Global Income Inequality

Over the past four decades, global production as measured by GDP has increased more than threefold. But the vast majority of this additional output has been captured by the rich. This graph shows that the richest 1% have claimed 27% of the gains from growth, while the richest 5% have claimed nearly half. This means roughly half of all of all our labour and resource extraction has been done to make the rich richer. Meanwhile, the majority of humanity, those who work in the sweatshops, mines and plantations that power the world economy, have received only a small fraction of the gains.

Global inequalities are even more extreme when it comes to wealth, which can be seen by toggling the graph.  According to the World Inequality Database, the richest 1% control 38% of the world’s wealth (Credit Suisse puts it at 46%). The richest 5% control 64% of the wealth.  Meanwhile the poorer half of the world’s population controls only 2%. Wealth is not just about consumption, it is about power. It is about who controls the means of production: the land, the factories, the banks, the corporations. Power in the world economy is far from equitable or democratic; it is concentrated in the hands of a few. 

Prior to the 1500s, there was relatively little difference between most regions in the world, in terms of income. That changed during colonialism, as Western Europe — and the European settler colonies — organized a global system of production that relied on extracting cheap labour and resources on a vast scale from the Americas, Asia and Africa, as well as parts of Eastern Europe, while forcing these regions to serve as captive markets for Western corporations.¹ The result was an inequitable world economy divided between an imperialist "core" in the global North and the exploited regions of the global South.²

By the middle of the 20th century, progressive and radical movements across much of the South had overthrown their colonial occupiers, and began taking steps to build economic sovereignty and organise production around meeting human needs. This caused problems for the core states, however, as it constrained their access to the cheap labour and resources that capital accumulation requires. So they retaliated, wielding their geopolitical and commercial power to constrain economic sovereignty in the South, push the prices of labour and resources back down, and restore the imperialist structure of the world economy (see the entries on structural adjustment and drain from the South).³

As a result, the income gap between North and South has continued to increase over the past several decades. 

"Catch-up development" is not occurring, even when inequality is measured in relative terms. This graph shows the GDP per capita of global South regions as a percent of the core's GDP per capita. For several regions, their position is worse today than it was in the 1960s and 70s. China is the only region that has meaningfully improved its position, but this represents convergence with the middle-income regions of the global South, such as Latin America, rather than convergence with the core. China's GDP per capita is still less than one quarter that of the core's.

According to Giovanni Arrighi's interpretation of this indicator, the average command of the inhabitants of the global North over the resources and labour of the global South is on average 8 times greater (4 to 25, depending on region) than the average command of the South over the resources and labour of the North. This is an expression of "the totality of power relations" that privileges the inhabitants of the North in their direct and indirect dealing with the regions of the South.

The North's economic dominance is enabled in large part by their disproportionate power within the key institutions of global economic governance. The World Bank and the IMF were founded in the 1940s; they were established during colonialism and were shaped by colonial principles. Global South countries were integrated into these institutions on unequal terms, and they remain unequal to this day. The United States has veto power over all major decisions, and together with the rest of the G7 controls more than half of the vote. The global South, which has the vast majority of the world’s population, has only about one-third of the vote. If this was the case in any national parliament, it would be considered apartheid and the world would be outraged. And yet apartheid principles operate right in the centre of the global economic governance system. Something similar is true in the World Trade Organization (WTO), where bargaining power is determined by market size (measured here by GDP). The core states are able to determine the rules of the international economy in their own interests. For more, see our entry on global economic governance. 

GDP is often used as a measure of commercial and geopolitical power, but it is not always adequate for this purpose.  A populous country may have a large GDP, but if most of its productive capacity is expended on meeting basic needs, it may have little surplus available to exert much geopolitical power. Michael Beckley suggests that "net resources" may be a better metric, which he estimates by multiplying GDP by GDP per capita.⁴ Using this approach to measure core-periphery disparities reveals that the periphery has only a fraction of the core's power, which has increased only marginally over the past several decades. In terms of net resources, our world remains extremely unequal. This metric has weaknesses, however, in that it may not adequately account for key leverage points such as control over strategic resources, advanced weaponry, or international alliances.

The Gini index is often used to measure inequality.  According to this metric, a score of 1 represents perfect equality, while a score of 0 represents perfect inequality. Charting the Gini index for the world population since 1960 shows very high inequality across the whole period, with a slight decline in the 21st century, driven mostly by China.  Without China, global inequality is worse today than it was in 1960.

The Gini index is limited, however, in that it is a relative measure. To understand how this works, imagine person A has $100 and person B has $100,000. Now imagine A's income goes up by 10% to $110, and B's income goes up only 5% to $105,000. Because the income of the poor person has increased by a greater percentage than that of the rich person, the Gini index interprets this as a reduction in inequality, even though the absolute gap between the two has increased (person B started off $99,900 richer, and is now $104,990 richer).  This might be reasonable if persons A and B live on completely separate islands and never interact. But if they are part of the same economy, and if the increased production (worth $5,010 in this case) is generated collectively by both of them, then we might find it problematic that person A gets less than 1% of it while person B claims the lion's share.  

Because the world economy is an integrated system, where the consumption of the rich depends on production performed by ordinary people, the absolute Gini index may be a better measure of inequality in the world-system. Measuring inequality this way shows a dramatic increase since 1960, albeit at a gradually slowing rate.