Global social disparities

THE PLANETARY SOCIAL DISPARITIES

THEORY AND PRACTICE OF THE GINI INDEX

By Didier BERTIN

20 JULY 2012

The income disparities may be reduced by the state levies if they are equitably redistributed in the form of allowances, income and services. The impact of the levies on the income distribution depends on both their nature (e.g. direct, or indirect taxes and their base of calculation) and on their applications. Only a government with a strong social policy can ensure an equitable redistribution of income.

The levy rate  has thus a limited interest in the assessment of social justice, without  taking into account also the Gini index hereunder defined.

1-DEFINITION

The Gini index measures the inequality in income distribution by country and was created is by the Italian statistician Corrado Gini. This index varies from 0 to 1 or to 100%, where 0 means that everyone receives an equal income and  1 or 100%, means that one single person receives all the incomes of a country and that the others receive nothing.

2-CALCULATION

This index is usually calculated using the Lorentz function, which associates to each part of the population ordered by increasing income, the share of its incomes. In practice and because of data availability,  the income per share of the  population is taken into account and the Gini index is calculated with  the  formula of Brown:

Where X is the cumulative share of the population, and Y is the cumulative share of income.

This index gives an indication about the social justice and thus of the democracy effectiveness in a country and is used by many international institutions.

3-THE GINI INDEX APPLIED TO THE PLANET

A-Determination of significant geographical areas

Areas below, were determined on a geopolitical basis and without necessary relation to the geographical logic.

• Middle East: These countries belong generally to Asia but have been considered separately on the basis of political, cultural and even conflictual  cohesion. Although Saudi Arabia, the UAE and Kuwait do not provide of course data to determine their Gini index, we have estimated them since they are very useful  to have a better understanding of the whole landscape of this area given the importance of oil revenues. Egypt is included in this area.
• Europe: Europe includes for clarity, the countries which are entirely on the European continent thus excluding Russia and Turkey.
• Asia: Asia excludes the Middle East, Russia and China in order to give more meaning to this continent too large and too heterogeneous. China is viewed separately.
• Russia, China and the United States: These countries alone account for specific geo-political areas. Their integration with other areas would have opacified the understanding of the other countries because of the geographical peculiarity of Russia (vast and on two continents) and the global supremacy of the United States and China.
• Canada: The country has been included in the United States' area because it is substantially a reality and because the geographic North America is not socio-politically significant.
• Latin America: This group includes all American Spanish speaking countries and Brazil and has a lot more geopolitical, social and cultural sense than their geographic position (North, Central and South America).
• Africa: We have excluded from the geopolitical Africa, the Maghreb, Libya and Egypt, which focus cultural, religious, linguistic, economic and conflictual  features different from the rest of Geographic Africa.
• Maghreb or small Maghreb includes Morocco, Algeria and Tunisia.
• For sake of clarity, the Caribbean and Oceania were considered separately from other nearby areas.

LIST OF 140 COUNTRIES WITH THEIR GEOPOLITICAL AREA

The Gini index has been calculated for these 140 countries and thus 53 countries mostly poor, remain in the shadows.

4-ANALYSIS

A-COUNTRIES BY GEOPOLITICAL AREA

The Gini indexes of 140 countries were taken into account (out of which 3 estimated) representing  72.5% of the 193 countries recognized by the UN, and  95% of the world population. The indexes of 53 countries are not known because of insufficient data and most of them combine both high poverty and high income disparities and are mostly African.

These 53 countries represent 27.5% of all countries, but only 5% of the world population.

The countries taken into consideration:

• EUROPE: 41 countries out of 43 (excluding Russia and Turkey)

• AFRICA: 33 countries out of  50 or 66% of the African countries without Maghreb, Libya and Egypt, which are viewed separately.

• LATIN AMERICA: 17 countries out of 19 - The Caribbean is considered separately.

• ASIA: 26 countries out of 31, Middle East, Russia and China are viewed separately.

• MIDDLE EAST: 10 countries out of 15

• MAGHREB: 3 countries

• RUSSIAN AREA: 1 country, Russia

• U.S. AREA: 2 countries, USA and Canada

• CHINESE AREA: 1 country, China

• OCEANIA: 3 countries out of 14

• CARIBBEAN: 3 countries also out of 14

COUNTRY NOT CONSIDERED DUE TO A LACK OF DATA:

AFRICA: 17 - EUROPE: 2 - ASIA: 5 - LATIN AMERICA: 2 -THE CARIBBEAN: 11 - OCEANIA: 11 -

MIDDLE EAST:  5 -  TOTAL: 53

These 53 countries added to the 140 countries taken into consideration represent the 193 UN members.

These 53 countries represent 27.5% of the countries but only 5% of the world population.

Excluding the countries of the Caribbean and Oceania: We see that 55% of the 31 remaining countries, belong to Africa.

B-DISTRIBUTION PER TRANCHE OF GINI INDEX

a) Tranche from 59.2% to 70.7% - 11 Countries -

7.9% of the considered countries - 108 million inhabitants i.e. a negligible portion of the world population - 1.4% of the world population

A few  monopolize almost all the wealth - most of the people are practically left with nothing - These countries are in fact feudal organizations.

