Bgs Case 1

t
os
9-705-040
REV: MAY 2, 2011
DAVID MOSS
ANNA HARRINGTON
rP
JONATHAN SCHLEFER
Ineequality
y and Globali
G ization
Intro
oduction
yo
Ineequality represented a maajor issue at the dawn of the
t twenty-firrst century. By
B many measures,
inequ
uality had increased over the
t previous several decad des, within both
b developeed and develo
oping
counttries. Global inequality
i (m
measured across countries or
o among thee people of thhe world) mayy also
have increased,
i tho
ough this rem
mained contro oversial.
Evven in those cases where experts agreeed that inequ uality had risen, there was little consensus
aboutt the causes. Some blameed globalizatiion for the growing
g h and poor, while
gulf between rich
otherss pointed to technology, government policies, and d even sociaal norms as better
b explannatory
op
bles. Experts also disagreeed over wheth
variab her rising ineequality was even a probleem, particulaarly in
those places wheree the poverty rate was low or falling.
Thhe purpose off this note is to

t identify som
me of the bassic trends in income
i distrib
bution (at botth the
nation
nal and globa
al levels) and to highlight leading
l argumments about thet causes annd consequen nces of
inequ
uality.
tC
Ineq
quality
Deveeloped countrries
Exhibbits 1a and 1b b show the Gini
G index fro
om the Uniteed Nations Human
H Develoopment Repo ort for
nationns with “verry high” and d “high” lev vels of humaan developm ment.1 Among g these coun ntries,
Denmmark and Jap pan had the lowest levelss of inequalitty, with Ginii coefficients of 24.7 and d 24.9,
No
respecctively, whilee Colombia had

h the high
hest level of inequality, with
w a Gini coefficient
c off 58.5.
Exhibbits 2a, 2b, 2c, and 2d ploot the Gini in
ndex over th he past four decades
d for France,
F the United
U
Kingddom, Hong Kong,
K and thee United Stattes. All of theese economiees experienceed some decliine in
their Gini
G coefficients between 1960
1 and 19800, but all exceept for France saw an increease after 19800.
The U.S.
U Experien nce As the ex xhibits make clear, inequaality reached a particularly
y high level in
i the
United States, espeecially as com
mpared to thee other most developed
d ecconomies. Exxhibit 3a charrts the
Do
1 The Gini
G index is a sttandard measuree of income inequ
uality. It rangess from 0 to 100, where
w 0 represen
nts perfect equality and
100 rep
presents complette inequality (i.e., those in the to
op percentile receeive all the incom
me). The Gini coefficient
c is simply the
Gini index divided by 100
1 and thus ranges from 0 to 1.
________________________________________________________________________________________________________________________
Professo
or David Moss and Research Associattes Anna Harringto
on and Jonathan Sch
hlefer prepared thiis note as the basis for class discussion
n.
Copyrigght © 2005, 2006, 2011 President and Fellows of Harvarrd College. To ord der copies or requeest permission to reeproduce materialss, call 1-
800-545--7685, write Harvarrd Business Schooll Publishing, Boston
n, MA 02163, or goo to http://www.h hbsp.harvard.edu. No part of this pub blication
may be reproduced, stored in a retrieval sysstem, used in a sp preadsheet, or transsmitted in any formm or by any mean ns—electronic, mecchanical,
photoco
opying, recording, or
o otherwise—with hout the permission n of Harvard Busin
ness School.
This document is authorized for educator review use only by MUHAMMAD SHAFI, National Institute of Technology Calcicut until May 2022. Copying or posting is an infringement of copyright.
Permissions@hbsp.harvard.edu or 617.783.7860
705-040 Inequality and Globalization
t
os
Gini index for the U.S. from 1967 to 2009 based on U.S. Census data. Over these years, the index
increased from 39.7 to 46.8.
Looking beyond the official data, many observers, including USA Today’s David J. Lynch, offered
anecdotal evidence that reflected the same basic trend: “There's proof in everything from the retail
market to the realization that rich and poor Americans inhabit such separate worlds that they may as
rP
well be in different countries. Nationwide, ghettoes of affluence gleam behind iron gates. Crumbling
cities decay until only the poor call them home. What was once a mass market has splintered into
Chevy and Lexus; Budweiser and Samuel Adams; Wal-Mart and Tiffany.”1
One explanation for the growth of inequality in the U.S. emphasized increasing returns to
education – also known as the “college premium.” Exhibit 4a shows income by education level from
1967 to 2009. The data indicate that for those with college degrees or higher, real median income had
increased, particularly through the 1990s; whereas, for those without a college degree, real median
yo
income had begun to decline by the start of the 1980s.
A poignant illustration of the hazards facing poorly educated workers in the U.S. involved the
story of the Miller family from Kansas City, Missouri, and its tragic descent into poverty in the early
1990s:
Until 1992, Craig Miller was employed as a sheet metal worker at TWA in Kansas City.
Although he had very little education, he earned about $15 an hour at TWA. His wife, Susan,
op
worked nights at Toys 'R Us. Together, they made over $35,000 a year -- or just about the
median family income in America. According to an article in the New York Times, they were
able to support their four children in a middle class style. [T]hey didn't own a house but they
wanted to buy one and they thought they could someday. They never had to worry seriously
about putting food on the table. They always had shelter. That was never a problem. They
were able to buy toys for their children and luxuries occasionally and so on.
tC
And then, in 1992, Craig was laid off from TWA. When he started looking for a new job, he
discovered that he could find work but not at $15 an hour. With little education, the best he
could do was make something over $5 per hour. So he took two jobs. He worked as a bus
driver in the morning and evening, and during the day he worked at McDonald's as a server.
His wife continued to work nights at Toys 'R Us, and together they now made $18,000 a year,
which was just below the poverty line for a family of six. It was much less than what Craig had
made previously alone. The Miller family was destroyed financially. Susan Miller lamented,
No
“For people like us, I'm afraid the good times are gone for good.”2
Although stories like this one were often seen as emblematic of American inequality in the early
1990s, later research suggested that the nature of inequality in the U.S. was just then undergoing a
significant change. A rising “college premium” may well have been a key driver of mounting
inequality up through the early to mid 1990s (see Exhibit 4a). After that, however, an increasing
concentration of income at the extreme top end of the distribution apparently played an ever larger
role. Whereas prior research had typically highlighted the top quintile or the top 5% of the
distribution, the economists Thomas Piketty and Emmanuel Saez attracted considerable attention by
focusing on the top 1%, the top 0.1%, and even the top 0.01% of the distribution, where they believed
Do
most of the concentration was occurring. As one journalist explained,
What Piketty and Saez found was that much of the Great Divergence was driven by a stunning
rise in income for the top 1 percent (who today earn about $368,000 or more). This group’s
share of national income more than doubled, from 8 percent in 1973 … to 18 percent in 2008. …
The top 1 percent’s share of income accelerated at a particularly fast rate starting in the mid-
Inequality and Globalization 705-040
t
os
1990s, even as the education-based income gap leveled off. During [this later period], having a
college or graduate degree was no protection against falling behind relative to the top 1
percent.3
Exhibit 3c shows the shares of income held by the top 10%, top 1%, and top 0.1% of the population,
while Exhibit 3d shows how one notable group at the top of the income distribution, CEOs, fared
rP
relative to average full-time workers.
As inequality continued to increase in the United States, one question that arose often concerned
mobility: had the prospect of moving up (or down) the income ladder become more or less likely as
compared to earlier times, or as compared to other countries? Exhibit 7a shows that as of 1975, about
15% of those who reached the top percentile of earners had started in the bottom 80% ten years
earlier, and that this percentage began to fall in the mid-1980s, reaching about 10% by 2004. Exhibit
7b offers another perspective on mobility in America, presenting the likelihood of an individual
yo
moving from either of the bottom two quintiles to the top quintile in 10, 15, or 20 years. Here, the data
suggest that mobility of this sort increased from the early 1950s to the mid 1970s (or early 1980s,
depending on the series), and then began to trail off. Cross-country studies, meanwhile, suggested
an inverse correlation between inequality and mobility, with the United States at or near the top in
terms of inequality and at or near the bottom in terms of mobility relative to a subset of European
nations (see Exhibits 8a and 8b).
Developing Countries
op
Although rising inequality was often discussed as if it were mainly an issue facing developed
countries, income inequality was rising in many developing countries as well. And it was often rising
from a higher starting point. Exhibit 9a presents data on income distribution, including the Gini
index, for countries with a “medium” rating on the United Nation’s Human Development Index
(HDI). The Gini coefficient among these countries ranged from a low of 28.2 in the Ukraine to a high
tC
of 74.3 in Namibia. Overall, the median Gini figure for these countries was higher than that for
developed countries (43 versus 35). Exhibit 9b shows the Gini index for countries rated “low”
according to the HDI, ranging from 28.9 in Ethiopia to 52.6 in Liberia (with a median of 41).
Inequality was rising in many developing nations, including China, and was very high in others,
including Brazil, with a Gini index of 60 (see Exhibits 10a and 10b).
China In China, economic reforms that began in the late 1970s had generated extraordinary levels of
growth and dramatic increases in average living standards by the dawn of the twenty-first century.
No
However, these gains were not shared equally across the population. Although economic reform had
started in the countryside, many rural areas had fallen far behind the cities in terms of income and
income growth by the 1990s.
In fact, millions of rural parents felt compelled to leave their children for months at a time,
searching for higher wages in the cities. In 2004, for example, Yang Shan was a ten-year old who lived
in the Chinese countryside, where many families had to make do on under $300 per year.
Overwhelmed by basic living expenses, including heavy medical costs and tuition of $50 a year for
their daughter, Shan’s parents believed they had no choice but to leave her behind:
Do
For the Yang family and millions of others in the Chinese countryside, the only way to
survive as a family is to not live as one. Migrant workers like Shan’s parents are the mules
driving the country’s stunning economic growth. And the money they send home has become
essential for jobless rural China.
t
os
Yet even that money is no longer enough. Migrant wages have stagnated,
education and health costs are rising, and the rural social safety net has collapsed – a crushing
combination that is a major reason the income divide is widening so rapidly in China at the
expense of the rural poor.
Migration also has meant that urban and rural children in China are growing up in starkly
rP
different worlds. In cities, upwardly mobile couples call their precious only child xiao taiyang,
or “little sun,” as in center of the universe. Children are indulged with clothes, toys and
snacks: childhood obesity is a new urban ill.
In the countryside, the new vernacular phrase is liu shou, or “left behind” child. Millions of
children like Shan are growing up without one or both parents. Villages often seem to be
missing a generation. Grandparents work the fields and care for the children.
yo
“We are a triangle, three people in three different places,” said Mr. Yang, 36, the father.
“The pain of missing one another is very difficult. All parents are the same in this world. All
parents care about their children.”4
India Compared with China, India presented a milder case of inequality. According to the most
recent estimates, India’s Gini index was about 36.8 in 2004, far below that of China (46.9 in 2004) and
Brazil (56.4 in 2005). From the late 1960s through the 1980s, when the growth of real GDP per capita
averaged about 2.1% per year, inequality in India was stable or falling (Exhibit 11a). After that,
op
inequality began to rise, even as the annual growth rate of real GDP per capita had increased – to
about 3% in the 1990s and almost 6% in the first decade of the 2000s.5
Critics of liberalization and globalization were quick to note that rising inequality in India in the
1990s corresponded with the implementation of aggressive market-oriented reforms, such as
privatization and trade liberalization beginning in 1991. Others, however, emphasized problems in
India’s agricultural sector. Although agriculture represented a declining share of GDP—falling from
tC
45% of GDP in 1975 to only 20% in 2009 (see Exhibit 13)—the majority of the working population
(over 65% in 1995) was still employed in the agricultural sector.6 According to a 2003 article in the
New York Times, “Twenty-six percent of Indians still live in poverty, and data suggest inequality is
widening even as the poverty rate falls. Overall employment is essentially stagnating. The heavy
dependence on agriculture … means that a bad monsoon, like the one last year, can hobble the
economy.”7
No
As in China, the income divide between India’s cities and countryside had been growing.
Although poverty had come down sharply in India as a whole—with the percentage of $1.25-a-day
poor decreasing from 55.5% of the population in 1983 to 41.6% in 2005 (see Exhibit 12)—poverty
remained disproportionately high in rural areas.
The ruling Indian National Congress Party clearly recognized this challenge. After having
governed by cobbling together a fragile coalition for five years, the Congress Party won a decisive
electoral victory in 2009 promising to improve the lives of the disadvantaged and targeting rural
areas.8 Prime Minister Manmohan Singh saw violent extremist groups as India’s worst security
problem and attributed it at least partly to unequal development, including “inadequate employment
Do
opportunities, lack of access to resources, [and] under developed agriculture.”9
Inequality at the Global Level

