They get more, we get less: the global rise of inequality
A major new study by economists for the Organisation for Economic Co-operation and Development (OECD) provides an overview of how capitalism has changed the world – and also of some things that haven’t changed.
How Was Life?: Global Well-being since 1820 scours the globe for sources of information that allow comparisons within and between countries, and over a time span of nearly two centuries. The starting year was chosen as the beginning of the first industrial revolution, but it also approximates the beginning of modern capitalism in Western Europe. Some of the statistics end in 2000, some in 2010.
As one would expect, the world as a whole is considerably wealthier today than it was. According to the calculations of the study’s authors, world per capita GDP is now about 13 times what it was in 1820.
This growth has not been evenly distributed. In the Middle East and North Africa, per capita GDP increased to only 10 times the 1820 figure, in Latin America and the Caribbean about 12 times, in Indonesia 9 times and in South Africa less than 7 times. Meanwhile, Western Europe had become 17 times as wealthy and the “Western Offshoots” (the United States, Canada, Australia and New Zealand) 23 times.
For some regions, the authors were not able to obtain reliable figures for earlier periods. But from whatever date the figures are available, the colonised countries are shown to develop much more slowly than their colonisers.
Thus in 1870, Western Europe’s per capita GDP was 3.8 times that of South and South-East Asia; now it is 5.9 times as large. In 1950, the earliest year for which the authors could derive a figure for sub-Saharan Africa, its per capita GDP was 19 percent of that in Western Europe; today it is only 7 percent. The authors calculate that a 5:1 ratio between the richest and poorest countries in 1820 had become more than 30:1 by 1950.
Wages
The authors of the study do not attempt to calculate directly how this increased wealth was divided among classes, but the figures they provide on real wages allow us to gain an idea of what portion of the increase has gone to workers.
In order to compare real wages between different countries and different years, the study adopts as a standard the wages of an unskilled male construction worker. It then calculates the price of a “subsistence basket” providing “1940 kilocalories and at least 40 grams of protein per day” plus “some additional basic food products, as well as small quantities of clothing and fuel”. Comparing the money wage with the price of the subsistence basket allows the authors to express the real wage as a number of subsistence baskets, regardless of place or time.
They calculate that the world average real wage rose from 5.7 subsistence baskets in the 1820s to 43 baskets in the 2000s – an increase of 650 percent. As already noted, over the same period, world per capita GDP increased 1200 percent. Unfortunately, we have no figures to indicate how the surplus was divided among capitalists and precapitalist ruling classes; the latter would have taken a sizeable part of world production in the early 19th century, and in some parts of the world well into the 20th century.
But if we look at one of the regions where capitalism developed earliest and most vibrantly, we find that real wages as calculated in the study increased by 1200 percent, while per capita GDP rose 1600 percent.
The earliest figures for Australia are from the 1860s; from then until the present, the real wage rose about 420 percent. Over the same time, Australian per capita GDP rose 680 percent. In the USA, real wages increased by less than 190 percent from the 1920s to the present, while GDP per capita increased almost 400 percent.
Moreover, it is highly probable that the calculations overstate the rise in real wages. Food is one of the items whose price capitalism has greatly reduced over the last two centuries. New products purchased by workers generally come on the market with a high price, which then declines to varying degrees in real terms as the technology for producing them is improved. What this means is that workers spend a large part of their subsistence basket equivalents on products that are far more expensive than food, so the increase in real wages is not as great as it appears.
Even more importantly, it means that real wages may increase even though workers are getting a shrinking proportion of the value they produce. And workers are getting a shrinking proportion, as indicated by the increased inequality of incomes.
How far have we come?
The report presents income inequality through a statistical measure known as the Gini coefficient. This is a number between 0 and 100 that indicates how similar or different the members of some statistical collection are. If everybody in a country has the same income, its Gini coefficient for income is 0. If one person has all the income, the Gini coefficient is 100.
The Gini is very useful for noting how things are changing: if income is transferred from richer people to poorer people, the Gini goes down; if it is transferred in the other direction, the Gini goes up.
So, how far have we come since 1820, when most of the world was still being exploited by feudal, slaveowner and other precapitalist rulers? How much have two centuries of capitalism made us more equal economically?
Within countries, not at all. According to the study, in 1820 the world Gini coefficient within countries was 45. In 2000, it was 45.
Between countries, things have gone hugely backward. From 1820 to 2000, the between-country Gini rose from 16 to 54, representing a massive transfer of wealth from poor countries to rich countries.
The changes over the two centuries have not been linear. Between-countries inequality rose steadily from 1820 to 1950, but has been fairly stable since then.
In the early period of modern capitalism, there was a decline of inequality within countries. The world within-countries Gini in 1850 was down to 38. Some of the biggest declines occurred where capitalism was developing most rapidly: Western Europe went from 54 in 1820 to 45 in 1850; the Western Offshoots went from 56 to 42.
However, inequality increased rapidly in the next 20 years, then declined again between 1870 and 1890 – perhaps at least partly due to the growth of the labour movement internationally, although the study does not attempt to analyse the reasons for such shifts.
Inequality began to increase again from 1890, which, interestingly, was also roughly the beginning of capitalist imperialism. The Gini rose until the turmoil of the Great Depression and World War II. In 1929, the year of the stock market crash, the Gini was 44. It declined to a relatively low 38 in 1950 and remained around that level until 1980.
Effect of neoliberalism
The rise of neoliberalism has, not surprisingly, raised the Gini coefficient. It rose from 36 in 1980 to 39 in 1990. In 2000, it reached 45, the highest level of inequality since 1820. The study does not give a figure for subsequent years, but it does not seem likely that incomes have become more equal since 2000.
In Australia, income inequality declined slightly over most of the 20th century, from Gini 41 in 1910 to 32 in 1970. By 1980 it had jumped to 39 (the 1970s saw economic crisis and the first neoliberal budget). In 1990, it reached 42; the report does not have any later figures for Australia.
It is also likely that the study underestimates the recent increase in inequality. Because figures for gross income in earlier periods were more readily available than figures for post-tax income, the study’s Gini figures are based on pre-tax income. The move to neoliberalism from the 1970s has brought a great reduction of taxes on high incomes in the developed capitalist countries. So, for example, the Western Offshoots Gini increase from 36 to 44 between 1970 and 2000 would have been greater if the study had been able to use after-tax incomes.
Another interesting aspect is apparent correlations between levels of inequality and major political trends. One that strikes the eye is that between the 1960s radicalisation and a decline of inequality: for Western Europe, Eastern Europe, the Western Offshoots and East Asia, 1970 is the year of lowest inequality over the entire period 1820-2000 (the table in the report presents the figures mostly at 10-year intervals).
Militants of the Builders’ Labourers’ Federation popularised the slogan, “If you don’t fight, you lose.” The OECD study provides evidence that, if you do fight, at least sometimes you win.