This tranche comprises 11 countries including 7 poor African countries and also Haiti. The other three are  Middle Eastern oil countries whose power and wealth is held by a few families.

b) Tranche from  50.1% to 58.2% - 16 Countries

11.4% of the considered countries -558 million inhabitants i.e. 8% of the world population

A few take most of the wealth and leave a little to the majority of the population. Some of these countries may have a semblance of democracy that the figures debunk.

This tranche comprises 16 countries including 10 Latin American countries, 4 African countries, Thailand and Papua New Guinea.

This social organization is very unfair and is widespread in Latin America. Colombia is of course included in this tranche but more surprisingly Brazil and Mexico also.

Brazil now has the sixth GDP of the world but extreme poverty is very far from being eradicated.

c) Tranche from  38% to 49% - 49 Countries

35% of the considered countries - 2,869 million inhabitants - 41% of the world population.

This is the largest group in terms of countries number and population, whose common characteristic is often a poor economic development and/or an imperfect democratic functioning.

The distribution of wealth exists but is unfair without being so   unequal than in the two previous tranches and often because of the public administration inefficiency or of the corruption.

This tranche includes USA, China, Russia, 7 Latin American countries, 18 African countries, 8 Asian countries, 5 Middle East countries, 2 Maghreb countries, 2 Caribbean countries and 4 European countries: Macedonia, Bulgaria, Moldova and Portugal.

In number of countries, Africa has the largest share of this tranche (37%), followed by Asia (16%) and Latin America (14%).However this tranche is mainly composed in terms of population by "China, USA and Russia" representing together 63% of this tranche.

The United States and China have roughly similar unfair  indexes of 45% and 48% respectively and Russia has an index of 42%.

The U.S. seem to be part of the imperfect democracies in the field of unfair  income distribution and in fact 47 million Americans live below the poverty line and have no social and medical insurance. The United States hold the world record of incarceration slightly before Russia.

The Situation of China stems from its full economic strategy in order to become a leading world power. The Chinese Communist Party seems to have won this challenge. This strategy also includes the control of the Yuan, which is  artificially low in order to enable China to remain the world's largest exporter. Unlike capitalist countries, China has managed its development with a limited public debt. China is a great power but most of the Chinese people are poor.

Only a small part of the Russian population has been enriched by the market economy,  since few oligarchs have monopolized most part of the revenues and that the former common assets were sold at low price and/or acquired by corruption. This situation is summarized by the high Gini index of 42%. The GDP per capita being low, the vast majority of the population lives in poverty.

Israel is also part of this segment with an index of 39%. The progressive parties have been sidelined by the rise of an orchestrated populism, that takes advantage of the reality of insecurity. The rise of Islamism following the Arab spring, the seizure of power in Egypt by the Muslim Brotherhood who are likely to jeopardize the peace agreements, the threat of Iran, the uncertain lot of the Syria dictatorship and before that the rise of Islamism in Turkey (former ally, which became openly hostile) and in Gaza put the  Middle East in a precarious situation.

The parliament elected in 2009 is in the hands of right-wing and religious parties which were recently joined by the centrist Party (KADIMA) afraid to lose anticipated elections. The indignants will probably not have their social claims satisfied and the Gini index could worsen.

d) Tranche from  36% to 37.5% - 12 countries

8.6% of the considered countries - 1,797 million inhabitants - 26% of world population

Income distribution is better than in former tranches but still very unsatisfactory, especially since 11 of these 12 countries are poor.

Japan is part of this tranche and 16% of the population this country lives below the poverty line. The Japanese  government is paralyzed by the largest public debt in the world.  The social situation of Japan may only improved through a substantial tax reform increasing the too low levy rate.

Taking into account the already analyzed  tranches, we can see that 62.3% of countries that represent 76% of the world population suffer from a very unequal income distribution. The social order of the vast majority of the planet is at stake; this is not only an economic issue but also an ethical and social justice issue.

Summary of  tranches from (a) to (d)

e) Tranche  from 30% to 35.5% - 31 countries

22.1% of the countries considered - 1,095 million inhabitants - 16% of the world population

We reach at last a tranche of income distribution that starts to be acceptable but not entirely satisfactory. 52% of countries in this tranche are European and gather 360 million inhabitants or 33% of the population of this tranche, 29% are Asian, including 4 former Soviet republics.

13 of the 16 European countries in this tranche, belong to the European Union; they represent  48% of the European Union countries and  69% of its population, among which one can note the presence of the United Kingdom and France.

European countries probably use primarily  indirect taxes that penalize the poorest people. In France for example VAT and taxes on oil products amounted respectively to 132 billion and 14 billion Euros (146 billion) in 2011 or 57% of the net tax revenue.

f) Tranche of 23% to 29.4%- 21 Countries Champions of solidarity

• 15% of the considered countries, but only 3.7% of world population

• 90.5% of European countries

• 44% of countries of the European Union (12 out of 27), but only 27% of the population of the European Union.

This tranche which does not include France, is marked by solidarity in terms of income distribution and is a sort of a European club.

19 of 21 of the countries of this tranche are European countries out of which 12  are members of the European Union but compose only 27% of its population. The champion country of this tranche is of course Sweden with a score of 23%.

The solidarity reflected by the Gini index has no link with economic growth, but is a mean to reach it by sharing equitably  its benefit or the  troubles in case of crisis.