The experience of China and India—where inequality had been rising at the same time that real
GDP (and thus average income) had been surging—created a rather complicated picture of income
t
os
distribution at the global level. In theory, inequality could be growing in most (or even all) national
economies and still be falling globally if poor countries were growing faster than rich ones. In fact,
although some developing countries (including several of the most populous ones, such as China and
India) were growing faster than their developed-country counterparts, many others (particularly in
Africa) had actually been falling further and further behind. As a result, economists found it difficult
to determine whether inequality had been increasing or decreasing at the global level.
rP
One relatively straightforward approach to analyzing inequality across countries was based on
GDP and GDP per capita at market exchange rates. Exhibit 14 shows that the world’s GDP in
constant 2000 U.S. dollars increased from $12.1 trillion in 1970 to $39.8 trillion in 2009. Dividing
countries into income groups indicated how the growth was distributed. The share of world GDP
going to high-income countries declined from 79% in 1970 to 72% in 2009, while middle-income
countries saw their share of world GDP rise from 20% in 1970 to 28% in 2009. The share going to low-
yo
income countries dropped from 2% in 1970 to just 1% in 2009. Much of the improvement in the
middle-income-country share was attributable to China. In fact, excluding China, low- and middle-
income countries’ share of GDP had barely changed, moving from 19% in 1970 to 20% in 2009.
Exhibit 14 also shows that per capita GDP worldwide, in current U.S. dollars, increased from $781
in 1970 to $8,581 in 2009. During this same period, per capita GDP as a percent of the world average
increased in high-income countries from 350% to 434%. It increased for middle income countries,
including China, from 29% to 39%, but decreased drastically for low-income countries, from 19% to
op
6%. It also decreased for middle and low income countries excluding China, falling from 34% to 31%.
A somewhat different picture emerges after employing a measure of purchasing power parity
(PPP) to correct for differences in the cost of living across countries.10 Based on PPP-adjusted figures,
middle-income countries saw their percentage of global per capita GDP rise over the period 1980 to
2009 from 43% to 60%, while low-income countries saw a small decline, from 13% to 11%. Again,
much of the improvement was attributable to China’s remarkable economic performance. Excluding
tC
China, low and middle income countries together saw their percentage of global per-capita GDP (still
PPP-adjusted) fall from 51% in 1980 to 49% in 2009.
Another way of measuring global inequality is to weight countries by population. This method
offers a measure of inequality across individuals of the world, essentially treating the world as one
large country. According to Xavier Sala-i-Martin of Columbia University, who performed such a
study using national accounts data from 1970 to 2000, global income inequality fell during this period
along eight different measures. One measure, a global Gini coefficient, declined from 65.3 in 1970 to
No
63.7 in 2000.11 Sala-i-Martin attributed this decline in world inequality largely to China’s and India’s
remarkable growth, noting that the outlook was not nearly as bright in other regions of the world and
predicting that world inequality would rise if Africa continued to stagnate.12
By contrast, another researcher, Branko Milanovic, who used household surveys, found rising
inequality across the world’s population. Milanovic’s measure of the global Gini coefficient increased
from 68.4 in 1988 to 70.8 in 2002.13 He pointed out elsewhere that this increase in the Gini coefficient
was important, especially considering that “it occurs at an already very high level of inequality.”14
According to Milanovic, the increase was attributable mainly to across-country inequality, rather than
Do
inequality within countries.
t
os
Causes of Inequality
Even among experts on the subject, there was little consensus about what caused inequality, either
at the national or the global level. However, most of the major explanations could be classified under
three broad headings: globalization, technology, and state policy and cultural norms.15
rP
Globalization
Developed Countries In attempting to explain increasing inequality in some developed countries
(and especially the United States), those who viewed globalization as the culprit often argued that it
forced lower-skilled workers in the developed world to compete against an immense pool of cheap,
unskilled labor in the developing world. This competition was transmitted through both trade (cheap
imports) and capital flows (foreign direct investment abroad, or outsourcing). According to many
yo
analysts, the result was intense downward pressure on the wages of lower-skilled workers in
developed economies, which in turn threatened to widen the gap between rich and poor.16 Indeed,
based on a related line of reasoning, the Stolper-Samuelson trade theorem had long suggested that
inequality could increase in developed countries as a result of trade with developing countries.17 In
discussing the implications for inequality in the developed world, Martin Wolf of the Financial Times
wrote: “The working people of the high-income countries have historically benefited from monopoly
of their countries in manufacturing. Now, however, they are in competition with the unskilled world,
with potentially devastating results.”18
op
A closely related contention was that globalization (including trade liberalization) increased the
demand for highly skilled workers in the developed world, including, for example, CEOs of
multinational companies and international corporate lawyers.19 Thus, executives and others at the
top of the corporate hierarchy, who stood poised to take advantage of such trends, reaped the fruits
of globalization in the form of lower costs for their companies and, often, higher salaries for
themselves. In the words of one critic, “Each time a major corporation announces a cut back of
tC
thousands of jobs, the [most elite] families get richer and the incomes of the thousands of workers
whose jobs have been eliminated decline. It is part of an ongoing process of shifting wealth and
economic power from those who are engaged in the production of real value to those who already
have large amounts of money and believe it is their right to see those amounts grow without limit,
regardless of their own needs or productive contributions.”20
Developing Countries Interestingly, globalization was sometimes blamed for rising inequality in
developing countries as well. To begin with, developing economies whose lower-income workers
No
were paid above the global average, such as Mexico, could potentially face the same challenge as the
developed economies—namely, competition from workers in even poorer countries. “Mexico faced
intense new competition from less skill-intensive manufactures in all export markets,” explained
economists Peter Lindert and Jeffrey Williamson. “Furthermore, blue-collar wage rates were already
higher in Mexico than in many Asian countries, suggesting that the widening of Mexican pay gaps in
1985-1990 actually fits the Stolper-Samuelson prediction since at that point Mexico was a high-wage
country.”21
Another explanation for how globalization could increase inequality in developing countries
Do
emphasized that certain regions or groups within a country might be much better positioned to take
advantage of globalization than others. According to Martin Wolf, “The reason for growing internal
inequality is, as it has been at the world level, the rising gap between the living standards of regions
(countries) that are integrating successfully into the world economy and regions (countries) that are
not. The poorest regions (countries) were not hurt by globalization. They just failed to be a part of
it.”22
t
os
Once again, Mexico provided a good illustration, since regional inequality was on the rise there,
presumably because some regions in Mexico were better poised to exploit the opportunities of free
trade than others: “Preliminary evidence suggests that economic and trade liberalization have had
contrasting effects across regions: with relatively high levels of infrastructure and human capital,
along with their proximity to the United States, most northern states have been able to benefit from
the rapid and unilateral opening of the Mexican economy, whereas large portions of the rural and
rP
backward south have been affected negatively.”23 Observers also noted that the “productive sector
[in Mexico] continues to be characterized by a dual structure that seems to have become increasingly
differentiated in the wake of trade liberalization and the banking crisis of the 1990s. On the one side is
a dynamic export sector made up of internationally competitive firms, including maquiladoras, and on
the other is a less efficient domestic-market-oriented sector dominated by microenterprises and
small- and medium-scale firms. The former, like many globalized corporations, have turned to
alternative sources of financing offered through the international capital markets. The latter have
yo
been largely shut off from financing.”24
Global Level Many observers also blamed globalization for rising inequality across nations.
According to the United Nations Development Programme’s Human Development Report 1999, “The
new rules of globalization—and the players writing them—focus on integrating global markets,
neglecting the needs of people that markets cannot meet. The process is concentrating power and
marginalizing the poor, both countries and people.”25 The report noted that whereas in 1960 “the 20%
of the world’s people in the richest countries had 30 times the income of the poorest 20%,” by 1997
op
the top 20% had “74 times as much” as the bottom 20%. It also noted that “the top fifth of the world’s
people in the richest countries enjoy 82% of the expanding export trade and 68% of foreign direct
investment—the bottom fifth, barely more than 1%.”26 The main culprit, according to the report, was
“uneven globalization,” which was dividing the world into “communities, nations, and regions …
that are integrated and those that are not.”27
Jay Mazur, a prominent union leader in the United States, agreed that globalization was the
tC
culprit but offered a different interpretation of why he believed it was generating inequality across
countries. “[C]ontrary to conventional wisdom,” he wrote in the journal Foreign Affairs, “those left
behind are often the most integrated into global trade. For example, sub-Saharan Africa has a higher
export-to-GDP ratio than Latin America, but its exports are mainly primary commodities, leaving
those nations vulnerable to the volatility of those markets.” In Mazur’s view, globalization was
driving inequality for at least three reasons: because the “benefits of the global economy are reaped
disproportionately by the handful of countries and companies that set rules and shape markets;”
No
because globalization “disrupts traditional economies and weakens the ability of … governments to
assist” their workers; and because increasingly open global financial markets were generating
increased volatility, including not only ups but also sharp downs, which left working families
reeling.28
Another union official, Mark Levinson, effectively blamed China for economic weakness across
much of the rest of the developing world: “China’s huge supplies of labor at rock-bottom wages will
last for decades. It is not clear that any developing country can now enter the system with production
costs below those of China, making it impossible for newcomers to climb the hierarchy of export-led
growth.”29 This was consistent with Mazur’s view that without effective states and effective unions,
Do
“what globalization looks like to an awful lot of people [is] a race to the bottom.”30
Curiously, one of the core ideas in international economics had long predicted that globalization
should lead to convergence, not divergence, in incomes across countries. Indeed, many analysts
believed globalization was being unfairly maligned. According to many, the main problem was that
globalization had not yet proceeded far enough. The Economist, for example, argued that Africa was
t
os
falling behind due to its failure to globalize: “Can it be plausibly claimed that these countries are the
victims of globalisation? That would be an odd conclusion, given that sub-Saharan Africa's
economies are so comparatively isolated from the rest of the world economy—by force of history,
circumstance and, to a large extent, the policies of their own and other governments. Sub-Saharan
Africa plainly suffers not from globalisation, but from lack of it.”31
rP
World Bank economists David Dollar and Aart Kraay, moreover, insisted that globalization was
reducing—not increasing—global inequality. “[T]he current wave of globalization, which started
around 1980, has actually promoted economic equality and reduced poverty,” they wrote.32 A major
problem, however, was that not all developing countries were participating in the process of
globalization. Dividing developing countries into “globalizers” and “non-globalizers,” they claimed
the “post-1980 globalizers are catching up to the rich countries while the rest of the developing world
is falling farther behind.”33 The key question, then, was how to maximize inclusion: “After all the
yo
rhetoric about globalization is stripped away, many of the policy questions come down to whether
the rich world will make integrating with the world economy easy for those poor communities that
