1. Global Inequality and Global Finance A Presentation to the IDEAS Workshop on Financial Crime and Fragility under Financial Globalization New Delhi December 19, 2005

2. by James K. Galbraith The University of Texas at Austin The University of Texas Inequality Project http://utip.gov.utexas.edu

3. The Standard Question: Has Inequality been Rising or Falling? Three ways to measure it, per Milanovic, 2002 Un-weighted Between-Country (has been rising in all studies) Weighted Between-Country (has fallen mainly because of China) Within-country True (disputed territory) ?

4. Stanley Fischer compares inequality types 1 and 2, 1980-2000. ( 2003 Ely Lecture) Note that this approach says nothing about inequality within countries

5. Existing studies of true world income inequality give conflicting results, recently surveyed by Milanovic Including Sala-i-Martins claim that inequality has been steadily declining…based on Deininger and Squire. Figure borrowed from Milanovic

6. Coverage of Deininger and Squire Version of D&S used by Dollar and Kraay, Growth is good for the poor.

7. Rank and Distribution of D&S Gini for 20 OECD countries

8. Trends of Inequality in the Deininger-Squire Data Set

10. Indonesia and India have highly unequal pay. So how do they arrive at highly equal incomes – more equal than Australia or Japan? Through a strong redistributive welfare state? Probably not. Or, if low Ginis in those countries reflect egalitarian but impoverished agriculture – as many who use these data believe -- then why are the D&S Ginis so high in agrarian Africa? Inequality in Asia according to Deininger and Squire

11. The U.T. Inequality Project Measures Global Pay Inequality Uses Simple Techniques that Permit Up-to-Date Measurement at Low Cost Uses International Data Sets for Global Comparisons, especially UNIDOs Industrial Statistics Has Many Regional and National Data Sets as well, including for Europe, Russia, China, India, and the U.S.

12. A brief review of the Theil Statistic: n ~ employment; ~ average income; j ~ subscript denoting group The Between-Groups Component

13. First Advantage Many Observations Said the Bi-Colored Python Rock Snake

15. UTIP-UNIDO measures show China and Australia as the most egalitarian countries in the Asian region; India and Indonesia show high inequality on these measures. Lets look at the average values in the UTIP -UNIDO data set, with averages taken over all available observations, 1963-1999.

17. Lowest Inequality In the Americas

19. Second Advantage Plentiful Historical Detail

20. Revolution Military Coup Falklands War Banking Crisis War Tiananmen Data for China drawn partly from State Statistical Yearbook

21. Start of Liberal Reforms

22. Between sector within state inequality, 1979-80

23. Between sector within state inequality, 1991-92

24. Between sector within state inequality, 1997-98

26. Third Advantage Worldwide Patterns

27. With the UTIP data, we can review changes in global inequality both across countries and through time.

28. The Scale Brown: Very large decreases in inequality; more than 8 percent per year. Red Moderate decreases in inequality. Pink: Slight Decreases. Light Blue: No Change or Slight increases Medium Blue: Large Increases -- Greater than 3 percent per year. Dark Blue: Very Large Increases -- Greater than 20 percent per year. h

29. 1963 to 1969

30. 1970 to 1976 The oil boom: inequality declines in the producing states, but rises in the industrial oil-consuming countries, led by the United States.

31. 1977 to 1983

32. 1981 to 1987 … the Age of Debt Note the exceptions to rising inequality are mainly India and China, neither affected by the debt crisis…

33. 1984 to 1990

34. 1988 to 1994 The age of globalization… Now the largest increases in inequality in are the post-communist states; an exception is in booming Southeast Asia, before 1997…

35. Fourth Advantage Finding A Global Pattern

36. Simon Kuznets in 1955 argued that while inequality could rise in the early stages of industrialization, in the later stages it should be expected to decline. This is the famous inverted U hypothesis. Recent studies based on Deininger and Squire find almost no support for any relationship between inequality and income levels. We believe, however, that in the modern developing world the downward sloping relationship should predominate, particularly in data drawn from the industrial sector.

37. A regression of pay inequality on GDP per capita and time, 1963-1998. The downward sloping income-inequality relation holds, but with an upward shift over time…

38. Milanovic Unweighted Inequality Between Countries Collapse of Bretton Woods Debt Crisis

39. Actual and Simulated Mean Pay Inequality in Rich and Poor Countries Actual UTIP-UNIDO Without Global Component

40. Conclusions: It is a matter of global, not national governance, especially high interest rates and debt crises. Inequality rose in most countries in the age of globalization… Some day, well need a new world financial system to deal with this; Meanwhile sauve qui peut. Rising inequality is an issue of global finance.

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