GLOBAL MEGATRENDS 1 GLOBAL MEGATRENDS In the Report

GLOBAL MEGATRENDS 1

GLOBAL MEGATRENDS • In the “Report of the UN Economist Network for the UN 75 th Anniversary”, the 5 megatrends that shape of the world are listed as climate change, demographic shifts, urbanization, digitalization, and inequalities. 2

GLOBAL MEGATRENDS • These megatrends are influencing economic, social, and environmental conditions of the world. • They are all result from human activity, and they can be influenced by human decisions and policies. 3

GLOBAL MEGATRENDS • While technological innovations, urbanization, and demographic trends are manifestations of human progress, climate change and inequalities are the consequences of longstanding policy deficiencies. 4

GLOBAL MEGATRENDS • Demographic trends, urbanization, and technological innovation generate explicit benefits for societies and economies. • However, they have also negative outcomes. • Therefore, they should be managed to maximize positive impacts and minimize any adverse ones. 5

GLOBAL MEGATRENDS • On the other hand, climate change and inequalities are negative in their impacts. • They result from policy failures and are not inevitable. 6

GLOBAL MEGATRENDS • Demographic trends, urbanization, and technological innovation are universal, but they can be influenced by national policies. • Climate change is a global public bad and it can only be solved by all countries acting in concert. 7

GLOBAL MEGATRENDS • Inequalities are something of a hybrid because they exist both within and across countries. • Inequalities within a country may be reduced by national policies but solving them among countries requires a cooperative global effort. 8

GLOBAL MEGATRENDS • In 2000, the UN initiated an effort to reduce inequality and solve other global problems, by establishing the Millennium Development Goals (MDGs). • The content of the MDGs was expanded and the Sustainable Development Goals (SDGs) were adopted in 2015 for 2030. • We will discuss global megatrends in this chapter and summarize the MDGs and SDGs in Chapter 8. 9

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION 10

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Nature in all its forms is being significantly altered by human activity everywhere on the planet. 11

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Disruptions in ecosystems, losses of the biodiversity and wildlife, fundamental changes in land use, and the declining quality of air, water and soil have consequences for economic development and livelihoods. 12

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Awareness of the damage being done to the natural environment has been heightened by the increasingly visible phenomenon of climate change, caused by the human-induced warming of the atmosphere. 13

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • The impacts of climate change are global in scope and unprecedented in scale. • Increasing greenhouse emissions are leading to global temperature rise. 14

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Industrialization, deforestation, and certain farming methods have driven up quantities of greenhouse gases in the atmosphere. • The increase in the global temperature creates environmental problems making all livings vulnerable to disasters and tragedies. 15

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Most aspects of climate change will persist for many centuries, even if emissions are stopped. • There is alarming evidence that important tipping points, leading to irreversible changes in major ecosystems and the planetary climate system, may already have been reached or passed. 16

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Global warming isn’t the only alarming environmental problem. • All over the world, people are facing new and challenging environmental problems every day. • Some of them are small and only affect a few ecosystems, but others are drastically changing the landscape of what we already know. 17

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • The rising risk of transmitting zoonotic viruses such as COVID-19 is largely due to human-induced environmental change such as forest cover conversion, and increased interactions between human settlements and nature. 18

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Mitigating climate change is especially difficult because much of the costs of greenhouse emissions are borne by other countries and by future generations. 19

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • It is in each country’s interest to bear less of the costs of climate change mitigation, and this makes international coordination on policies difficult. • The intergenerational dimension is perhaps even more problematic. 20

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • The worst consequences of climate change are expected to emerge in the distant future, leaving little incentive for today’s generation to act now to prevent these distant effects. • Indeed, many countries have failed to meet their stated commitments to reduce carbon emissions. 21

CLIMATE CHANGE AND ENVIRONMENTAL DEGRADATION • Fortunately, reductions in greenhouse emissions disproportionately reduce the risk of extreme temperature increases. • Thus, approaches lowering greenhouse emissions may be the most effective way to reduce the extreme risks from climate change. 22

DEMOGRAPHIC SHIFT; THE POPULATION AGEING 23

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • The global population growth rate peaked in the 1960 s and has been slowing since then. • Therefore, attention has shifted from population growth to population ageing. • Population ageing rooted primarily in declining fertility and increasing life expectancy. 24