want to do so. The world’s poor have a large stake in how the rich countries answer.”34
Technology
Developed Countries Another standard explanation for rising inequality—both within and across
countries—focused on a variety of new technologies, which were seen by some analysts as creating a
op
strong bias against the lowest-skilled workers and in favor of the highest-skilled ones. This
explanation often was advanced with particular force with respect to inequality in the developed
world and, especially, the United States.
After U.S. income inequality started to increase in the 1980s, many economists began investigating
why. They attempted to quantify changes brought about by trade, declining levels of unionization,
shifts among industries, and other factors, but a growing number concluded that all of these factors
tC
together failed to explain most of the rise. In numerous cases, their focus turned increasingly to
changes in technology. Summing up the conclusions, the economist George Johnson noted that the
literature had reached “virtually unanimous agreement that during the 1980s relative demand
increased for workers at the high end of the skill distribution and thus caused their relative wages to
rise” and, further, that the “weight of the evidence suggests that the principle [sic.] cause is an
35
increase in the rate of extensive skill-based technological change.”
No
Focusing particularly on labor-replacing technologies at the lower end of the skill distribution,
former U.S. Secretary of Labor Robert Reich observed, “[T]echnology is replacing the unskilled
worker around America. [T]echnology is getting rid of bank tellers [and replacing them with]
automated teller machines; getting rid of gas station attendants [and replacing them with] automated
gas stations. Again and again, in our service economy, in our manufacturing economy, if you don’t
have skills, technology is taking your job away.”36
As the twenty-first century opened, moreover, it was becoming increasingly clear that low-skilled
workers were hardly the only ones who faced replacement. The economist and New York Times
columnist Paul Krugman argued that, since about 1990, “the U.S. job market has been characterized
Do
not by a general rise in the demand for skill, but by ‘hollowing out’: both high-wage and low-wage
employment have grown rapidly, but medium-wage jobs—the kinds of jobs we count on to support a
strong middle class—have lagged behind.” And once again, technology appeared to play a role,
threatening the jobs of everyone from assembly line workers to paralegals and lawyers to chip-design
engineers. “Roombas are cute,” Krugman quipped, “but robot janitors are a long way off;
computerized legal research and computer-aided medical diagnosis are already here.”37
t
os
At the same time, new technology was also seen by some observers as a source of greatly
expanded demand for a select few with highly specialized skills. “Advanced technology,” wrote
economist Robert Shiller, “often means that a smaller number of skilled people supply their services
over a wider area, producing a ‘winner-take-all’ effect, where only the best do well, and these lucky
few command enormous incomes. The invention of the phonograph did this for singers, and the
invention of the motion picture did it for actors. Proliferating communications and information
rP
technology may do the same for many other occupations in the future.”38
Developing Countries Other observers insisted that a “digital divide” was evident in the developing
world. In rural India, for example, information and communications technologies “appear
particularly useful to the literate, to the wealthier and to the younger--those, in other words, who sit
at the top of the socioeconomic hierarchy.”39 For others these new electronic tools seemed all but
useless. “I’m illiterate,” explained one man in a fishing community in Veerapatinam, India, “I don’t
know how to use a computer, and I have to fish all day.”40
yo
Global Level A similar dynamic was sometimes thought to be taking place at the global level, due to
the unequal distribution of technology across countries. Nations with little access to the newest
technologies were liable to fall ever further behind. “If we fail to act now,” warned Mark Malloch
Brown, head of the United Nations Development Programme, “the ‘information gap’ risks widening
into an uncrossable gulf that increases global inequality and leaves the poor further behind.”41
op
State Policy and Cultural Norms
Developed Countries In attempting to explain large differentials in inequality across developed
countries, analysts often pointed to substantial differences in public policy (and especially social
welfare policy). As compared with the United States, for example, countries such as France and
Germany had far more expansive welfare states. They also had substantially lower Gini coefficients.
In 2001, total public social expenditure as a percentage of GDP was 14.8% in the United States as
tC
compared with 28.5% in France and 27.4% in Germany. The Gini coefficients of these three countries
(at about the same time) were 40.8, 32.7, and 28.3, respectively (see Exhibit 1). Differential social
spending was clearly not the whole story, however, since Japan exhibited relatively low social
spending (16.9% of GDP in 2001) and a low Gini coefficient (24.9 in 1993).42
A related explanation emphasized divergent (and changing) cultural norms. As compared with
the United States, inequality was lower in France, Germany, and Japan, according to this view,
because extreme pay differentials (between executives and line workers, for example) were generally
No
frowned upon in these countries. In fact, some observers highlighted changing cultural norms as an
explanation for rising inequality within the United States itself. “According to this view,” wrote
Krugman, “the New Deal had a more profound impact on American society than even its most
ardent admirers have suggested: it imposed norms of relative equality in pay that persisted for more
than 30 years, creating the broadly middle-class society we came to take for granted. But those norms
began to unravel in the 1970’s and have done so at an accelerating pace.”43
The declining influence of labor unions in the United States—a byproduct, perhaps, of both
changing cultural norms and government policy, as well as greater competition from outside the
Do
country—may also have played a role. “The decline of trade unions has contributed to inequality,”
economist Richard Freeman asserted in the Harvard Business Review. “Unions reduce inequality by:
standardizing pay among workers, bringing the pay and benefits of their members closer to that of
higher-paid executives and professionals, and inducing nonunion companies to raise pay or benefits
to avoid unionization. Imagine if 30% of the private sector were unionized, as it was in the 1960s,
instead of 11%, as it is today. Would there be less inequality in earnings? Yes. Studies suggest that
about one-fifth of the rise in inequality is due to the decline of unions.”44
t
os
More recently, Jacob Hacker and Paul Pierson have advanced a related argument about the role of
politics in facilitating increasing concentration at the extreme top-end of the income distribution.
Offering a summary of their 2010 book, Winner-Take-All Politics, Hacker explained:
We’re certainly not arguing that changes in the balance of power are the only cause of
inequality and stagnating wages. The college premium has indeed grown, though it’s hard to
rP
see how this accounts for the most striking and distinctively American development—
namely, the extreme concentration of economic rewards at the very, very top of the economic
ladder. Most of those who have a college degree haven’t shared in the really big gains
experienced by the top 1 percent or top 0.1 percent (average 2007 income: $7 million), which
has seen its share of income more than quadruple since the early 1970s.
The big question is whether these outsized rewards could have been distributed more
broadly given different economic policies. We’re convinced the answer is yes. The key to
yo
getting the answer right, we argue, is to look beyond the economics of rising inequality to
examine the politics. Much of our book traces how major changes in policies governing
finance, corporate governance, taxation, and industrial relations helped fuel the “winner-
take-all economy.” These changes, we show, directly reflected the declining clout of middle-
class voters and unions relative to a much more organized and mobilized corporate sector.45
Although Hacker and Pierson’s conclusions remained controversial, they attracted considerable
attention with their renewed focus on possible connections between politics, public policy, and
op
inequality in the United States.
Developing Countries Arguing along similar lines, numerous critics blamed bad (or even malicious)
state policies for high and rising inequality within developing countries. Policy choices often
highlighted as especially unfavorable to the poor included under-provision of key public goods, such
as police protection, primary education, and basic infrastructure in poor areas. In the extreme,
tC
powerful elites in developing countries could ensure greater incomes and wealth for themselves—
even under generally adverse or deteriorating economic conditions—if they managed to take control
of the policymaking process and turn it to their advantage (at the expense of everyone else). As
inequality intensified, moreover, elites could find themselves with both more reason and more
resources to capture the state and use it for their own ends. “While income inequality may cause
subversion of institutions by the politically powerful rich elite,” wrote Alberto Chong and Mark
Goldstein, “the reverse holds as well, namely, that poor institutional quality results in a higher
degree of inequality. [W]hen the political bias in favor of the rich is large, income inequality and poor
No
institutional quality may reinforce each other, indicating double feedback between the two.”46
Labor activists often pointed to the denial of labor rights in many of the world’s poorest countries
as a prime example of this phenomenon. As Mark Levinson explained, “[W]orkers lack the most basic
rights (especially the right to organize) and are therefore unable to form unions and bargain for their
fair share of productivity increases.”47
Global Level More broadly, the problem of poor governance in some developing countries was
often held up as a reason for rising inequality at the global level. “[H]umanity is locked into almost
200 distinct countries, some of which are prosperous, well governed and civilized, while most others
Do
remain poor, badly governed, and apparently incapable of providing the basis of a tolerable
existence. Since the success of the economy depends on the quality of the state, this inequality in the
quality of states guarantees persistent inequality among individuals.”48 More sanguine observers
hoped that further globalization would help to solve this problem, by pressuring badly governed
countries to reform. Others, however, worried that these countries would simply become more and
more isolated as the rest of the world integrated and that their elites, desperate to maintain their
10
t
os
position, would work ever harder to grab any surplus that was available, virtually ensuring a
dysfunctional domestic economy and continued impoverishment for the bulk of their populations.49
Governments within the developing world were not the only ones to come in for criticism,
however. Many analysts charged that the developed nations were effectively keeping their
developing neighbors down by protecting key sectors—especially textiles and agriculture—that were
rP
often regarded as critical for development. As Joseph Stiglitz, a Nobel Laureate in economics and the
former Chief Economist of the World Bank, put it:
[D]eveloping countries have been lectured about how government subsidies and
protectionism distort prices and impede growth. Yet all too often these exhortations ring
hollow. As developing countries take steps to open their economies and expand their exports,
they find themselves confronting significant trade barriers—leaving them, in effect, with
neither aid nor trade. They quickly run up against dumping duties (when no economist would
yo
say they are really engaged in dumping), or they face protected or restricted markets in their
areas of natural comparative advantage, such as agriculture or textiles.50
Stiglitz argued elsewhere that the problem extended to international institutions as well. In his
view, the International Monetary Fund (IMF) and World Trade Organization (WTO) systematically
catered to the financial and commercial interests of the developed world at the expense of the poor in
developing countries:
op
If financial interests have dominated thinking at the International Monetary Fund,
commercial interests have had an equally dominant role at the World Trade Organization. Just
as the IMF gives short shrift to the concerns of the poor—there are billions available to bail out
banks, but not the paltry sums to provide food subsidies for those thrown out of work as a
result of IMF programs—the WTO puts trade over all else. …
Development is not about helping a few people get rich or creating a handful of pointless
tC
protected industries that only benefit the country’s elite; it is not about bringing in Prada and
Benetton, Ralph Lauren or Louis Vuitton, for the urban rich and leaving the rural poor in their
misery…. [I]nternational institutions must undertake the perhaps painful changes that will
enable them to play the role they should be playing to make globalization work, and work not
just for the well off and the industrial countries, but for the poor and the developing nations.51
Does Inequality Matter?

