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http://www.theglobeandmail.com/news/world/doug-saunders/international-inequality-is-alive-and-well/article1879263/
January 22, 2011
International inequality is alive and well
By Doug Saunders
From Saturday's Globe and Mail
China may appear to be closing the gap with the West, but the numbers
say otherwise
It was hard to avoid the feeling, watching as Chinese President Hu
Jintao stood beside his American counterpart at the White House on
Wednesday and used the occasion to engage in the subtlest form of
rhetorical sparring, that the leaders of the world's two largest
national economies are becoming equals.
Not only are the two countries becoming more similar in their
international ambitions, it appears, but their citizens are drawing
closer as Americans and many other Westerners watch their incomes
stagnate while their Chinese neighbours burst forth into full-fledged
consumerdom.
A number of observers are beginning to call this a great convergence,
a reversal of the great divergence that carried China and the West
from positions of near-equal prosperity 250 years ago to extremes of
wealth and poverty in the late 20th century.
Indeed, since 1950, the Chinese have seen their average incomes grow
more than 10 times faster than those of U.S. citizens. In 1980, the
purchasing power of the average Chinese citizen's income was the
equivalent of $525 per year; it now stands somewhere between $5,000 and
$6,000. Over the same period, productivity per Chinese worker rose from
3 per cent of U.S. levels to 19 per cent. And the convergence seems to
be speeding up: During the past five years, as the U.S. economy has
grown only 5 per cent, China's has grown by 70 per cent.
The consequences of such a shift to pan-Pacific equality would be vast.
No longer would our economy be based on dirt-cheap goods from China, our
debt provided by a huge Asian country struggling to dispose of enormous
currency surpluses. Life would be more expensive, but also vastly better
for the world's majority. And conflicts between equals are less likely.
But before we get too excited by this looming prospect, let's look hard
at the realities behind this supposed convergence. Comparisons between
countries are not as simple as we might think.
Luckily, we have a wonderful new book, The Haves and the Have-Nots, by
economist Branko Milanovic, who has made international inequality his
life's work. He shows, with devastating logic, just how far we still
have to go.
When the world returned to its normal state of globalization after the
angry decades of the 20th century, the result was enormous growth almost
everywhere. China, starting in the 1980s, made its people wealthy enough
to render starvation-level poverty non-existent.
But surprising economic circumstances have caused wealthy countries to
grow at an even greater rate, Mr. Milanovic notes. The advantage has
stayed with the well-off.
If the U.S. GDP per capita grows by 1 per cent, India's will need to
grow by 17 per cent, an almost impossible rate, and China's by 8.6 per
cent, just to keep absolute income differences from rising, he
observes. As the saying goes, you have to run very, very fast just to
stay in the same place. It is therefore not surprising that despite
China's (and India's) remarkable success, the absolute income
differences between the rich and poor countries have widened.
And they have: Even as the Chinese worker has gone from $525 per year to
$5,000 in two decades, the average American worker has gone from $25,000
to $43,200 - meaning that the income gap has widened from about $25,000
to $38,000, and, he notes, of course so has the absolute gap in welfare
between the average American and the average Chinese.
The economic crisis, which continues in the United States but occupied
only a few months of 2008 in China, might help, but it will still take a
very long time before the most prosperous Chinese worker can touch the
purchasing power of the worst-off American.
You may think of the United States as a place of extremes of wealth and
poverty, and it is. Nevertheless, at the moment, the very poorest people
in America, the 5 per cent with the lowest incomes, have better lives
and more purchasing power than the top 5 per cent of income earners in
India and the top 10 per cent in China.
The consequences are important: First, the forces of national inequality
that drive large numbers of people to emigrate will certainly be with us
for decades longer.
Second, the old theories of social class should be replaced: Today, 80
per cent of income difference is caused by geographical location, and
only 20 per cent by income category; those geographic barriers may be
harder to overcome than the old
