In this issue: SECURING LIVELIHOODS - SPECIAL EDITION - The Rockefeller Foundation
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SPECIAL EDITION
SECU R I N G LIVE LI H O O DS
Reprinted from The Economist in 2014
In this issue:
Long-term living standards
Crises and their impact
Technology and jobs
Pensions
Migration and climate change
Contents
Reprinted from The Economist - 2014
3 The future of securing livelihoods:
Policies, strategies and tools for better
lives today and tomorrow
Challenges and opportunities for livelihoods
Livelihoods: The big picture
25 The future of jobs
4 The future of jobs The great mismatch
The onrushing wave
27 Technology and jobs
7 The world economy Coming to an office near you
For richer, for poorer
28 Working conditions in factories
9 Poverty When the jobs inspector calls
Not always with us
29 Migration after the crash
11 The world economy Moving out, on and back
A game of catch-up
30 Migration and climate change
A new (under) class of travellers
31 Youth unemployment
Generation jobless
33 Health care and technology
The pillars of livelihoods
Fantastic Voyage
14 Innovation pessimism
Has the ideas machine broken down?
17 Asian welfare states
New cradles to graves SPECIAL EDITION
SECU R I N G LIVE LI H O O DS
Reprinted from The Economist in 2014
20 Pensions
In this issue:
Falling short
Long-term living standards
22 Working women Crises and their impact
Still struggling Technology and jobs
Pensions
Migration and climate change
23 Work and family
Baby blues
For more information about
“The future of livelihoods” please go to
www.VisionariesUnbound.com
From the conveners
The future of securing livelihoods:
Policies, strategies and tools for better lives today and tomorrow
As private and public players at all levels examine some less prosperous countries need to harness affect livelihoods. Local safety issues also weigh on
our progress in moving people out of poverty, the their still-growing working-age population to drive livelihood development possibilities. Violence and
time is right to explore if and how livelihoods have economic growth. With this backdrop, creating job crime are prevalent in many urban areas. Conflicts
improved. What factors really determine livelihoods? opportunities for those who enter the workforce within societies, as evidenced by protests during
Which issues will most affect them over the next 20 is essential. At the same time, social protection the Arab Spring in the Middle East and elsewhere,
to 30 years as economic growth shifts from West systems, including health insurance and retirement are both a symptom and a trigger of livelihood
to East, amid increasing global interdependence? programs, are weak or nonexistent in low-income disruption. Cyber-crime also affects the security of
And how can rising living standards across the countries. These need to be strengthened, particularly financial and intellectual assets. Finally, cyber-war
globe be ensured and sustained? for those whose livelihoods are at risk. risks raise the spectre of new security threats to
Livelihoods are constantly at risk. Local Climate change is also increasingly affecting critical infrastructures and lives.
and global crises, demographic shifts, climate livelihoods. Extreme weather events, such as Confronting the many challenges of future
change, new technologies and other challenges floods and hurricanes, occur more often and livelihoods and imagining opportunities for them
impact livelihoods in many ways. These challenges with increased intensity. These events take lives; is a massive, complex undertaking. Livelihood
vary dramatically across countries, cultures and destroy crops, homes and roads; create health debates and solutions draw from many different
communities. Their impacts’ complexity demands hazards and trigger mass migration. They also policy areas and a vast number of stakeholders.
that relevant stakeholders from the public and take a heavy toll on the sustainability of insurance So, by extension, when changes or reforms are
private sectors, universities, nonprofits and the systems. Longer term, biodiversity loss and rising required, strong resistance often follows. All too
public join forces in a holistic way to design future sea levels may significantly reduce global economic often, policy-makers are biased by short-term
strategies for securing sustainable livelihoods. growth and deeply transform our living conditions. and personal vested interests, rather than long-
The recent financial and economic crisis, for Interestingly, climate change represents both a term societal goals. Forging consensus and quick,
example, affected livelihoods in a variety of ways threat and an opportunity for livelihoods. Many coordinated action among national governments in
and triggered more inequality and unemployment. sectors are joining forces to build sustainable such urgent areas as global warming, international
Inequality further worsens the situation of people economies and climate-resilient infrastructures. financial regulation and cyber-crime remains,
who already struggle because it disproportionately To face such challenges, technology offers a host unfortunately, particularly challenging.