No
One final debate—and perhaps the most fundamental one of all—concerned the meaning and
implications of inequality. Those most concerned about inequality often argued that it was unjust,
demoralizing, and potentially destabilizing in political terms. Researchers had demonstrated
correlations between inequality and numerous undesirable outcomes – from reduced longevity and
weak educational performance to increased indebtedness and financial instability – but proof that
rising inequality actually caused any of these maladies remained elusive. Other observers,
meanwhile, insisted that some degree of inequality was necessary to motivate economic activity. If
everyone were guaranteed the same income, why would anyone work at all?
Do
Poverty versus Inequality

A related argument was that poverty, not inequality, was the real enemy. “Poverty,” wrote
Columbia economist Jagdish Bhagwati, “… is different from inequality. Whether increased inequality
matters, and if so, how, depends very much on the society in question. In short, the preoccupation
11
t
os
with inequality measures—and there are several—is somewhat ludicrous unless the economist has
bothered to put them in social and political context.”52 Harvard economist Martin Feldstein went
even further, writing, “Income inequality is not a problem in need of remedy…. The real
distributional problem is not inequality but poverty.”53
Although inequality had increased in many countries and may also have increased globally
rP
(depending on which measure was chosen), extreme poverty appeared to have decreased in much of
the world. According to World Bank estimates, the number of people in extreme poverty, defined as
those living on less than $1.25 a day in 2005 dollars (PPP adjusted), fell from 1.9 billion in 1981 to
about 1.2 billion in 2009.54 As one observer explained, those living in extreme poverty “cannot meet
basic needs for survival. They are chronically hungry, unable to get health care, lack the amenities of
safe drinking water and sanitation, cannot afford education for some or all of the children, and
perhaps lack rudimentary shelter—a roof to keep the rain out of the hut … and basic articles of
yo
clothing, such as shoes.”55 Extreme poverty was the “poverty that kills” eight million a year.56
On a percentage basis, the proportion of people living in extreme poverty declined markedly,
from 52% of the world’s population in 1981 to an estimated 21% in 2009. China alone, however,
accounted for a sizable portion of the improvement. Excluding China, the share of the world’s
population living in extreme poverty fell from 40% in 1981 to about 28% in 2009.
Significantly, the amount of improvement (including China) was highly sensitive to the precise
definition of poverty one used. At a $2.00-a–day cutoff, global poverty had still declined, but by
op
much less, falling from 59% of the world’s population in 1981 to 51% in 2005.
When poverty numbers were broken out by region, the picture varied dramatically from place to
place. According to Martin Ravallion of the World Bank, “The number of poor has fallen in Asia, but
risen elsewhere. It has roughly doubled in Africa. In the early 1980s, one in ten of the world’s poorest
lived in Africa; now the figure is about one in three.”57 Describing poverty in Africa, Sachs wrote
tC
about arriving in the village of Nthandire in Malawi:
The presence of death in Nthandire has been overwhelming in recent years. The
grandmothers whom we meet are guardians for their orphaned grandchildren. The margin of
survival is extremely narrow; sometimes it closes entirely. One woman we meet in front of her
mud hut has 15 orphaned grandchildren. Her small farm plot, a little more than an acre in all,
would be too small to feed her family even if the rains had been plentiful. The soil nutrients
have been depleted so significantly in this part of Malawi that crop yields reach only about a
No
half-ton per acre, about one-third of normal. This year, because of the drought, she will get
almost nothing. She reaches into her apron and pulls out a handful of semi-rotten, bug-infested
millet, which will be the basis for the gruel she will prepare for the meal that evening. It will be
the one meal the children have that day.
I ask her about the health of her children. She points to a child of about 4 and says that the
girl contracted malaria the week before. The woman had carried her grandchild on her back
for the six miles to the local hospital. When they got there, there was no quinine, the
antimalarial medicine, available that day. With the child in high fever, the two were sent home
and told to return the next day. In a small miracle, when they returned, after another six-mile
Do
trek, the quinine had come in, and the child responded to treatment and survived. It was a
close call though.58
12
t
os
The Challenge Ahead
Making sense of all of this information was clearly no easy task. But the stakes could hardly have
been larger. At both the national and international levels, poverty and inequality had emerged as
seminal—and often highly divisive—issues, influencing everything from trade and immigration
policy to the “war on terror.”59 How policy makers and business leaders responded to these
rP
challenges could have dramatic implications for business and the business environment in the years
ahead.
yo
op
tC
No
Do
13
t
Exhibit 1a: Income inequality measures in countries with “very high” human development by Human
Development Index (HDI) rank (Human Development Report 2009)
os
Share of income or
expenditure (%) Ratio of
richest 10% to
HDI rank Economy Richest 10% Poorest 10% poorest 10% Gini index
1 Norway 23.4 3.9 6.1 25.8
rP
2 Australia 25.4 2.0 12.5 35.2
4 Canada 24.8 2.6 9.4 32.6
5 Ireland 27.2 2.9 9.4 34.3
6 Netherlands 22.9 2.5 9.2 30.9
7 Sweden 22.2 3.6 6.2 25.0
8 France 25.1 2.8 9.1 32.7
yo
9 Switzerland 25.9 2.9 9.0 33.7
10 Japan 21.7 4.8 4.5 24.9
11 Luxembourg 23.8 3.5 6.8 30.8
12 Finland 22.6 4.0 5.6 26.9
13 United States 29.9 1.9 15.9 40.8
14 Austria 23.0 3.3 6.9 29.1
op
15 Spain 26.6 2.6 10.3 34.7
16 Denmark 21.3 2.6 8.1 24.7
17 Belgium 28.1 3.4 8.2 33.0
18 Italy 26.8 2.3 11.6 36.0
20 New Zealand 27.8 2.2 12.5 36.2
tC
21 United Kingdom 28.5 2.1 13.8 36.0