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • The growing number and proportion of older persons raise questions about who will care for them. • The need for adequate long-term care system is rising with progressive population ageing. 25

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • Technological development has been the main factor lowering of mortality and fertility rates, lengthening life spans and slowing population growth. 26

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • Another factor slowing global population growth is urbanization. • Urbanization influences the pace of demographic transition both through mortality and fertility. 27

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • Important factors leading lower mortality and fertility in urban areas than rural areas are higher incomes, easier access to family planning services, diverse source of information, higher educational levels, greater childbearing, costs greater accessibility to health-care services and efficiencies in health-care delivery. 28

DEMOGRAPHIC SHIFT; THE POPULATION AGEING • Population ageing will increase fiscal pressure on transfer payments and result in rising budget expenses and taxes. 29

URBANIZATION 30

URBANIZATION • From the development of the earliest cities in Indus valley civilization, Mesopotamia and Egypt until the 18 th century, an equilibrium existed between the vast majority of the rural population and small centers of populations in the towns. 31

URBANIZATION • While the rural population were engaged in subsistence agriculture, economic activity consisted primarily of trade at markets and manufactures on a small scale in cities. 32

URBANIZATION • Urbanization of the human population accelerated rapidly beginning in the middle of the eighteenth century, with the onset of the British agricultural and industrial revolution. 33

URBANIZATION • Nonetheless, less than 3% of the world’s population was living in cities of 20, 000 or more, in 1800. • Urbanization ratio had increased to about one-quarter of the population by the mid-1960 s. • Today, more than half of the world’s population live in cities. 34

URBANIZATION • The expected rate of urbanization for 2050 is 70%. • The drivers of urbanization are natural population growth and rural-urban and international migration. • Greater economic opportunities in urban areas are a principal factor behind rural-urban migration flows. 35

URBANIZATION • The urbanization megatrend is intrinsically linked to other megatrends. • Cities are massive consumers of water, land, food, and energy. • They generate most of total greenhouse gas emissions, and account for over three quarters of the total consumption of resources. 36

URBANIZATION • Cities reflect national inequalities in concentrated form, and it is there that poverty and exclusion are both most visible and particularly hard to eliminate. 37

URBANIZATION • Cities also offer opportunities for inclusion through participatory planning and targeted investment, including in sustainable services and infrastructure. • Technological innovation plays an important role in the sustainable urbanization. • Smart cities use frontier technology to become more socially inclusive, prosperous, and environmentally sustainable. 38

URBANIZATION • Smart grids and renewable energy networks, modern waste disposal techniques, and reuse, recycling and repurposing practices facilitate the transition to a circular economy. 39

URBANIZATION • The use of big data in congestion management, the organization of distribution systems, and the planning of public transportation are all examples of how technology and sustainable urbanization are intertwined. 40

URBANIZATION • Building green cities, with resilient infrastructure, housing, and basic services, will be the foundation of successful climate action. • Carefully managing the expansion of urban settlements will underpin effective conservation of the environment. 41

DIGITALIZATION 42

DIGITALIZATION • Today it is talked of a Fourth Industrial Revolution. • The first was that of the steam engine, the second that of electrification and mass production, the third that of computer, and the fourth is the digital revolution. 43

DIGITALIZATION • Digitalization may be defined as the increase in the share of “economic output derived solely or primarily from digital technologies”; or as the increase in the “share of total economic output derived from a number of broad digital inputs”. 44

DIGITALIZATION • Digital inputs include digital skills, digital equipment (hardware, software, and communications equipment) and the intermediate digital goods and services used in production. 45

DIGITALIZATION • Digital technologies include the representation of information in bits, and the storage and processing of information. • Different technologies and economic aspects of the digital economy can be broken down into three broad components: 46

DIGITALIZATION i. Core aspects (foundational) aspects of the digital economy: They comprise fundamental innovations (semiconductors, processors), core technologies (computers, telecommunication devices) and enabling infrastructures (Internet and telecoms networks). 47

DIGITALIZATION ii. Digital and information technology (IT) sectors: They produce key products or services that rely on core digital technologies, including digital platforms, mobile applications, and payment services. Innovative services in these sectors promote the digital economy, enable potential spillover effects to other sectors and make a growing contribution to economies. 48

