The Real Winners and losers of Globalisation

It is an indisputable fact that globalization has radically changed global income dynamics. In this context, who has won and who has lost? It is generally assumed that two groups are considered the big winners of the past decades of globalization: First group are the very rich that one percent and the second group are the middle classes of the emerging market economies i.e. the ‘BRICS countries’ Brazil, Russia, India, China and South Africa and including Indonesia.

However, it is difficult to single out a source by which we can check, confirm, qualified or reject these perceptions. With help of the World Bank database we can be able to find out for the first time, from a single and consistent data source, to know who the real winners and losers of globalization.

Percentage change in real income between 1988 and 2008 at various percentiles of global income distribution (in 2005 PPP dollars). Data source: World Bank.

When we look the chart above, these results give us a vivid picture of the effects of the recent two decades of globalization. By the aid of this chart we can be able to tell who gained and who lost in this period of dramatic changed. We can be able to explain which parts of the global income distribution recorded the largest gains between 1988 and 2008 respectively.

As the figure indicates, the most significant increases in per capita income came from the very top of the global income distribution and from the emerging global middle class, which includes more than a third of the world’s population. We can see that the top 1% of the global income distribution has been rising by more than 60% over those two decades.

Looking in 2008 between the 50th and 60th percentile of global distribution including people with annual after tax per capita incomes between $1200 and $1800 – that we find 90 million Indians and 200 Chinese, as well as about 30 million each in Indonesia, Mexico, Brazil and Egypt. These people in these countries mentioned above are among the biggest gainers in the global income distribution.

The actual surprise is that those in the bottom third scale of the global income distribution have also made significant gains, with real incomes rising between more than 40% and almost 70%. The only exception is the poorest 5% of the population, whose real income remains stagnant.

On the other side of the spectrum, the biggest losers of globalization (other than the very poorest 5%) were those between the 75th and 90th percentile of the global income distribution. Their real income gains were in effect remains the same.

These people represent what can be called a ‘global upper-class’. Their statuses include citizens of rich countries with stagnant real incomes as well as many people from Latin America and the former communist countries.

Since the fall of the Berlin Wall to the global financial crisis, global income distribution has changed significantly in just two decades. We have undoubtedly witnessed the most reflective global reordering of peoples’ economic positions since the revolution.

The most significant consequences of this reordering are:

  • The bottom third, with exemption of the very poorest, became significantly better off, and many people escaped absolute poverty.
  • The middle third became much richer, seeing its income rise, in real terms, by approximately 3% per capita annually.
  • The most remarkable change, though, happened among the top quartile. While the top 1%, and somewhat less so the top 5%, gained very little or no rising incomes.

For example, in 1988, a person with a median income in China was richer than only 10% of world population. Twenty years later, a person at the same position within China’s income distribution was richer than one-half of the world’s population. Hence, s/h leapt over approximately 40% of people in the world. Unlike large position of European countries and the United States remained about the same, with median income recipients there in the 80s and 90s of global percentiles.

Who are the losers between 1988 and 2008? The losers of globalization between these periods are mostly people in Africa, some in Latin America and the former Communist countries. To explain this is to look at how far behind the global median was an average African in 1988 and twenty years later. In 1988, an African with a median income of the continent had an income equal to two-thirds of global median. By 2008, that proportion had declined to less than one-half.

The relative declines of Africa and Eastern Europe and the former Soviet Union confirms the failure of these two parts of the world to adjust well to globalization, at least up to the early 21st century. Their more recent improved performance is still too fragile to have been reflected in the data.

David Bah

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