22 Germany 22.1 3.2 6.9 28.3
23 Singapore 32.8 1.9 17.7 42.5
24 Hong Kong, China 34.9 2.0 17.8 43.4
25 Greece 26.0 2.5 10.2 34.3
26 South Korea 22.5 2.9 7.8 31.6
No
27 Israel 28.8 2.1 13.4 39.2

29 Slovenia 24.6 3.4 7.3 31.2
34 Portugal 29.8 2.0 15.0 38.5
36 Czech Republic 22.7 4.3 5.3 25.8
Source: United Nations Development Programme, Human Development Report 2009, Table M: Economy and inequality,
http://hdr.undp.org/en/reports/global/hdr2009/, accessed December 6, 2010. Countries are omitted when data are not
available.
Do
Note: The Human Development Index ranks nations according to various indicators, including life expectancy, adult literacy,
school enrollment, and per capita GDP (see Human Development Report 2009, p. 208). The definitions of “very high,”
“high,” “medium,” and “low” human development are from the United Nations Development Programme.
14
t
Exhibit 1b: Income inequality measures in countries with “high” human development by Human
Development Index (HDI) rank (Human Development Report 2009)
os
Share of income or
expenditure (%) Ratio of
richest 10% to
HDI rank Economy Richest 10% Poorest 10% poorest 10% Gini index
rP
40 Estonia 27.7 2.7 10.4 36.0
41 Poland 27.2 3.0 9.0 34.9
42 Slovakia 20.8 3.1 6.8 25.8
43 Hungary 24.1 3.5 6.8 30.0
44 Chile 41.7 1.6 26.2 52.0
45 Croatia 23.1 3.6 6.4 29.0
yo
46 Lithuania 27.4 2.7 10.3 35.8
48 Latvia 27.4 2.7 10.3 35.7
49 Argentina 37.3 1.2 31.6 50.0
50 Uruguay 34.8 1.7 20.1 46.2
53 Mexico 37.9 1.8 21.0 48.1
54 Costa Rica 35.5 1.5 23.4 47.2
op
58 Venezuela 32.7 1.7 18.8 43.4
60 Panama 41.4 0.8 49.9 54.9
61 Bulgaria 23.8 3.5 6.9 29.2
63 Romania 25.3 3.3 7.6 31.5
64 Trinidad and Tobago 29.9 2.1 14.4 40.3
66 Malaysia 28.5 2.6 11.0 37.9
tC
68 Belarus 22.0 3.6 6.1 27.9

69 Saint Lucia 32.5 2.0 16.2 42.6
70 Albania 25.9 3.2 8.0 33.0
71 Russian Federation 28.4 2.6 11.0 37.5
72 Macedonia 29.5 2.4 12.4 39.0
75 Brazil 43.0 1.1 40.6 55.0
No
76 Bosnia and Herzegovina 27.4 2.8 9.9 35.8

77 Colombia 45.9 0.8 60.4 58.5
78 Peru 37.9 1.5 26.1 49.6
79 Turkey 33.2 1.9 17.4 43.2
80 Ecuador 43.3 1.2 35.2 54.4
82 Kazakhstan 25.9 3.1 8.5 33.9
Do
Note and source: see Exhibit 1a.
15
705-040 -16-
E 1
Exhibit 2a: Francce – Gini indices and trend lines, 1962-1981 and m – Gini indices aand trend lines, 1960-1980
Exhibit 2b: United Kingdom 1
1981-2006 (Worlld Income Inequa ality Database) and 1980-2
2006 (World Incoome Inequality Daatabase)
Do
No
tC
E g Kong – Gini ind
Exhibit 2c: Hong dices and trend lin
nes, 1963-1981 d trend lines, 1960
Exhibit 2d: United States – Gini indices and 0-1980
a 1981-1996 (W
and World Income Ineequality Databasse) and 1980-2
2004 (World Inco ome Inequality Daatabase)
op
yo
rP
S
Source for all exhibitts on this page: Calcculated from United Nations University--World Institute for Development Econom
mics Research (UN__WIDER), World Inco ome Inequality
Database, Veersion 2.0c, May 20088. http://www.widerr.unu.edu/research/D Database/en_GB/dattabase/, accessed Deccember 6, 2010. When
n several estimates off the Gini index
are providedd for any given year, they
t have been averag
ged.
os
t
705-040 -17-
Exhibit 3a: U.S. Gini indices and trend lines, 1967-1980 and b quintile,
Exhibit 3b: U.S. households’ shares of total income by
Do
1980-2009 (U.S. Census Bureau) 1967-2009
No
tC
1
Exhibit 3c: Shares of total U.S. income accruing to top 10%, top 1%, Exhibit 3d: Ratio of several gauges of CEOs’ pay to aveerage full-time
op
and top 0.1% of earners worker’s pay, 1970-2006
yo
rP
Sources: Exhibit 3a: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements, Table H-4, www.census.gov, accessed Dec. 8, 2010. Exhibitt 3b: Current Population
os
Survey, Table H-2, accessed Dec. 8, 2010. Exhibit 3c: Thomas Piketty and Em
manual Saez, “Income Inequality in the United States, 1913-1998.” Quarterly Journal of Economics, vol. 118, no. 1, 2003;
using updated data from www.econ.berkeley.edu/~saez/TabFig2008.xls, Tablee A-3, accessed Dec. 8, 2010. Exhibit 3d: CEO pay in 2005 US$ from Piketty and Saez, Table B--4; average pay calculated
from Bureau of Economic Analysis, Tables 6.5B, 6.5C, and 6.5D, and Tables 2.2A and 2.2B, www.bea.gov/national/nipaweb/SelectTable.asp, accessed April 15, 2011; converrted to 2005 US$ using
consumer price index from Economic Report of the President 2010, Table B–660, www.gpoaccess.gov/eop/tables11.html, accessed April 15, 2011.
t
705-040 -18-
E
Exhibit 7-2009
4a: Mediian U.S. householld income by education level, 1967
Compound aannual growth rates (CAGRs)

Do
1969-1979 1979-2000 2000-2007
B
Bachelor's or morre 0.25% 0.98% -0.33%
B
Bachelor's 0.91% -0.47%
H
High school 0.06% -0.47% -1.19%
S
Some high school -1.89% -0.86% -1.54%
No
L than 9th grad
Less de -0.21% -0.19%
No ote: There is a break in the data in 1990-991. The categories inccluded match
reaasonably well; those that do not were omiitted. The post-1991 terms (i.e.,
tC
caategories) have been used.
u
E
Exhibit 4b: Mediian U.S. householld income by racee, 1967-2009
Compound aannual growth rates (CAGRs)
op
1969-19791 1979-20002 2000-2007
A
Asian 1.28% -0.22%
W
White, not Hispan
nic 0.08% 0.79% 0.00%
A races
All 0.44% 0.68% -0.09%
yo
3
H
Hispanic 0.36% 0.67% -0.46%
B
Black 0.19% 1.35% -0.74%
Noote: There is a break in the data in 2001-22002, when survey qu uestions
ch
hanged.
rP
1. “White, not Hispanic”, and “Hispanic” arre for 1973-79 only.
2. “Asian” is for 1990--2000 only.
3. “Hispanic” is considdered a cultural charaacteristic, not a race; individuals
i of
ny race may be catego
an orized as Hispanic.
Sources: Exhibit 4a: U.S

