Sources of Increasing Inequality

While all the evidence we have points to the rising living standards for most of the very poorest, the wages of unskilled labour in poor countries remain a fraction of those in rich countries. Those potential workers are seen as a threat to the living standards of the unskilled in rich countries and the political impetus to limit their access to those labour markets has been, and remains, one of the most potent issue in the politics of rich countries. This aversion to immigration as a threat to the wages of the unskilled often transmutes into a hostility to trade, as goods, which use a lot of unskilled labour, can be imported more cheaply. Both immigration and trade are seen as a threat to the unskilled. Two dimensions of this threat are examined in this chapter—the impact of Chinese exports on wages in the US and the impact of immigration on the UK economy.

The Incomes of the Plutocrats in a Comparative Perspective

We now move to examine the top of the income distribution and begin by asking whether Mr Darcy, the central male character in Jane Austen’s novel Pride and Prejudice, would be regarded as a plutocrat today. If his income were converted to contemporary amounts it would be some £600,000. We show that Mr Darcy would need to earn some £8 million to be as rich as his nineteenth-century predecessor relative to the average wage. To understand how those super-high incomes arise, we introduce the Paretian distribution which we do first informally and then more formally. It is a distribution of this form which could produce what we see, a few very highly paid individuals whose incomes—up in the stratosphere of the super-rich—would still be very spread out. We use the Paretian distribution to estimate the number of plutocrats in the US, the UK, and China and show the incomes of the richest of the rich.

From Hundreds to Billions of Dollars of Income

This is a book about inequality. About the fact that we live in a world of very many poor people and a very few extremely rich ones—the poor and the plutocrats of its title. In this chapter we frame the question posed by the book—how one can move from such poverty to such riches?—using data from the UK, the US, and poor countries. If a longer term, and comparative, perspective is taken on incomes and inequality the problem is not to explain a rising tide of poverty—there isn’t one—nor is it to explain how capitalism generates ever-increasing inequality—it hasn’t. The problem is much more complicated. How can we explain such large changes in both incomes and in inequality as have occurred since the start of sustained global growth in the early part of the nineteenth century?

From the Poor to the Plutocrats

In this chapter we provide an overview of the arguments of the earlier chapters as to what explains absolute and relative poverty and the incomes of the super-rich. The factors that influence whether one is to be very poor or very rich are summarized in four steps: Step 1—Get lucky where you are born; Step 2—Get lucky when you are born (if unskilled you want the early twentieth century, if skilled after that); Step 3—Get lucky in being able to move (if born in the wrong place); Step 4—Get ultra-lucky with a great idea, or own an oil company, or have rich parents, or eliminate the competition.

The Rise (and Rise) of the World Economy

In this chapter we turn from the consideration of individual countries to the whole world economy and document the continuing rapid rises in global incomes. Growth is shown to have been rapid for some periods and for some regions but it has been as far from uniform as can be imagined. Understanding the variations in the patterns of growth across regions provides insights into the changing geography of poverty and into the causes of the unease in once dominant countries. The success in creating high national incomes provides the environment that enables billionaires to emerge; the failures in the growth of such incomes are the sources of continuing absolute dire poverty.

The Fall and Rise of the 1 Per Cent

We have a puzzle we need to resolve and the core of this puzzle is the remorseless rise in incomes of the poorest and the widening spread of incomes we observe across the world. The most politically conspicuous (and contentious) aspect of this rising spread is the increasing share of income going to the top 1 per cent, particularly in the UK and the US. In this chapter we compare income growth across the distribution for the UK and the US from the Thatcher/Reagan period until the years after the financial crash. The rise of the 1 per cent is shown to be largely at the expense of the 90–99 per cent. Inequality rose far more in the US than in the UK. In the New Labour years in the UK incomes of the bottom quintile (that is the bottom 20 per cent) of households grew faster than the top quintile.

Five Countries

This chapter is framed by a citation for the Oxfam report released in February 2017 in which it was claimed that ‘eight billionaires own the same wealth as the 3.6 billion people who form the poorest half of the world’s population’. We begin to consider the range of incomes across the globe that need to be understood by looking at the economic history, since 1500, of five countries—the US, the UK, Brazil, China, and India. These five countries, encompassing the richest in terms of per capita incomes and the largest in terms of population, show the great divergence in incomes after 1700 and the (very) recent convergence. It is these patterns which explain the changing dispersions of the absolutely poor across the world.

Inequality and Poverty across the World

In this chapter we begin by examining the sources of poverty in the two waves of globalization, the first from 1700 to 1913 and the second from 1950 to the present. We then ask whether, during this second wave, absolute poverty has been falling? The answer turns out to depend on how we define the absolutely poor due to how incomes across the world have been rising. Under either of the definitions proposed from 2003 to 2008 the number of the absolutely poor has fallen. The data shows that, in percentage terms, the poorest of the poor have seen faster growth in incomes than the richest of the rich. Further, this pattern of growth has ensured that inequality has increased far more in poor than in rich countries.

The Growing Equality across Countries and Inequality within some Countries

Just as unemployment dominated the political agenda of the 1930s, so inequality has come to dominate the concerns of both rich and poor countries in the twenty-first century. Contrary to what is widely believed, inequality across countries has been declining since the 1980s, driven primarily, but not exclusively, by the rise in incomes in China. Looking at inequality within countries, on average inequality is much higher in poor than in rich countries. Changes over time in inequality are modest, compared with differences across countries. We observe a world with countries which have policies, or politics, which generate high inequality and ones which generate much lower inequality. There is little link between inequality and growth on average across the world.

Sources of Income for the Plutocrats

In this chapter we take the final step on the journey we have traversed in the book from the poorest of the poor to reach the richest of the rich—the plutocrats of the book’s title. We review the evidence as to where the plutocrats come from and compare a ‘merit’ view of the sources of their income with the more common ‘rent-seeking’ one. It is the incomes from finance which have been the most contentious and a major a source of dissatisfaction with the highest incomes across the world. We conclude by linking this dissatisfaction with the rise of populism and a new generation of populist politicians.