The rise in inequality, especially in the Anglo-Saxon world, has become an obsession of policy makers. In fact, it is less steep and probably less permanent than they imagine, and is overshadowed by a remarkable reduction in world inequality. By Paul Ormerod.by Paul Ormerod / August 20, 2000 / Leave a comment
Increasing inequality-both global and domestic-has become a central concern of social scientists and politicians in the past 20 years, especially in the Anglo-Saxon world.
It is not difficult to see why. From the end of the second world war until the early 1980s, Britain and America enjoyed a long period of rapidly rising prosperity. This prosperity had been shared by all. The distribution of income was stable, with no marked trend either up or down. Then in the early 1980s there was a sharp change. Unemployment soared, reducing the incomes of the poor. As financial markets opened up and Wall Street and the City boomed, earnings differentials widened.
An influential cottage industry has developed, arguing that these trends are permanent features of western society. The articles write themselves, selecting from a list of phrases: “globalisation,” “social exclusion,” “the 40-30-30 society,” “life-long learning,” and so on.
The theme of this report is that the conventional wisdom is unduly pessimistic. It exaggerates the extent of the increase in inequality and downplays the countervailing factors-such as the fall in unemployment (on domestic inequality) and, even more important, the rise of east Asia (on global inequality). From a more theoretical perspective, these jeremiads offer a static, fixed view of society which does not correspond to reality.
Summarising the degree of equality in a society is tricky. A range of factors might be considered. A familiar one is the snapshot of the degree of inequality in income distribution at a given time. But we could also think about the degree of social mobility. The evidence suggests that a certain amount of mobility does exist. The probability of an individual making a large move in the income distribution is small, but the concept of an immutable stock of “the poor” is at odds with reality.
Most of the debate, however, is focused on measurements of income inequality at a given point in time. The most widely-used measure is the so-called Gini coefficient. The value of the Gini can only lie between zero and 100 (or 0 and 1). In a completely equal society, the Gini coefficient is zero-no inequality-and in a society in which one person has all the income it is 100. So the higher the value, the more unequal the society. The details of its calculation need not concern us here, but what it does is to divide a society up…