for instance, to between 40 and 63 in the Central African Republic, Namibia, Zambia and South Africa during 2021. In South and Southeast Asia, India’s T10/B50 income gap is 22, significantly above Thailand’s value of 17. In Latin America, Argentina’s income gap is 13 while it is 29 in neighboring Brazil and Chile. Between high-income countries, significant variations are also seen: in Germany, France, Denmark and the UK, the T10/B50 income gap is between seven and 10 while the US income gap is over 17. For any given level of development, there is indeed a large variety of possible inequality levels.
• What was the impact of the recession on global inequality between countries? To the extent that about half of the drop accrued in rich countries and the other half in low-income and emerging regions, no clear pattern emerges in the global top 10 percent income share. If anything, the share of the global bottom 50 percent income share halted its progression. The report observes that this drop is entirely due to the impact on South and Southeast Asia, and more precisely on India. When India is removed from the analysis, it appears that the global bottom 50 percent income share actually slightly increased in 2020.
• In emerging countries, the rise in private wealth has been no less spectacular than in rich countries. In fact, large emerging economies such as China and India experienced faster increases than wealthy countries after they transitioned away from communism (in China and Russia) or from a highly regulated economic system (in India). While to some extent these increases are to be expected (as a large proportion of public wealth is transferred to the private sector), the scale of the change is striking.
Please click here and here to access the key findings of the Pew Research Center study titled The Pandemic Stalls Growth in the Global Middle Class, Pushes Poverty Up Sharply (released on March 18th, 2021).