reduces their opportunities to make a living, and of opportunities and solutions for future livelihoods. This special edition of The Economist, with the
erodes their ability to cope with economic shocks. Better access to and improved information and theme “Securing Livelihoods”, features informative
As for unemployment, youth, in particular, struggle communication technologies, nanotechnology and provocative articles from recent editions of the
to find jobs and to earn resources to pay for their lives’ and biotechnology, as well as “green innovation”, magazine. It brings insights into the trends concerning
core needs. Paradoxically, in parallel, firms in many are but a few advances that could materially help global livelihoods, and asks provocative questions
industries and countries struggle to find the talent livelihoods. Technology already helps prevent about some of the “pillars” that shape them, such as
they need, and face skill shortages and mismatches. more environmental degradation and damage from technology, demographics, jobs, pensions, poverty,
This is sparking new employer practices and thinking natural disasters, playing a critical role in social inequality and climate change. The selected articles
about the private sector’s role in skills development. areas, such as health. Over time technology will also help identify future challenges and opportunities,
At the same time, many lack the entrepreneurial skills foster conditions for better and more-sustainable such as maintaining social protections—for example,
that can help spark job creation. Major changes are livelihoods. It remains unclear, nonetheless, whether pensions, coping with escalating health costs in
therefore required throughout education systems, from technological trends will create or destroy jobs in ageing societies, creating sustainable jobs and
pre-kindergarten to college to workforce training, and the future, and the debate over whether innovation responding to climate change.
will be crucial for the future of livelihoods. is slowing down or speeding up continues. These articles do not cover all angles of livelihoods
Demographic shifts due to medical progress Global security represents a very different and the challenges and opportunities that shape
and fertility-rate fluctuations also pose significant livelihood challenge. Since the end of the Cold their sustainability. But we hope this publication will
challenges to societies. Pensions, for example, need War, the world has not experienced a major global spark debate among participants brought together
to be rethought, particularly in wealthier countries, conflict. Nevertheless, security concerns are by the OECD Development Centre, the Economist
where people now live long after retirement, and mounting across the world, and these concerns Intelligence Unit and the Rockefeller Foundation
at the Foundation’s Bellagio Center in August 2014.
Exploring key trends and strategies affecting the
future of livelihoods, and examining the complex
interdependencies of the many factors that shape
livelihoods in a systematic way will undoubtedly prove
challenging. Identifying potential future scenarios
with stories of systems and their interactions
demands creativity, imagination, optimism and
innovation. We hope the conversation and post-
meeting publications will inform and inspire global,
national and local debate about the strategies and
policies that can secure and improve livelihoods
today and in the coming decades.
Together we hope to provide strategic guidance
to public and private organisations, and the public,
Mario Pezzini Robert Garris on how to address the coming challenges and
Director of the Development Centre Managing Director to leverage opportunities to improve livelihoods
OECD Bellagio Programs across the globe. n
The Rockefeller Foundation
3
Livelihoods: The big picture
Reprinted from The Economist - 2014
Also in this section
7 The world economy
9 Poverty
11 The world economy
Graeber argues, is not an economic choice;
it is something the ruling class does to keep
control over the lives of others.
Be that as it may, drudgery may soon enough
give way to frank unemployment. There is
already a long-term trend towards lower levels
of employment in some rich countries. The
proportion of American adults participating
in the labour force recently hit its lowest
level since 1978, and although some of that
The future of jobs is due to the effects of ageing, some is not.
The onrushing wave In a recent speech that was modelled in part
on Keynes’s “Possibilities”, Larry Summers, a
former American treasury secretary, looked at
Reprinted from The Economist, Jan 18th 2014 employment trends among American men
between 25 and 54. In the 1960s only one in
Previous technological innovation has always Industrialisation did not end up eliminating the 20 of those men was not working. According
delivered more long-run employment, not need for human workers. On the contrary, it to Mr Summers’s extrapolations, in ten years
less. But things can change created employment opportunities sufficient to the number could be one in seven.
soak up the 20th century’s exploding population. This is one indication, Mr Summers says,
IN 1930, when the world was “suffering… Keynes’s vision of everyone in the 2030s being that technical change is increasingly taking
from a bad attack of economic pessimism”, a lot richer is largely achieved. His belief they the form of “capital that effectively substitutes
John Maynard Keynes wrote a broadly would work just 15 hours or so a week has for labour”. There may be a lot more for such
optimistic essay, “Economic Possibilities for not come to pass. capital to do in the near future. A 2013 paper
our Grandchildren”. It imagined a middle by Carl Benedikt Frey and Michael Osborne,
way between revolution and stagnation that When the sleeper wakes of the University of Oxford, argued that jobs
would leave the said grandchildren a great Yet some now fear that a new era of automation are at high risk of being automated in 47% of
deal richer than their grandparents. But the enabled by ever more powerful and capable the occupational categories into which work is
path was not without dangers. computers could work out differently. They customarily sorted. That includes accountancy,
One of the worries Keynes admitted was a start from the observation that, across the rich legal work, technical writing and a lot of other
“new disease”: “technological unemployment… world, all is far from well in the world of work. white-collar occupations.