DIGITALIZATION iii. A wider set of digitalizing sectors: They include those where digital products and services are being increasingly used. In digitalized sectors, new activities or business models have emerged and are being transformed by digital technologies. Examples include finance, media, tourism, and transportation. Moreover, digitally literate workers, consumers, buyers, and users are crucial for the growth of the digitalized economy. 49

DIGITALIZATION • The evolution of the digital economy is closely associated with progress in several frontier technologies, including some key software-oriented technologies, such as blockchain, big data analytics and artificial intelligence (AI). 50

DIGITALIZATION • Other emerging technologies range from user-facing devices (such as computers and smartphones) to and three-dimensional (3 D) printers and wearables, as well as specialized machine-oriented hardware, such as the Internet of things (Io. T), automation, robotics, and cloud computing. (For more details, see Appendix 7. ) 51

DIGITALIZATION • Digital technologies strongly rely on digital data, which is one of the core elements of value creation in the digital economy. 52

DIGITALIZATION • Data analytics, or “big data” is the combination and total of the data (personal, commercial, geographical, behavioral) available on digital networks and exploitable as raw material. • The capacity to analyze and process massive amounts of data is increasing rapidly. 53

DIGITALIZATION • Interoperable systems and digital platforms are also essential elements of the digital economy. • These platforms produce, accumulate, and manage a huge volume of data on their clients and use algorithms to convert this data into exploitable information. • The growth of such data is exponential: it roughly doubles every two years. 54

DIGITALIZATION • Big data become intelligent and can be turned into learning machines. • This is described as a ‘second machine age’ characterized by the explosion of digital data and the robotics market. 55

DIGITALIZATION • It is argued that digitalization of almost everything is one of the most important recent phenomena. • As we enter the second machine age, digitalization continues to expand accelerate, translating into some stupefying statistics. 56

DIGITALIZATION • The digitalization megatrend is based on the combination of the growing applicability of digitization and transformative technological progress. • Digital technologies are everywhere, and they affect every aspect of human activity. 57

DIGITALIZATION • The widespread use of these technologies is transforming the work and production, as well as consumption patterns. • They are leading social and economic shifts that are long term and irreversible, with far-reaching positive and negative consequences for humanity. 58

DIGITALIZATION • This rapid technological change requires constant response and adaptation to avoid becoming hindered by legacy infrastructure and institutions. 59

Opportunities of the Digitalization 60

Opportunities of the Digitalization • A surge in the capacity of data storage, processing, and transmission enabled rapid advances in digital technologies and reduced costs considerably. 61

Opportunities of the Digitalization • The learning machines, fed by big data, are now beginning to perform tasks that were formerly unimaginable: diagnosing sicknesses, driving vehicles, drafting press articles, forecasting epidemics, restoring sight to the partially blind, and much more. 62

Opportunities of the Digitalization • Intelligent data shake up and overturn retailing procedures, forms of corporate and industrial organization, understanding of the stakes not only within companies but also in all forms of organization in health, agriculture, the environment, energy, transport, town planning, and so on. 63

Opportunities of the Digitalization • The digital revolution promises intelligent factories, intelligent work organization, intelligent management, as well as intelligent cities, intelligent shops, intelligent energy production systems, intelligent transport infrastructures, etc. 64

Opportunities of the Digitalization • Innovations are particularly important in driving greater resource efficiency and decarbonization, and improving agricultural productivity, the quality of water and sanitation, health, and educational outcomes. 65

Opportunities of the Digitalization • Digital technologies, particularly, hold great potential for environmental benefits in many sectors. 66

Opportunities of the Digitalization • They intersect with climate change particularly through the need to develop new forms of renewable energy generation and storage, and more efficiently manage energy demand use. 67

Opportunities of the Digitalization • More and better data couples with recent innovations are opening new possibilities to reduce carbon emissions in key industries. 68

Opportunities of the Digitalization • Technology can be a major determinant of reducing inequalities and achieving sustainable urbanization. • It is fundamental to the transition to sustainable patterns of consumption and production. 69

Opportunities of the Digitalization • Digital technologies can help tackle challenges posed by major demographic trends. • Population growth, urbanization and ageing propel the development of technologies to enhance physical and cognitive capacities and allow older people to work longer. 70