S S. Census Bureau, Currrent Population Survey, Annual Social and Eco
onomic Supplements, Taables H-13 and H-14. Exhibit
E 4b: U.S. Census Bureau, Current Populaation Survey,
os
A
Annual Social and Econnomic Supplements, Tab ble H-5. Households arre counted when they ex
xisted in March of the following
f year.
t
705-040 -19-
E
Exhibit 5a: Real weekly earnings for U.S. men and d women at the 25
5th Exhibit 5b
b: Real minimum
m wage and prooductivity indicess (1960 =
Do
p
percentile of the wage
w distribution
n, 1979-2009, indexed to 1979=100
0 100), 1960
0-2009
Real weekly
earnings, 25th
percentile, 200
09US$
Women
1979 $4
402
No
2009 $4
479
Men
1979 $6
636
2009 $581
tC
Exhibit 5c: Real median annual income of U.S. men
E m and women
n, Exhibit 6: U.S. poverty ra
ate, % of individ
duals below poveerty line,
op
2
2009 US$ (thoussands), 1960-2009 1960-20099
yo
rP
Sources: Exhibit 5a: Em
S mail from Bureau of Lab bor statistics, technical information,
i cpsinfo@bbls.gov, Jan. 14, 2011. The
T data are for men and women 25 years of agge and older. Exhibit 5b b: Nominal
m
minimum wages: U.S. Department
D of Labor, History
H of Federal Minim mum Wage Rates, 1938-2009, www.dol.gov/w whd/minwage/chart.htm,, accessed Dec. 29, 20100. Consumer price indeex: Economic
R
Report of the President 2005, Table B–60 and Economic
E Report of thee President 2010, Table B–60, www.gpoaccesss.gov/eop, accessed Decc. 21, 2010. Productivityy for 1960-2007: Econo omic Report of
t President 2010, Table B–49, accessed Dec. 21, 2010, and for 2008
the 8 and 2009: Bureau of Labor
L Statistics, Producttivity and Costs: First Quarter
Q 2010, Revised, ppress release, Jun. 3, 20
010, Table 1,
os
w
www.bls.gov/news.relea ase/archives/prod2_060032010.pdf, accessed Deec, 29, 2010. Exhibit 5cc: Current Population Su urvey, Annual Social an nd Economic Supplemeents, Table P-5, accessed Dec. 21, 2010.
E
Exhibit 6: Current Popuulation Survey, Annual Social
S and Economic Su upplements, Table 2, acccessed Dec. 29, 2010.
t
t
Exhibit 7a: Origins of top percentile of income earners ten years earlier, United States
os
45
Portion of top percentile from each group (%)
40
35
30
rP
25
20
15
10
yo
5
0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Top percentile 95th through 99th percentile
80th through 95th percentile Below 80th percentile
op
Exhibit 7b: Probability of upward mobility from bottom two quintiles of earners to top
quintile of earners after 10, 15, or 20 years, United States
12
tC
Probability of upward mobility (%)
10
6
No
0
1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990
After 10 years After 15 years After 20 years
Do
Note: A moving 11-year wage average was used to determine quintiles—that is, an average of the previous 5 years’ earnings, the
current year’s earnings, and the following five years’ earnings.
Sources for Exhibits 7a and 7b: Wojciech Kopczuk, Emmanuel Saez, and Jae Song, “Uncovering The American Dream: Inequality
And Mobility In Social Security Earnings Data Since 1937,” NBER Working Paper 13345, 2007, Figure 4c and Figure 7. Accessed
at http://www.columbia.edu/~wk2110/uncovering/old/, Apr. 22, 2011.
20
t
Exhibit 8a: Probability of intergenerational income mobility between top and bottom quintiles
os
Denmark Finland Norway Sweden Britain United States
If father is in bottom
quintile, probability son 14.4% 11.3% 11.9% 10.9% 12.4% 7.9%
will move to top quintile
If father is in top quintile,
rP
probability son will move 15.3% 15.1% 14.6% 15.9% 9.1% 9.5%
to bottom quintile
Source: Anna Cristina d’Addio, “Intergenerational Transmission of Disadvantage: Mobility or Immobility across Generations? A
Review of the Evidence for OECD Countries,” OECD Social, Employment and Migration Working Papers, No. 52, 2007, Table 2.
Accessed at http://www.oecd.org/els, Nov. 23, 2010.
yo
Exhibit 8b: Income inequality and intergenerational income mobility across countries
0.9
Gauge of intergenerational income mobility
Denmark Norway Australia

op
0.8 Finland
Canada
Sweden
0.7
Spain
Germany
tC
0.6
France
United States
0.5 Italy
Great Britain
No
0.4
20 25 30 35 40
Gini index of income inequality
Note: The gauge of intergenerational income mobility for a country is defined as 1 minus its
intergenerational earnings elasticity (which measures the correlation of parents’ and children’s income).
Sources: Adapted from d’Addio, “Intergenerational Transmission of Disadvantage,” Figure 3. Intergenerational earnings elasticity
Do
estimates are from d'Addio Figure 1. Gini coefficients are for year 2000 and are directly from d'Addio's apparent source:
Organisation For Economic Co-Operation And Development, Society at a Glance: OECD Social Indicators, 2005, Data Chart
EQ2.1, except that the Gini for Spain is estimated from d'Addio Figure 3.
21
t
Exhibit 9a: Income inequality measures in countries with “medium” human development
by Human Development Index (HDI) rank (Human Development Report 2009)
os
Share of income or expenditure Ratio of
(%) richest 10% to Gini index
HDI rank Economy Richest 10% Poorest 10% poorest 10%
84 Armenia 28.9 3.7 7.9 33.8
85 Ukraine 22.5 3.8 6.0 28.2
rP
86 Azerbaijan 17.5 6.1 2.9 36.5
87 Thailand 33.7 2.6 13.1 42.5
88 Iran 29.6 2.6 11.6 38.3
89 Georgia 30.6 1.9 15.9 40.8
90 Dominican Republic 38.7 1.5 25.3 50.0
92 China 31.4 2.4 13.2 41.5
96 Jordan 30.7 3.0 10.2 37.7
97 Suriname 40.0 1.0 40.4 52.9
yo
98 Tunisia 31.6 2.4 13.3 40.8
100 Jamaica 35.6 2.1 17.0 45.5
101 Paraguay 42.3 1.1 38.8 53.2
102 Sri Lanka 33.3 2.9 11.7 41.1
103 Gabon 32.7 2.5 13.3 41.5
104 Algeria 26.9 2.8 9.6 35.3
105 Philippines 33.9 2.4 14.1 44.0
106 El Salvador 37.0 1.0 38.6 49.7
op
109 Turkmenistan 31.8 2.5 12.9 40.8
111 Indonesia 32.3 3.0 10.8 39.4
112 Honduras 42.2 0.7 59.4 55.3
113 Bolivia 44.1 0.5 93.9 58.2
114 Guyana 34.0 1.3 25.5 44.6
115 Mongolia 24.9 2.9 8.6 33.0
tC
116 Viet Nam 29.8 3.1 9.7 37.8

117 Moldova 28.2 3.0 9.4 35.6
119 Uzbekistan 29.5 2.9 10.3 36.7
120 Kyrgyzstan 25.9 3.6 7.3 32.9
121 Cape Verde 40.6 1.9 21.6 50.5
122 Guatemala 42.4 1.3 33.9 53.7
123 Egypt 27.6 3.9 7.2 32.1
124 Nicaragua 41.8 1.4 31.0 52.3
No
125 Botswana 51.2 1.3 40.0 61.0

127 Tajikistan 26.4 3.2 8.2 33.6
128 Namibia 65.0 0.6 106.6 74.3
129 South Africa 44.9 1.3 35.1 57.8
130 Morocco 33.2 2.7 12.5 40.9
132 Bhutan 37.6 2.3 16.3 46.8
133 Laos 27.0 3.7 7.3 32.6
134 India 31.1 3.6 8.6 36.8
136 Congo 37.1 2.1 17.8 47.3
Do
137 Cambodia 34.2 3.0 11.5 40.7

139 Comoros 55.2 0.9 60.6 64.3
140 Yemen 30.8 2.9 10.6 37.7
141 Pakistan 26.5 3.9 6.7 31.2
142 Swaziland 40.8 1.8 22.4 50.7
143 Angola 44.7 0.6 74.6 58.6
22
t
Exhibit 9a, continued: Income inequality measures in countries with “medium” human development
Share of income or expenditure Ratio of
os
(%) richest 10% to Gini index
HDI rank Economy Richest 10% Poorest 10% poorest 10%
144 Nepal 40.4 2.7 14.8 47.3
145 Madagascar 41.5 2.6 15.9 47.2
146 Bangladesh 26.6 4.3 6.2 31.0
147 Kenya 37.8 1.8 21.3 47.7
rP
148 Papua New Guinea 40.9 1.9 21.5 50.9
149 Haiti 47.8 0.9 54.4 59.5
151 Tanzania 27.0 3.1 8.9 34.6
152 Ghana 32.8 2.0 16.1 42.8
153 Cameroon 35.5 2.4 15.0 44.6
154 Mauritania 29.6 2.5 11.6 39.0
155 Djibouti 30.9 2.4 12.8 40.0
yo
156 Lesotho 39.4 1.0 39.8 52.5
157 Uganda 34.1 2.6 13.2 42.6
158 Nigeria 32.4 2.0 16.3 42.9
Exhibit 9b: Income inequality measures in countries with low human development (HDR 2009)
159 Togo 27.1 3.3 8.3 34.4
160 Malawi 31.9 3.0 10.5 39.0
161 Benin 31.0 2.9 10.8 38.6
op
162 Timor-Leste 31.3 2.9 10.8 39.5
163 Côte d'Ivoire 39.6 2.0 20.2 48.4
164 Zambia 38.9 1.3 29.5 50.7
166 Senegal 30.1 2.5 11.9 39.2
167 Rwanda 37.8 2.1 18.1 46.7
168 Gambia 36.9 2.0 18.9 47.3
169 Liberia 30.1 2.4 12.8 52.6
tC
170 Guinea 34.4 2.4 14.4 43.3

171 Ethiopia 25.6 4.1 6.3 29.8
172 Mozambique 39.2 2.1 18.5 47.1
173 Guinea-Bissau 28.0 2.9 9.5 35.5
174 Burundi 28.0 4.1 6.8 33.3
175 Chad 30.8 2.6 11.8 39.8
176 Congo 34.7 2.3 15.1 44.4
No
177 Burkina Faso 32.4 3.0 10.8 39.6