due to our discovery of means of economising The essence of what they see as a work crisis is Answering the question of whether such
the use of labour outrunning the pace at that in rich countries the wages of the typical automation could lead to prolonged pain for
which we can find new uses for labour.” His worker, adjusted for cost of living, are stagnant. workers means taking a close look at past
readers might not have heard of the problem, In America the real wage has hardly budged experience, theory and technological trends.
he suggested—but they were certain to hear a over the past four decades. Even in places like The picture suggested by this evidence is a
lot more about it in the years to come. Britain and Germany, where employment is complex one. It is also more worrying than
For the most part, they did not. Nowadays, touching new highs, wages have been flat for many economists and politicians have been
the majority of economists confidently wave a decade. Recent research suggests that this is prepared to admit.
such worries away. By raising productivity, they because substituting capital for labour through
argue, any automation which economises on automation is increasingly attractive; as a result The lathe of heaven
the use of labour will increase incomes. That owners of capital have captured ever more of Economists take the relationship between
will generate demand for new products and the world’s income since the 1980s, while the innovation and higher living standards for
services, which will in turn create new jobs share going to labour has fallen. granted in part because they believe history
for displaced workers. To think otherwise has At the same time, even in relatively egalitarian justifies such a view. Industrialisation clearly
meant being tarred a Luddite—the name taken places like Sweden, inequality among the led to enormous rises in incomes and living
by 19th-century textile workers who smashed employed has risen sharply, with the share standards over the long run. Yet the road to
the machines taking their jobs. going to the highest earners soaring. For riches was rockier than is often appreciated.
For much of the 20th century, those arguing those not in the elite, argues David Graeber, In 1500 an estimated 75% of the British
that technology brought ever more jobs and an anthropologist at the London School of labour force toiled in agriculture. By 1800
prosperity looked to have the better of the Economics, much of modern labour consists that figure had fallen to 35%. When the shift
debate. Real incomes in Britain scarcely doubled of stultifying “bullshit jobs”—low- and mid- to manufacturing got under way during the
between the beginning of the common era level screen-sitting that serves simply to occupy 18th century it was overwhelmingly done at
and 1570. They then tripled from 1570 to 1875. workers for whom the economy no longer small scale, either within the home or in a
And they more than tripled from 1875 to 1975. has much use. Keeping them employed, Mr small workshop; employment in a large factory
4
Livelihoods: The big picture
Reprinted from The Economist - 2014
was a rarity. By the end of the 19th century effects of the imperialism driven by European it becomes easier to break production down
huge plants in massive industrial cities were industrialisation continued to be felt by billions. into routine components, then automate those
the norm. The great shift was made possible The impacts of technological change take components as technology allows.
by automation and steam engines. their time appearing. They also vary hugely If, that is, automation makes sense. As David
Industrial firms combined human labour from industry to industry. Although in many Autor, an economist at the Massachusetts
with big, expensive capital equipment. To simple economic models technology pairs Institute of Technology (MIT), points out in
maximise the output of that costly machinery, neatly with capital and labour to produce a 2013 paper, the mere fact that a job can be
factory owners reorganised the processes of output, in practice technological changes do automated does not mean that it will be; relative
production. Workers were given one or a few not affect all workers the same way. Some costs also matter. When Nissan produces cars
repetitive tasks, often making components of find that their skills are complementary to in Japan, he notes, it relies heavily on robots.
finished products rather than whole pieces. new technologies. Others find themselves At plants in India, by contrast, the firm relies
Bosses imposed a tight schedule and strict out of work. more heavily on cheap local labour.
worker discipline to keep up the productive Take computers. In the early 20th century a Even when machine capabilities are rapidly
pace. The Industrial Revolution was not simply “computer” was a worker, or a room of workers, improving, it can make sense instead to seek
a matter of replacing muscle with steam; it doing mathematical calculations by hand, often out ever cheaper supplies of increasingly skilled
was a matter of reshaping jobs themselves with the end point of one person’s work the labour. Thus since the 1980s (a time when, in
into the sort of precisely defined components starting point for the next. The development of America, the trend towards post-secondary
that steam-driven machinery needed—cogs in mechanical and electronic computing rendered education levelled off) workers there and
a factory system. these arrangements obsolete. But in time it elsewhere have found themselves facing
The way old jobs were done changed; new jobs greatly increased the productivity of those increased competition from both machines
were created. Joel Mokyr, an economic historian who used the new computers in their work. and cheap emerging-market workers.