Opportunities of the Digitalization • At the same time, more and better automation of agriculture, manufacturing and services can mean that a shrinking workforce will still produce enough to support a larger ageing population. 71

Risks of the Digitalization 72

Risks of the Digitalization • The ubiquity of digital technologies and their growing fusion with the physical world create inevitable risks. • Digital technology is rapidly changing the nature and functioning of labor markets, economic productivity, and the sustainability and inclusiveness of growth. 73

Risks of the Digitalization • They pose challenges in terms of waste, natural resource use and energy consumption. 74

Risks of the Digitalization • Digital revolution will entail a major impact on the labor market. • This impact will be differentiated according to sector and will take many forms. 75

Risks of the Digitalization • On the one hand, digital revolution would create new jobs in new sectors producing new products and new services and change jobs by digitalization, human/intelligent machine interface and new forms of management. 76

Risks of the Digitalization • On the other hand, it would destruct jobs by automation and robotization and shift jobs to digital platforms, crowd sourcing, and ‘sharing’ economy. 77

Risks of the Digitalization • To what extent will this new digital economy create, destroy, displace jobs? • Which sectors will be the most deeply affected? • What new skills and qualifications will be required? • How will the transition take place? • How will the manual worker, the office worker, the service provider be affected? • Will their only role be to execute tasks decided by algorithms? • Or will smart machines make dumber humans? 78

Risks of the Digitalization • There is no single answer to these questions. • Similarly, the global effects on the quality of employment, working conditions, forms of work, are difficult to evaluate with any precision. 79

Risks of the Digitalization • However, there seems to be an emerging consensus on the increased polarization of the society of tomorrow, a shrinking middle class and a strong increase in low-income workers and households versus the rise of a tiny minority with exploding wealth levels. 80

Risks of the Digitalization • The digital revolution seems to reveal tremendous inequalities also between the masses of increasingly isolated low-income workers and the top of-the-market workers with much higher wages living a life of luxury. 81

Risks of the Digitalization • A completely new work organization is emerging. • In this organization, there are millions of digital galley slaves on the one hand decision-making machines on the other, all remotely controlled and placed in competition on the world level. 82

Risks of the Digitalization • Digital platforms and their crowd-workers represent a severe disruption to the organization of national labor markets that have been in place in some cases for many decades with their regulations, their social dialogue, their social rights. • In industry, there is a new race between the machine and the worker. 83

Risks of the Digitalization • Every action of the worker is controlled, recorded, and evaluated by the machine and management in real time. • Workers lose their capacity to organize their work and bear the risk of becoming the tool of the robot and its algorithms. 84

Risks of the Digitalization • Frontier technologies are being used to provide services via digital platforms that have spurred the creation of a ‘gig economy’. • Some of this work is locally based, but there is also “cloud work” that can be performed anywhere via the Internet. 85

Risks of the Digitalization • While the gig economy provides employment, this is typically on insecure terms, creating a precarious class of dependent contractors and on-demand workers. 86

Risks of the Digitalization • Digital dividends coexist with digital divides and inequalities, both among and within countries. • While policies should help lay the foundation for an inclusive digital economy and society, as technological change has accelerated, mechanisms for cooperation and governance have often failed to keep pace. 87

Risks of the Digitalization • Divergent approaches and ad hoc responses threaten to fragment the interconnectedness that defines the digital age, leading to competing standards and approaches, lessening trust, and discouraging cooperation. • This complicates efforts to ensure that the benefits of the digital revolution outweigh it downsides. 88

Risks of the Digitalization • The rise of data as key productive inputs has created some tendencies for market power to concentrate, with significant distributional consequences. • The digital technology megatrend interacts with existing global patterns of inequality. 89

Risks of the Digitalization • New digital platforms benefit from network effects, so that markets tend to concentrate, leaving a small number of large players. • This reduces the incentive to cut prices, producing higher profits which can widen inequality between wage earners and the owners of capital. 90

Risks of the Digitalization • And for some IT skills these companies may be virtually the only employers, a “monopsony”. • With few companies there is also the temptation for tacit collusion resulting from data exchange through algorithms. 91

Risks of the Digitalization • Without compensating measures, innovators can take undue advantage of the digital divide compared to other groups. 92