178 Mali 30.5 2.7 11.2 39.0
179 Central African Republic 33.0 2.1 15.7 43.6
180 Sierra Leone 33.6 2.6 12.8 42.5
182 Niger 35.7 2.3 15.3 43.9
Note: countries are omitted when the data are not available. The Human Development Index ranks nations according to
various indicators, including life expectancy, adult literacy, school enrollment, and per capita GDP (HDR 2009, p. 208).
The definitions of “very high,” “high,” “medium,” and “low” human development are from the United Nations
Do
Development Programme.
Source for Exhibits 9a and 9b: United Nations Development Programme, Human Development Report 2009, Table M: Economy and
inequality, http://hdr.undp.org/en/reports/global/hdr2009/, accessed December 6, 2010.
23
705-040 Inequality and Globalizatiion
t
Exhibit 10a:: Brazil – Gin
ni index and trend line, 1970-2005 (W
World Incomee Inequality Database)
D
os
rP
yo
op
ni index and trend lines, 1966-2004 (W
Exhibit 10b:: China – Gin World Incom
me Inequalityy Database)
tC
No
Do
Note: When more

m than one survey
s gave Giini indices for a given year, alll surveys for that
t year were averaged.
a Throough
1978, Braziliann surveys are judged to be off poor or somewwhat poor quallity. In the casee of Brazil, onlly surveys coveering
all geographical areas were used;
u in the casse of China onlly surveys coveering both urbaan and rural areas were used.
Sources: Sourcee: Calculated from United Nationns University-W
World Institute foor Development Economics
E Reseearch (UN_WID
DER),
World Income Inequality
I Databbase, Version 2.00c, May 2008. Accessed
A Decem mber 6, 2010.
24
705-040 -25-
Do
Exhibit 11a: India – Gin
ni index, 1960-20
004 (World Incom
me Exhibit 11b: In
ndia consumptio
on by percentile of population, 2004
2
Inequaliity Database)1
Population by
y amount of consu
umption Sharre of consumption
n (%)
Lowest 10% 3.6
Lowest 20% 8.1
Second 20% 11.3
Third 20% 14.9
No
Fourth 20% 20.4
Highest 20% 45.3
Highest 10% 31.1
Exhibit 12: Ind
dian poverty ratte, 1978 to 2005
tC
Percent of pop
pulation earning
1978 1983 1988 1994 2005
below:
$1.25 a day (P
PPP) 65.9 55.5 53.6 49.4 41.6
$2 a day (PPP) 89 84.8 83.8 81.7 75.6
op
ustry in India, 19
Exhibitt 13: Percentagee of GDP by indu 970-2009 2
yo
rP
Note 1: Onnly surveys covering rural and urban areass were used. Poor-qu uality surveys were exxcluded. When severral surveys gave Gini indices for a given yyear, they were averaaged.
Note 2: Daata are given by fiscaal year, and fiscal yeaars are assigned to thee next calendar year. 2008 and 2009 are esstimates.
os
Sources: Ex
xhibit 11a: Calculated frrom United Nations Uniiversity-World Institutee for Development Econ nomics Research (UN_W WIDER), World Incomee Inequality Database, V Version 2.0c, May 20088,
accessed Deecember 6, 2010. Exhibits 11b and 12: World Bank,
B World Developm ment Indicators. http://daata.worldbank.org/data-catalog/world-developm
ment-indicators, accesseed Dec. 29, 2010. Exhib
bit 13:
Ministry of Finance, Government ofo India, Economic Survvey 2009-2010, Table 1.3B, http://indiabudget..nic.in/, accessed Dec. 30,
3 2010.
t
705-040 -26-
Exhibit 14: Inequality and globalization

1960 1970 1980 1990 1995 2000 2005 2006 2007 2008 2009
Do
Basics and inequality
World population, billions 3.0 3.7 4.4 5.3 5.7 6.1 6.5 6.5 6.6 6.7 6.8
World GDP (billions of constant 2000 US$) 12,150 17,648 24,280 27,238 32,209 36,930 38,412 39,923 40,542 39,752
World GDP (billions of current US$) 1,352 2,879 10,988 21,905 29,692 32,209 45,631 49,453 55,837 61,351 58,141
High income countries (as % of world) 76 79 79 83 83 82 79 77 74 72 72
Middle income countries (as % of world) 24 20 21 16 16 18 21 23 25 27 28
Low income countries (as % of world) 2 2 1 1 1 1 1 1 1 1 1
Low & middle income countries excluding China (as % of world) 21 19 21 15 14 14 16 18 19 21 20
World GDP per capita (constant 2000 US$) 3,296 3,971 4,599 4,788 5,293 5,710 5,870 6,030 6,053 5,867
No
World GDP per capita (current US$) 446 781 2,472 4,149 5,219 5,293 7,056 7,557 8,434 9,160 8,581
High income countries per capita GDP as % of world 309 350 383 448 466 474 468 458 447 435 434
Middle income countries per capita GDP as % of world 36 29 30 23 23 25 29 32 35 38 39
Low income countries per capita GDP as % of world 24 19 12 7 5 5 5 5 5 6 6
Low & middle countries minus China per capita GDP as % of world 40 34 36 25 23 23 26 28 30 32 31
World GDP per capita at PPP (constant 2005 international $) 5,900 6,794 7,034 7,881 8,828 9,170 9,535 9,686 9,512
World GDP per capita at PPP (current international $) 2,764 4,813 5,655 6,950 8,828 9,555 10,256 10,752 10,691
tC
High income countries per capita GDP at PPP as % of world 333 364 376 382 367 361 354 347 341
Middle income countries per capita GDP at PPP as % of world 43 44 45 46 52 54 56 58 60
Low income countries per capita GDP at PPP as % of world 13 11 10 10 10 10 10 10 11
Low & middle countries minus China per capita GDP at PPP as % of world 51 48 45 44 46 47 48 49 49
Globalization: trade
World exports of goods and services (% of GDP) 12.1 13.6 18.7 18.9 21.0 24.4 26.8 28.2 28.7 29.3 23.4
Low & middle countries' exports as % of world exports 19.4 21.0 16.8 17.8 20.2 25.0 26.4 27.2 28.6 29.5
op
World imports of goods and services (% of GDP) 12.2 13.5 19.7 19.1 20.8 24.5 26.9 28.3 28.6 29.7 23.3
Low & middle countries' imports as % of world imports 21.3 22.3 16.7 19.0 18.9 22.9 23.7 25.2 26.7 28.0
World taxes on international trade (% of revenue) 14.9 13.3 9.0 7.3 4.9 5.2
Globalization: capital flows
FDI inflows to all countries in world (% of world GDP) 0.5 0.6 1.0 1.2 5.1 2.5 3.1 4.3 3.0 1.8
FDI inflows to low & middle income countries (% of world FDI) 15.4 14.9 10.3 27.9 9.2 24.1 22.9 21.8 32.2 32.6
Portfolio equity inflows to low & middle income countries (millions of current US$) 61 3,390 13,824 14,002 67,478 107,680 132,962 -53,070 108,519
Portfolio equity inflows to middle income, % of inflows to low & middle income 93.3 99.8 100.1 100.0 99.9 99.9 99.9 100.3 100.0
yo
Portfolio equity inflows to low income, % of inflows to low & middle income 6.7 0.2 -0.1 0.0 0.1 0.1 0.1 -0.3 0.0
Daily foreign exchange turnover, % of world GDP 2.8 3.8 3.9 4.6 6.0 6.4
Globalization: people
Refugees, world (% of world population) 0.4 0.3 0.3 0.2 0.2 0.2 0.2 0.2
International migrant stock, world (% of population) 2.6 2.3 2.3 3.0 2.9 2.9 3.0
World air transport departures as % of world population 0.26 0.24 0.28 0.32 0.36 0.37 0.38 0.37 0.36
World Internet users as % of world population 0.1 0.7 6.5 15.8 17.5 20.5 23.7
rP
Notes: The division of countries among high-, middle-, and low-income derives from the World Bank, using 2009 gross national income per capita: low income is GNI of $995 or less; middle income is $996 to
$12,195, and high income is $12,196 or more (see http://data.worldbank.org/about/country-classifications). Figure for taxes on trade reported for 2000 is for 1999. Foreign-exchange turnover figure reported for 1990 is
for 1989, figure reported for 2000 is for 2001, figure reported for 2005 is for 2004, and figure reported for 2009 is for 2010. All foreign-exchange turnover data are daily averages for April, are "net-net," i.e., net of local
and cross-border trades between different branches of the same dealer, and are not adjusted for estimated gaps in reporting.
Sources: Data except foreign-exchange turnover calculated from World Bank, World Development Indicators, http://data.worldbank.org/data-catalog/world-development-indicators, accessed Dec. 30,
2010, except that data for taxes on trade before 2006 are from World Development Indicators accessed May 3, 2004. Foreign exchange turnover from Bank for International Settlements, “Triennial Central
os
Bank Survey,” Basel, Switzerland, March 2002, Table D.1, and December 2010, Table 1. World GDP from Economist Intelligence Unit, Country Data, www.eiu.com, accessed Jan. 21, 2011.
t
t
os
Endnotes
1 David J. Lynch, “Widening Income Gap Divides America,” USA Today, September 20, 1996, pg. 1B.
2 David Moss, Confronting the Third Industrial Revolution, Harvard Business School Case No. 796-161 (April 19,
rP
1996). The story of the Miller family was originally drawn from Dirk Johnson, “Family Struggles to Make Do
After Fall From Middle Class,” The New York Times, March 11, 1994, p. A1.
3
Timothy Noah, “The Great Divergence in Pictures: A Visual Guide to Income Inequality,” Slate, slide 3
(http://www.slate.com/id/2266174/slideshow/2266174/fs/0//entry/2266209/).
4
Jim Yardley, “Rural Exodus for Work Fractures Chinese Family,” The New York Times, December 21, 2004,
pg. A1.
5 Per capital growth rates calculated from Economist Intelligence Unit, Country Data, www.eiu.com,
yo
accessed April 25, 2011.
6 The World Bank, World Development Indicators: WDI Online (World Bank: Washington, D.C., 2004), on the
portion of agricultural workers. As of April 2011 WDI was not providing this figure.
7 Amy Waldman, “Sizzling Economy Revitalizes India,” The New York Times, October 20, 2003, pg. A1.
8
For more detail on the electoral campaign and India’s challenges, see Lakshmi Iyer and Jonathan Schlefer,
“India: The Road to Inclusive Growth,” Harvard Business School case 710-046, July 16, 2010.
op
9
Prime Minister's speech at the Conference of Chief Ministers on Internal Security and Law & Order, April
15, 2005, http://www.satp.org/satporgtp/countries/india/document/papers/PMCCM05.htm, accessed March
17, 2010, cited in Ayer and Schlefer, “India.”
10
Purchasing power parity is defined as “The doctrine according to which goods must sell for the same price
in every country, implying that the nominal exchange rate reflects differences in price levels.” N. Gregory
Mankiw, Macroeconomics, (New York: Worth Publishers, 2003), pg. 534.
tC
11
Xavier Sala-i-Martin, “The World Distribution of Income: Falling Poverty and … Convergence, Period,”
Quarterly Journal of Economics, vol. 121, no. 2 (May 2006), table IV, pp. 390-391.
12
Ibid, pp. 386-387
13
Branko Milanovic, “Global inequality recalculated: The effect of new 2005 PPP estimates on global
inequality,” working paper, August 30, 2009, table 2, p. 13
(http://siteresources.worldbank.org/INTDECINEQ/Resources/Global_Inequality_Recalculated.pdf).
No
14 Branko Milanovic, “True World Income Distribution, 1988 and 1993: First Calculation Based on Household
Surveys Alone,” The Economic Journal, January 2002, pg. 72.
15 Globalization and technology are fundamentally interrelated: “Foreign direct investment results in
technology transfer, while increasing competition could motivate firms to invest in new equipment.” (Ethan B.
Kapstein, Sharing the Wealth: Workers and the World Economy, (New York: W.W. Norton & Company, 1999), pg.
108). This made it difficult for studies to distinguish between the two in determining their effects on inequality.
16See esp. Adrian Wood, “How Trade Hurt Unskilled Workers,” Journal of Economic Perspectives, Vol. 9, No. 3
(Summer 1995): “The main cause of the deteriorating situation of unskilled workers in developed countries has
Do
been expansion of trade with developing countries…. [I]n a developed country, with relatively few unskilled
workers by world standards… trade with developing countries… causes the relative wage of unskilled workers
to be lower than it would be without trade” (p. 57).
17 See Wolfgang F. Stolper and Paul A. Samuelson, “Protection and Real Wages,” Review of Economic Studies,
Vol. 9, No. 1 (November 1941), pp. 58-73. Stolper and Samuelson argued that since – in a two-factor world –
trade would raise the income share of the relatively abundant factor at the expense of the relatively scarce factor,
and since labor was typically the relatively scarce factor in rich industrial economies (since labor was so much
27
t
os
more plentiful in the developing world), trade could potentially benefit capital at the expense of labor in
developed economies.
18 See Martin Wolf, Why Globalization Works, (New Haven, Conn.: Yale University Press, 2004), pg. 170.
rP
19 See Kapstein, Sharing the Wealth, pg. 106.
20 David C. Korten, When Corporations Rule the World, (Bloomfield, Conn.: Kumarian Press, 2001), pg. 113.
21 Peter H. Lindert and Jeffrey G. Williamson, “Does Globalization Make the World More Unequal?” NBER
Working Paper Series, Working Paper 8228, April 2001, pg. 27.
22 See Wolf, Why Globalization Works, pg. 167. Such arguments were grounded in the belief that inequality
had increased only because the “opening to trade and foreign investment was incomplete” (Peter H. Lindert and
yo
Jeffrey G. Williamson, “Does Globalization Make the World More Unequal?” NBER Working Paper Series,
Working Paper 8228, April 2001, pg. 28).
23 Susan Kaufman Purcell and Luis Rubio, Mexico Under Zedillo, (Bolder, Colorado: Lynne Rienner, 1998), pg.
72.
24Marcelo Giugale, Olivier Lafourcade, and Vinh H. Nguyen, Mexico: A Comprehensive Development Agenda for
the New Era, (Washington, D.C.: The World Bank, 2001), pp. 66-67.
25 Human Development Report 1999 (New York: Oxford University Press, 1999), p. 30.
op
26 Human Development Report 1999, pp. 31, 36.
27 Human Development Report 1999, p. 36.
28 Jay Mazur, “Labor’s New Internationalism,” Foreign Affairs, January/February 2000.
29 Mark Levinson, “One-Sided World,” The American Prospect, April 2004, pg. 61.
tC
30 Mazur, “Labor’s New Internationalism.”

