Hello. I read the reply of Robert Wade (London School of Economics) to Sir Ian Castles (Letters, May 26th) and Castles’ statement that “world income distribution has become more equal... in last decades”, and also disagree with that from evidences given by several experts (not all, they are many) read by me.
Let me make some semi-informed speculations about the topic. The measurement of income distribution at global scale, in spite of its evident recent advances, still offers some problems like:
1. They are based on households income and/or consumption, which only cover in the average 50% of real income of units polled. It does not include the fraction of income not consumed at home, but invested/saved. And probably the richest report smaller fractions.
2. Statistical offices put a ceiling-limit to income, let’s say of 40 average incomes. This distorts the shares at each quintil/decil, increasing the poorest shares and decreasing the shares of the richest ones. It produces lower gini’s indexes than real ones.
3. The standard numerical method based normally on quintils is only approximate, and it may give ginis up to 15% lower than it should, assuming perfect data. This composes to points 1) and 2).
4. If US dollars are used, gini’s index for world-1998 gave me a value of 0.819. From the same shares data for 106 nations, using ppp-$ units, gini found was 0.686 for same year. Perhaps ppp-$ are better to measure unequal exchange than income inequality.
Perhaps only when those problems are solved, we will be in a position of developing real statistics of inequality and poverty. I use a method that tends to correct some of those faults, so it is fortunatelly biased against the richest shares as presented by official data. My preliminar conclusion is that 0.1% richest people of the world gets a share of 11.3% of wealth, and there are about 100 super-rich in the world with an income bigger than 100 000 times the US$5115 average 1998-IPC of the world (making in average around one billion dollars a year each one). They are big share-holders of several transnationals at the same time. Perhaps they belong to a few connected families, or perhaps to a super-closed-international-clan with enough power to name and buy persons like Kissinger, or to excercise a huge not imagined leverage over world affairs). Millionaires mentioned by Fortune magazine would be smaller kids compared to them. It sounds like science fiction.
But the key point is that the shape of the income distribution density function must have, IMO, the shape of the average world demand curve for personal consumption. It must be clear that people over average income per capita consumes bigger, better quality, faster, more varied-expensive and more frequent goods/services proportional to their incomes. In this sense it is always true the sentence that “each one earns just enough to live his/her own standard of life”. So I question the explanation given by Mr. Castles that “the world's 600m poorest people saw their share ofworld income fall between 1988 and 1993 not because of globalisation but because of economic isolation.” because it is a trivial conclusion: of course, exclusion and destitution is a form of economic isolation due to poor distribution at any country, with or without investments from the advanced nations (which are designed to enrich more the already rich ones and native elites, not to radically aleviate the poverty of the lowest quintils).
Also, IMO, and not too sure of it, if distribution were equalized at global level, we probably would see a different composition of the average consumption basket, with more basic goods/services and less luxury ones, and a corresponding change in the production/market structure. It would be another global culture. Luxury and jet-sets seem possible due to high inequality, not to growth per se. During first years of post-war US assistance to Europe, the task was to recover soon basic production and to save US previous investments dependent on european recovery, it was not a desinterested help, and it certainly was useful to both parts. People hard work was key in getting it, to the point that germans used to plant potatoes at their gardens during first postwar years to help family economy.
Understanding the counter-side of the poorest ones is decisive. I attach a graph of income per capita distribution in dollars/person-day for 1998 done for the people that makes less than the average (82 %), according to my research, which of course may be questioned at pleasure by other researchers with more years of work in the field, as much as the mentioned data/method problems around the topic have been questioned here.
OK, thanks for arriving to this point of ...cordial regards. Emilio