Risks of the Digitalization • Countries with significant innovative activities will always preserve a lead over those that mainly adopt new technologies (follower countries), while the remaining part of countries continue to struggle to provide electricity, connectivity, water, sanitation, and basic health technologies. 93

Risks of the Digitalization • Within countries, the digital divide determines which population groups will benefit from technological advances. 94

Risks of the Digitalization • The digitalization of the economy also creates challenges in term of national and international taxation, as it transforms business models and transactions. 95

Risks of the Digitalization • Digitalization allows companies to do business globally without having a physical presence in each country. • This creates an opening for large firms to shift their functions to a jurisdiction where there is very low or no tax, regardless where their products are consumed. 96

Risks of the Digitalization • Another challenge of the rapid expansion in the use of digital devices and their shorter product life cycles is the dramatic increase in demand for energy and natural resources used in the manufacture, while creating a significant problem of e-waste. 97

Risks of the Digitalization • Additionally, advances in digital technologies create a wide array of ethical issues related to fairness, privacy and changes in social norms and values. 98

INEQUALITIES 99

INEQUALITIES • Inequality is a multifaceted concept related to differences in opportunities and outcomes between individuals, groups, or countries. 100

INEQUALITIES • Inequality of opportunities and outcomes are closely intertwined. • The outcomes for one generation affect the opportunities for the next, resulting in intergenerational transmission of inequalities. 101

INEQUALITIES • During recent decades of digitization, the world has seen growing prosperity. • People on average are living longer and healthier lives, getting more education and better access to clean water, sanitation, and electricity. • Incomes too have been rising. 102

INEQUALITIES • However, these advances have not eliminated inequality and there is persistent poverty. 103

Drivers of Inequality 104

Drivers of Inequality • Drivers of inequalities are multidimensional. • There is no consensus on the dynamics of economic inequality. • Although many factors that drive growing inequalities are specific to countries or regions, there also powerful global economic, social, and environmental forces at play. 105

Drivers of Inequality • While the within country inequalities are mainly class-based, group based and gender-based; global integration, technological change, climate change, war and epidemics influence both within and intercountry inequalities. 106

Drivers of Inequality • Class-based inequality is seen clearly in the relative shares of workers and capitalists. • While laborers are generally included in the lower part of distribution pyramid, capitalist take place at the top. 107

Drivers of Inequality • The labor share of GDP is an indication of whether higher national income will lead to increased material living standards for workers. 108

Drivers of Inequality • Group-based inequalities arise from the differences accessing to opportunities depending on person’s attributes such as gender, age, race, ethnicity, origin, and levels of disability. • The legacy of past inequalities has a direct effect on the opportunities and outcomes of these groups, even where discriminatory behaviors have been eradicated. 109

Drivers of Inequality • This is because groups who suffered from discrimination in the past start off with fewer assets, and less social and political power than those with historically privileged position. • Income and wealth allow people to acquire better personal qualifications for good and high-paid jobs. 110

Drivers of Inequality • Therefore, inequality is a self-augmenting and persistent phenomenon. • It is estimated that in OECD countries, it would take between four and five generations (or up to 150 years), for a child born into a low-income family to reach to average level of income. 111

Drivers of Inequality • That is, the current income and wealth level heavily influences income and employment prospects, job quality, health outcomes, education, and other opportunities. 112

Drivers of Inequality • Women are more likely to be victims of discrimination than men. • There is a discrimination against women, almost all over the world, at all levels of income pyramid. • Women consistently earn less than men and are usually in the lowest paid and least secure forms of work. 113

Drivers of Inequality • Global integration has created opportunities for countries to grow and develop, and thus has contributed to the decline in inequality among countries. • But it has increased within-country inequalities. 114

Drivers of Inequality • Global competition has encouraged producers to cut costs, including labor costs, while boosting returns to capital. • It has eroded the collective representation and bargaining power of low-income workers. 115

Drivers of Inequality • Globalization has also galvanized the expansion of the financial sector, which has been associated with growing income and wealth inequality. 116

Drivers of Inequality • Each technological revolution had its winners and losers both within and across countries. • However, each wave of technological change creates different forms of inequality, and distinct problems. 117