31 “Global Economic Inequality: More or Less Equal?” The Economist, March 13, 2004.
32 David Dollar and Aart Kraay, “Spreading the Wealth,” Foreign Affairs , January/February 2002, p. 120.
33
David Dollar and Aart Kraay, “Trade, Growth, and Poverty,” Development Research Group, The World
Bank, October 2002. Not everyone agrees with this study, however. For example, economist Dani Rodrick
argues that it is seriously flawed in its definition of what constitutes a globalizer. Rodrik also points out that
No
China’s growth started well before trade liberalization. See e.g. Paul Blustein, “Cause, Effect and the Wealth of
Nations,” Washington Post, November 4, 2001, p. H1; Levinson, “One-Sided World.”
34 Dollar and Kraay, “Spreading the Wealth.”
35
George E. Johnson, “Changes in Earnings Inequality: The Role of Demand Shifts.” Journal of Economic
Perspectives, Vol. 11, no. 2, 1997, pp. 41, 51.
36 Remarks by Secretary of Labor Robert Reich to the National Association of Counties, Legislative
Conference, Washington Hilton, Washington DC, March 1, 1993.
37
Paul Krugman, “Degrees and Dollars,” New York Times, Mar. 6, 2011.
Do
38
Robert Shiller, “Risk Management for the Masses,” Economist, March 20, 2003.
39 “Behind the Digital Divide,” The Economist Online (Technology Quarterly), March 10, 2005,
http://www.economist.com/science/tq/displayStory.cfm?story_id=3714058, accessed 5/3/05.
40 Ibid.
28
t
os
41
Frances Williams, “Global inequality ‘will grow if information gap widens’,” The Financial Times,
December 12, 2003, pg. 10.
42 For social spending as a percentage of GDP, see OECD Social Expenditure Statistics
(http://www.oecd.org/dataoecd/56/37/31613113.xls). Gini coefficients can be found in Exhibit 1 of this case.
rP
43 Paul Krugman, “For Richer,” The New York Times Magazine, October 20, 2002, pg. 62.
44 Freeman, “Toward an Apartheid Economy?”
45
Quoted in David Leonhardt, “Inequality and Political Power,” New York Times Economix, March 3, 2011
(http://economix.blogs.nytimes.com/2011/03/03/inequality-and-political-power/).
46 Alberto Chong and Mark Gradstein, “Inequality and Institutions,” Inter-American Development Bank,
yo
Working Paper #506, April 2004.
47 Levinson, “One-Sided World,” pg. 61.
48 Martin Wolf, “We need more globalization,” The Financial Times, May 10, 2004, pg. 17.
49
Bruce R. Scott, Sovereign But Unequal: The Great Divide in the Global Village, Chapter 1, unpublished
manuscript, 2005.
50 Joseph F. Stiglitz, “Trade and the Developing World: A New Agenda,” Current History, November 1999,
op
pg. 387.
51 Joseph E. Stiglitz, Globalization and Its Discontents, (New York: W. W. Norton & Company, 2002), pp. 216,
251-252.
52 Jagdish Bhagwati, In Defense of Globalization, (New York: Oxford University Press, 2004).
53 Martin S. Feldstein, “Income Inequality and Poverty,” NBER Working Paper, No. W6770, October 1998.
tC
54Data for 1981-2005 are from Shaohua Chen and Ravallion Martin, “The developing world is poorer than we
thought, but no less successful in the fight against poverty,” Policy Research Working Paper 4703, Washington: World
Bank, August 26, 2008, available at http://ideas.repec.org/p/wbk/wbrwps/4703.html, accessed April 26, 2011, Tables 4 5,
and 6. Estimates for 2009 are from Global Monitoring Report 2009: A Development Emergency, Washington: World Bank,
2009, Table 1.5.
55 Jeffrey Sachs, The End of Poverty: Economic Possibilities for our Time (New York: Penguin Books, 2005), p. 20.
56 Jeffrey Sachs, “The End of Poverty,” Time, March 14, 2005, pg. 47. He was referring to the earlier definition
No
of $1.08 year-1993 dollars, at PPP, per day.

57 Ravallion, “Pessimistic on Poverty.”
58 Sachs, “The End of Poverty,” pg. 47.
59
In an article entitled “The Strategic Significance of Global Inequality,” the economist Jeffrey Sachs
maintained that “[f]ailed states are seedbeds of violence, terrorism, international criminality, mass migration and
refugee movements, drug trafficking, and disease” (Washington Quarterly, vol. 24, no. 3 [Summer 2001], pg. 187).
Do
29

Bgs Case 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Bgs Case 1

Uploaded by

Copyright:

Available Formats

t

Thhe purpose off this note is to

respecctively, whilee Colombia had

most of the concentration was occurring. As one journalist explained,

opportunities, lack of access to resources, [and] under developed agriculture.”9

Inequality at the Global Level

inequality within countries.

Does Inequality Matter?

Poverty versus Inequality

about arriving in the village of Nthandire in Malawi:

21 United Kingdom 28.5 2.1 13.8 36.0

27 Israel 28.8 2.1 13.4 39.2

68 Belarus 22.0 3.6 6.1 27.9

76 Bosnia and Herzegovina 27.4 2.8 9.9 35.8

Note and source: see Exhibit 1a.

Compound aannual growth rates (CAGRs)

Sources: Exhibit 4a: U.S

Denmark Norway Australia

116 Viet Nam 29.8 3.1 9.7 37.8

125 Botswana 51.2 1.3 40.0 61.0

137 Cambodia 34.2 3.0 11.5 40.7

170 Guinea 34.4 2.4 14.4 43.3

177 Burkina Faso 32.4 3.0 10.8 39.6

Note: When more

Exhibit 14: Inequality and globalization

30 Mazur, “Labor’s New Internationalism.”

of $1.08 year-1993 dollars, at PPP, per day.

You might also like