Unit III A World of Inequality MEXICO UNITED STATES

What is economic development? Economic Inequality What is economic development? can be defined as efforts that seek to improve the economic well-being and quality of life for a community by creating and/or retaining jobs and supporting or growing incomes and the tax base. E.g. water, food, clothing, adequate shelter, literacy,education, employment, wealth, health care, sanitation, social mobilization, social security, science and technology, industrialization, urbanization “The big (global) challenge and threat is the gap in wealth and health that separates rich and poor. These are often styled North and South, because the division is geographic; but a more accurate signifier would be the West and the Rest, because the division is also historic. Here is the greatest single problem and danger facing the world of the Third Millenium.” David Landes, Economic Historian and author “The Wealth and Poverty of Nations”

Economic Inequality Why is economic development so important? meets basic needs reduces extreme poverty reduces social strife and political conflict improves economic efficiency prioritizes investments in education, skills, and technology provides tax revenue for governments to fund hard and soft infrastructure creates meaningful and sustainable employment, raising incomes empowers women and promotes women’s rights helps to protect the natural environment overall, it makes people more tolerant, trusting, autonomous, and democratic (although not necessarily)

Economic Inequality What is Economic Disparity? At its root, disparity means inequality. But it goes further than that - refers to the gap between the rich and the poor. The poorest 20% of the population receive only 1.0% of the global income while the richest 5% enjoys 40% of all income. The ratio of GNP per capita between Canada and Mozambique in 2005 is 108:1 As a result of this gap, we lead tremendously (obscenely) rich lives while many cannot meet their most basic needs.

Comparing Development How can we measure economic development? In economic terms, it is measured by gross domestic product (GDP) GDP - Gross Domestic Product - is a measure of the value of economic output within a country in a given year GNP - Gross National Product - is a measure of the total value of economic output produced by a country in a given year Country % GDP by Economic Sector Primary Secondary Tertiary Canada 3 29 68 Malaysia 12 40 48 Ethiopia 52 11 37

Comparing Development How can this data be shown? Bar chart: This is fine for 3 countries, but can you imagine trying to show 20 countries this way? Economic policy makers prefer GDP per capita/yr

Comparing Development GDP per capita the value of production per person within a country (GDP/mid-year population) measuring the average annual income of a country’s citizens a first step toward understanding the economic strengths and needs of a country, as well as the general standard of living enjoyed by an average citizen much lower in low-and middle-income countries than in high-income countries low- and middle-income countries produce about 20% of the world’s goods and services, but have more than 80% of the world’s population rises in GDP per capita in these countries is therefore often counteracted by rapid population growth the trend across all countries is for the richest 20 percent of the population to earn incomes many times higher than the poorest 20 percent by itself, GDP per capita cannot measure people’s well-being or a country’s success in development. It does not show what is being produced, whether all people share equally in the income of a country, or whether a country has depleted or degraded its natural resources to achieve economic growth

Comparing Development 2007 GDP per capita (The Economist) 1. Luxembourg $69, 420 2. Bermuda 69,230 3. Channel Islands 61,900 4. Norway 54,360 5. Switzerland 49,660 6. Ireland 45,410 7. Denmark 44,710 8. Iceland 41,910 9. United States 39,430 10. Sweden 38,920 11. Japan 36,170 12. Austria 36,090 13. United Kingdom 36,760 14. Finland 35,750 15. Netherlands 35,740 16. Belgium 34,210 17. France 33,890 18. United Arab Emirates 33,610 19. Germany 33,220 20. Qatar 33, 000 High Income Countries > $9,206 (15% of world’s pop) Middle Income Countries $745 - $9,206 (25% of world’s pop) 209. Tajikistan 330 210. Mozambique 320 211. Tanzania 290 Bhutan 290 212. Gambia 280 213. Uganda 260 Nepal 260 214. Niger 250 215. Madagascar 240 216. Afghanistan 230 217. Rwanda 220 Eritrea 220 218. Sierra Leone 210 219. Guinea-Bissau 190 220. Myanmar 160 221. Malawi 150 222. Liberia 140 223. Congo 120 224. Ethiopia 110 225. Burundi 90 Low Income Countries < $745 (60% of world’s pop)

Comparing Development

Comparing Development

Comparing Development Does GDP per capita give a complete picture of the standard of living of all people in a country? No, because it is an average. GDP per capita does not show how income is distributed. And although it shows the average income, it does not show whether people lead fulfilling lives. In addition, it does not include unreported income from the informal sector, nor show what goods and services are available and how much people can buy with their money.

Comparing Development In terms of overall development and human well-being, therefore, it is more appropriate to look at the human development index or HDI Human Development Index A composite index that measures the average achievements in a country in three ways: 1. Health (measured by life expectancy at birth) 2. Education (measured by literacy rate and school enrollments) 3. Standard of Living (measure by GDP per capita in a common currency) calculated at five year intervals and covers 177 member UN countries important for monitoring relative long term trends (cross country comparisons) in human development

Comparing Development