Drivers of Inequality • Technological change affects inequalities through its impact on jobs, wages, and profits. • These inequalities could arise between occupations, firms, and sectors as well as between wage earners and owners of capital. 118

Drivers of Inequality • Technological change is pushing wage inequality upward. • And the potential to reduce disparities in health, education, and other areas is thwarted by persistent technological divides sending benefits mainly those at the top. 119

Drivers of Inequality • Climate change has slowed the reduction of inequality among countries and presents a major obstacle to eradicating poverty. • Within countries, people living in poverty and other disadvantaged groups are disproportionately exposed to climate risks. 120

Drivers of Inequality • Another level in which inequality emerges is in the differences in the economic structures of countries. 121

Drivers of Inequality • The contribution of each of these and other elements to inequality depends on many factors, such as the country’s level of development, its economic structure and its social and economic and labor policies, as well as the size of a specific sector or its firms. 122

Drivers of Inequality • Two important manifestations of inequality are wealth inequality and income inequality. • There is a close interaction between wealth and income inequality; an increase in each enhances the other. 123

Drivers of Inequality • High-income earners can save more and accumulate more wealth than poor people. • Wealth ownership, in turn, increases the income-earning capacities of persons. • Wealthy people earn interest, profits, and rent. 124

Global Wealth Inequality 125

Individual Wealth Inequality 126

Individual Wealth Inequality • Global wealth inequality refers to inequality of wealth among all world citizens from all countries. • Wealth varies greatly across individuals in every part of the world. 127

Individual Wealth Inequality • Credit Suisse estimates for 2017 suggest that the richest 1% of global adults own one half and the richest 10% of adults own 88% of the global wealth, while the share of the lower half of global adults is less than 1%, the share of the lower 70% or 3. 5 billion adults is only 2. 7% and the share of the lower 91. 4% is only 14. 3%. 128

Individual Wealth Inequality • That is, the richest 1% of the global population own more than the poorest 90%. (see, Table 7. 1). 129

Table 7. 1: Individual Distribution of Global Wealth, 2017 Wealth range USD Number of adults, million Percent of Total wealth, Percent of adults Trillion USD wealth More than 1 million 36 0. 7 128. 7 45. 9 100, 000 to 1 million 391 7. 9 111. 4 39. 7 10, 000 to 100, 000 1, 064 21. 3 32. 5 11. 6 Less than 10, 000 3. 474 70. 1 7. 6 2. 7 130

Individual Wealth Inequality • Inequality in the individual distribution of wealth has a rising trend. • Oxfam argues that since the beginning of the 21 st century, wealth concentration at the top has steadily increased. 131

Individual Wealth Inequality • Total number of billionaires nearly doubled in the ten years after the financial crisis of 2008. • The trend in the share of the top 1% partly reflects the trend in the share of financial assets in the household portfolio. 132

Individual Wealth Inequality • According to Oxfam, 82% of the wealth generated in 2017 went to the richest 1% of the global population, while the 3. 7 billion people who make up the poorest half of the world saw no increase in their wealth. 133

Regional Wealth Inequality 134

Regional Wealth Inequality • Credit Suisse estimates of the regional distribution of global wealth in 2017 are given in Table 7. 2. • There is a wide gap between the rich and poor regions. • Average wealth per adult in North America is 90 times of the African and 6. 6 times of the world average. 135

Regional Wealth Inequality • Wealth per adult is much lower than world average in Africa, India, Latin America, and China. • There is a significant gap also among rich regions and among poor regions. 136

Regional Wealth Inequality • North American average is 2. 8 times of the European. • Indian, Latin American, and Chinese wealth per adult are 1. 4, 4. 6 and 6. 5 times of the African average, respectively. 137

Table 7. 2 Regional Distribution of Global Wealth, 2017 Total wealth Africa Asia-Pacific China Europe India Latin America North America World USD billion 2, 499 55, 052 29, 000 79, 639 4, 987 8, 107 101, 005 280, 289 Wealth per adult USD Relative wealth per adult (Africa=1. 0) 4, 166 47, 479 26, 872 135, 163 5, 976 19, 049 374, 869 56, 541 1. 0 11. 4 6. 5 32. 4 1. 4 4. 6 90. 0 13. 6 138

