How income inequality is increasing within countries

During the second-half of the last century countries were placed in one of two mutually exclusive camps: north or south, east or west, advanced or emerging, developed or developing. Simple though this categorization of countries had been, it reflected prevailing realities. In 1970, for instance, the global distribution of per capita income showed a clear divide between richer and poorer countries (See Figures 1 and 2). These between-country differences were equally applicable to other development conditions, notably health and education.

However, as Hans Rosling emphasized during his last presentation at the World Bank, for the 21^st century this binary distinction between countries is outdated. Boundaries between developed and developing regions are less clear today because of the extraordinary social and economic progress achieved in the large majority countries. Global economic activity is less geographically concentrated and increasingly dispersed across production networks that connect metropolitan areas around the world.

Yet, although discrepancies between countries have narrowed, emerging evidence suggests that inequality within countries is rising. Atkinson, Piketty and Saez (2011), for instance, show a marked concentration of wealth on the top tail of the income distribution, particularly in the United States, other English speaking countries, India, and China, while Lakner and Milanovic (2013) report a long-term and continuously increase in the within-country component of global inequality. And if the benefits of economic growth are unevenly distributed within countries, upcoming technological changes and urbanization are likely to intensify these divisions further.

As a result, the emerging face of income inequality for the 21^st century is one of coexisting discrepancies at the local level. For India, Jean Dreze and Amartya Sen’s (2011) essay describes the drastically uneven development progress achieved across its states, whileGangopadhyay et. al. (2010) document India´s pockets of poverty at the narrower district level.

Inequality at the local level is not limited to income. It extends to other aspects of human wellbeing and exists in all countries. Homeless people living by the side of modern highways are common sights in metropolises from Tokyo to Mumbai to Sao Paolo. Life expectancy in the poorest neighborhoods of Baltimore is below 69 years, the same as in in Iraq. Similar examples of coexisting unequal development outcomes are evident in Nogales, Arizona and Nogales, Sonora, spotlighted in Acemoglu and Robinson (2013) as an example of drastically unequal economic development.

The new face of inequality requires active and comprehensive combination of social and growth enhancing policies that target the bottom quintiles of the income distribution more than ever. Governments must not sit back and rely on economic growth alone to transform the living conditions of the underprivileged. In Dreze and Sen’s words, policymakers must look for comprehensiveness in social policy, in particular. Successful conditional cash transfer programs, for example, must be accompanied by other well-targeted social programs and universalistic policies that ensure local provision of good-quality essential services and other public goods (roads, electricity, drinking wager, public transport). Building an infrastructure for collecting data is another important part of understanding and addressing local inequality. Efforts to promote open use of data that is extensive, detailed, and periodically updated are an important part of this job.

This post first appeared on The World Bank Let’s Talk Development Blog.

Publication does not imply endorsement of views by the World Economic Forum.

To keep up with the Agenda subscribe to our weekly newsletter.

Author: Jos Verbeek is adviser in the office of the World Bank Group President’s Special Envoy on Post 2015 development issues. Israel Osorio Rodarte is currently a consultant at the World Bank’s Development Prospects Group.

Image: Five-year-old Nasreen rests with her family’s belongings as she plays under a flyover in Mumbai, India. REUTERS/Danish Siddiqui