Inequality: falling between countries, rising within them Alex Evans
March 12, 2008 | More on Climate and resource scarcity, Economics and development, Global system | No comments
That’s the headline conclusion of an IPS analysis piece by John Vandaele. Average GDP growth in developing countries today is 7 per cent, compared to 3 per cent for developed countries; and even per capita income grew faster in South than North between 2003 and 2007 (old news in East and South Asia, but a big shift in Latin America and Asia). And whereas in 1980 developed country GDP was 23 times higher than in developing countries, it was 18 times higher in 2007. Vandaele comments:
East and South Asia are almost exclusively responsible for this. For Africa, Latin America and the so-called transition economies (former communist countries), the relative gap is much wider today then in 1980. Nevertheless the last five years show a generalised improvement in the South. More and more, South-South relations play a role in the world’s economy. India and China thrive because of their industrial and services success, but their boom drives up commodity prices, and so benefits even quite weak economies in Africa and Latin America. South-South interaction makes globalisation a tide that lifts almost all boats.
But, he goes on, “inside most countries, income inequality is on the rise” – faster in developing than developed countries, and fastest of all in China.
Between 2001 and 2003 the Chinese economy grew 10 percent each year, but the 10 percent bottom earners lost 2.5 percent in income, according to the World Bank. Official figures show that the difference between the top 20 percent and the bottom 20 percent grew 40 percent over the last three years.
All this is highly relevant to food prices and scarcity issues – where the impacts fall, of course, disproportionately on the poor. Amartya Sen makes the point that,
Hunger relates not only to food production and agricultural expnasion, but also to the functioning of the entire economy and – even more broadly – the operation of the political and social arrangements that can, directly or indirectly, influence people’s ability to acquire food and to achieve health and nourishment.
And, he continues, inequality can matter a great deal in affecting absolute outcomes:
…food prices may shoot up because of the increased purchasing power of some occupational groups, and as a result others who have to buy food may be ruined because the real purchasing power of their money incomes may have shrunk sharply. Such a famine may [even] occur without any decline in food output, resulting as it does from a rise in competing demand rather than a fall in total supply.
Today, what we see is the globalisation of that dynamic. Over the longer term, there’s plenty to worry about on the supply side: climate change, energy security (a huge factor in the cost of inputs), water scarcity and competition for land. But right now, the biggest drivers of rising prices are on the demand side: newly affluent consumers, especially in emerging economies, who want to eat more [and more grain-intensive] meat and dairy products; and affluent governments subsidising the use of crops as fuel rather than food.
Meanwhile, two sets of people are getting left behind. First, the rural poor – where three quarters of the world’s poverty is to be found. Most of them are net food buyers (often spending 50-80% of their income on food); many of them are landless, or otherwise ‘living on the edges’. It’s unlikely that higher wages or increased employment through agricultural growth will make up for the higher cost of food. And second, there are poor people in urban areas: where often the case is that there’s food on the shelves, but they’re priced out of the market.
Bottom line: inequality can affect absolute outcomes – and that becomes increasingly true the more things tighten on the supply side.
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