Global Income Inequality 139

Global Income Inequality • The term global income inequality refers to inequality among all world citizens. • The global Gini coefficient estimated by B. Milanovich is around 0. 7 and indicates a very high inequality. • Global inequality has two components: inequality across countries and inequality within countries. 140

Global Income Inequality • For the first time since the onset of the industrial revolution, global inequality has decreased during the last two decades. • This was a result of the decline in the regional income inequality, despite the increasing trend of withincountry inequality. 141

Global Income Inequality • Estimates suggest that the contribution of between-country inequality is enormous; between 1820 and 2002 it has risen from 28 to 85%. • In other words, in 1820, global income inequality was driven by class divides within countries, while now it is driven by the lottery of country birthplace. 142

Regional Income Inequality 143

Regional Income Inequality • We have seen in Chapter 1 that global income is distributed unevenly among different country groups. • The average PCI in High-Income countries is 57 seven times of that in Low-Income countries, in 2019. 144

Regional Income Inequality • Yet, estimations of Milanovich suggest that income inequality across regions declined recently because some large developing countries, notably China, India, Indonesia, and Viet Nam, have grown faster and have been catching up with the developed countries. 145

Regional Income Inequality • As they experienced industrialization and structural transformation their advances also had benefits for other developing countries in Africa and Latin America by increasing the demand for primary resources. 146

Regional Income Inequality • As a result, the middle of the global income distribution has become more populated, while more people in relatively poorer countries have become less poor. 147

Regional Income Inequality • However, in Africa, this trend to lower inequality is being countered by demographic change. • Previously, most African countries were among the poorest, but they had smaller populations so made a lower contribution to global inequality. 148

Regional Income Inequality • But populations in African countries are now growing faster than those in other regions. • The number of people in extreme poverty in sub-Saharan Africa has increased in recent years and is now higher than the number of poor in all other regions combined. 149

Regional Income Inequality • We have seen in Chapter 2 that, despite a considerable convergence in some regions, the gap between the rich and poor regions of the world has widened since 1970; while the African average PCI relative to the Northern America was 6. 5% in 1970, it fell to 3. 1% in 2019. 150

Regional Income Inequality • It should be noted however that, inequality between countries in absolute terms has continued to increase. • For example, while the gap between the average PCI in developed and developing economies was $17, 428 in 1970 ($18, 670 -$1, 242), by 2018, it reached $40, 749. 151

Regional Income Inequality • Although the rate of increase in PCI in developing countries was higher than in developed countries, the widening absolute gap means that in the global economy there is now much more inequality in the access to goods and services. 152

Regional Income Inequality • In summary, between-country inequality is the most significant contributor to global inequality, and in absolute terms, the gap between developed and developing countries has increased. 153

Within Country Income Inequality 154

Within Country Income Inequality • Although national averages indicate a big divergence among countries and country groups, the degree of equality they reflect is much less than actual income differences, because income is distributed very unequally in each country. 155

Within Country Income Inequality • Distribution of income within countries is much more unequal than national or regional averages imply. • Inequality trends are heterogenous. • While inequalities have increased in some countries it declined in some others. 156

Within Country Income Inequality • The oldest historical records of inequality trends are based on tax records that go back to the beginning of the 20 th century. • The highest level of inequalities for almost all rich countries for which there are data were recorded just prior to the First World War (WW 1). 157

Within Country Income Inequality • Wars have tended to reduce inequality, by pushing down the top of the income and wealth distribution. • Wars destroy the assets of the rich and reduce their incomes by higher taxation. 158

Within Country Income Inequality • At the same time wars reduce the civil labor supply and tend to push up wages. • Inequality declined during and after WW 1 and WW 2 in rich nations. • It then rose rapidly in a group of them, such as the UK and the USA, from the 1980 s onwards. 159

Within Country Income Inequality • Other rich nations, like most of mainland Europe and Japan, did not see such large increases. • Inequality rose sharply in China following free market reforms from 1980 onwards. • In India inequality fell after independence (1947), but it has recently risen back to levels last seen in colonial times. 160

Within Country Income Inequality • There has been a trend towards growing inequality in most countries, but there have still been notable exceptions. • For example, Latin American saw a decrease in the 2000 s. 161

Within Country Income Inequality • Two commonly used measures of inequality are Gini coefficient and Palma ratio. • Gini coefficient is between zero and one. • A zero value means that distribution income is completely equal and a value of one means that one person has all income and everyone else has nothing. 162

Within Country Income Inequality • Gini coefficients for selected countries given in Table 7. 3 indicate that income inequality vary vastly. • In more egalitarian societies such as those in Scandinavia, the Gini is 0. 2 to 0. 3. 163

Within Country Income Inequality • More unequal countries such as the United States have Ginis around 0. 4. • In some Latin American and Asian countries, the level is around 0. 5. • But the highest levels are in Africa. 164

Table 7. 3: Gini Coefficients in Selected Countries (World Bank Estimate) Ukraine, 2018 Czech Republic, 2017 Finland, 2017 Norway, 2017 Iraq, 2012 Hungary, 2017 Republic of Korea, 2012 Germany, 2016 Egypt, 2017 Japan, 2013 France, 2017 Tunisia, 2015 United Kingdom, 2016 Pakistan, 2015 Vietnam, 2018 Italy, 2017 26. 1 24. 9 27. 4 27. 0 29. 5 30. 6 31, 9 31. 5 32. 9 31. 6 32. 8 34. 8 33. 5 35. 7 35. 9 Greece, 2017 Russian Fed. , 2018 Bulgaria, 2017 Indonesia, 2018 China, 2016 Iran, 2017 Malaysia, 2015 Argentina, 2018 USA, 2016 Turkey, 2018 Zimbabwe, 2011 Chile, 2017 Mexico, 2018 Brazil, 2018 Zambia, 2015 South Africa, 2014 165 34. 4 37. 5 40. 4 37. 8 38. 5 40. 8 41. 0 41. 4 41. 1 41. 9 44. 3 44. 4 45. 4 53. 9 57. 1 63. 0

Within Country Income Inequality • From 1990 to 2016, Gini coefficient increased in 45 countries (accounting for 58% of the world population) and declined in 68 (accounting for 26% of the world population). • Oxfam estimation shows that, between 1980 and 2016, the richest 1% received 27 cents of each dollar of global income growth. 166

Within Country Income Inequality • This was more than twice the share of the bottom 50%. • That is, there is a deterioration in income inequality for most of the world population since 1980. 167

Within Country Income Inequality • Gini coefficient is criticized to be oversensitive to changes in the middle and is insensitive to changes at the top and bottom. • Chilean economist Palma found that middle income group (50% of total) tend to capture around half of national income. 168

Within Country Income Inequality • The other half of national income is shared between the richest 10% and the poorest 40%, but the shares of these two groups varies considerably across countries. • Palma ratio expresses a nation’s inequality as the relationship between its top 10% and bottom 40%. 169

Within Country Income Inequality • It reflects income inequality’s economic impacts on the whole society more accurately. 170

Within Country Income Inequality • Palma categorizes countries as low inequality (P≤ 1), medium inequality (1<P<1. 5), high inequality (1. 5<P<2), very high inequality (2<P<3), extreme inequality (3<P<4) and obscene inequality (P>4). 171

Within Country Income Inequality • Income inequality is relatively low in Northern and Eastern Europe and is very high in Latin America and Africa. • In Latin America, the top 10% has an income level similar in absolute terms to their counterparts in rich nations. • The bottom 40%, on the other hand, have an income more akin to the average income in sub-Saharan Africa. 172

Within Country Income Inequality • The situation is similar with other middleincome countries. • In other words, in middle-income countries, only those in the middle have middle-income earnings, as the top 10% have caught up with their rich counterparts, while those in the bottom 40% have very little chance to get to middle-income levels. 173

Within Country Income Inequality • Therefore, convergence that the average PCI figures imply for many countries seems far more complex than implied. 174

Within Country Income Inequality • In sum, for Palma, the broad spectrum of income inequality across the world emerges basically from what happens within only one half of the population; the half mainly made up of the capitalist elite at one end, and workers at the other. 175

Within Country Income Inequality • Estimations suggest that, workers around the world have gained little from the proceeds of economic growth; in 91 of 133 countries, wages did not grow as fast as productivity, between 1995 and 2014. • And the share of labor income has shown a downward trend; it fell from 54% of the global GDP in 2004 to 51% in 2017. 176