at Northwestern University in Illinois, argues Many other technical innovations had similar Such processes have steadily and relentlessly
that the more intricate machines, techniques effects. New machinery displaced handicraft squeezed labour out of the manufacturing
and supply chains of the period all required producers across numerous industries, from sector in most rich economies. The share of
careful tending. The workers who provided textiles to metalworking. At the same time it American employment in manufacturing has
that care were well rewarded. As research by enabled vastly more output per person than declined sharply since the 1950s, from almost
Lawrence Katz, of Harvard University, and craft producers could ever manage. 30% to less than 10%. At the same time, jobs
Robert Margo, of Boston University, shows, in services soared, from less than 50% of
employment in manufacturing “hollowed Player piano employment to almost 70% (see chart 2). It
out”. As employment grew for highly skilled For a task to be replaced by a machine, it was inevitable, therefore, that firms would
workers and unskilled workers, craft workers helps a great deal if, like the work of human start to apply the same experimentation and
lost out. This was the loss to which the Luddites, computers, it is already highly routine. Hence reorganisation to service industries.
understandably if not effectively, took exception. the demise of production-line jobs and some A new wave of technological progress may
With the low-skilled workers far more sorts of book-keeping, lost to the robot and dramatically accelerate this automation of
numerous, at least to begin with, the lot of the spreadsheet. Meanwhile work less easily brain-work. Evidence is mounting that rapid
the average worker during the early part of broken down into a series of stereotyped technological progress, which accounted for
this great industrial and social upheaval was tasks—whether rewarding, as the management the long era of rapid productivity growth
not a happy one. As Mr Mokyr notes, “life did of other workers and the teaching of toddlers from the 19th century to the 1970s, is back.
not improve all that much between 1750 and can be, or more of a grind, like tidying and The sort of advances that allow people to
1850.” For 60 years, from 1770 to 1830, growth cleaning messy work places—has grown as a put in their pocket a computer that is not
in British wages, adjusted for inflation, was share of total employment. only more powerful than any in the world 20
imperceptible because productivity growth But the “race” aspect of technological years ago, but also has far better software and
was restricted to a few industries. Not until the change means that such workers cannot rest far greater access to useful data, as well as to
late 19th century, when the gains had spread on their pay packets. Firms are constantly other people and machines, have implications
across the whole economy, did wages at last experimenting with new technologies and for all sorts of work.
perform in line with productivity (see chart 1). production processes. Experimentation with The case for a highly disruptive period of
Along with social reforms and new political different techniques and business models economic growth is made by Erik Brynjolfsson
movements that gave voice to the workers, this requires flexibility, which is one critical advantage and Andrew McAfee, professors at MIT, in “The
faster wage growth helped spread the benefits of a human worker. Yet over time, as best Second Machine Age”, a book to be published
of industrialisation across wider segments of practices are worked out and then codified, later this month. Like the first great era of
the population. New investments in education industrialisation, they argue, it should deliver
provided a supply of workers for the more Long time coming 1 enormous benefits—but not without a period of
skilled jobs that were by then being created in Britain’s average annual growth, % disorienting and uncomfortable change. Their
ever greater numbers. This shift continued into argument rests on an underappreciated aspect
Real output per person Real wages
the 20th century as post-secondary education of the exponential growth in chip processing
1.8
became increasingly common. speed, memory capacity and other computer
Claudia Goldin, an economist at Harvard 1.5 metrics: that the amount of progress computers
University, and Mr Katz have written that 1.2 will make in the next few years is always equal
workers were in a “race between education to the progress they have made since the very
0.9
and technology” during this period, and for beginning. Mr Brynjolfsson and Mr McAfee
the most part they won. Even so, it was not 0.6 reckon that the main bottleneck on innovation
until the “golden age” after the second world 0.3 is the time it takes society to sort through the
war that workers in the rich world secured real nil many combinations and permutations of new
0
prosperity, and a large, property-owning middle 1760-1800 1800-30 1830-60 1860-1900
technologies and business models.
class came to dominate politics. At the same A startling progression of inventions seems to
Source: “Engels’ Pause: Technical Change, Capital
time communism, a legacy of industrialisation’s Accumulation, and Inequality in the British Industrial bear their thesis out. Ten years ago technologically
harsh early era, kept hundreds of millions of Revolution” by R.C. Allen, Explorations in Economic minded economists pointed to driving cars in
History (2009)
people around the world in poverty, and the traffic as the sort of human accomplishment
5
Livelihoods: The big picture
Reprinted from The Economist - 2014
opening the way to eventual automation this will be real, even if they mostly accrue to
Bring on the personal trainers ?
could reduce the satisfaction from such work, the owners of the machines. Some will be
Probability that computerisation will lead to job just as the satisfaction of making things was spent on goods and services—golf instructors,
losses within the next two decades, 2013 reduced by deskilling and interchangeable parts household help and so on—and most of
(1=certain)
in the 19th century. If such jobs persist, they the rest invested in firms that are seeking to
Job Probability may engage Mr Graeber’s “bullshit” detector. expand and presumably hire more labour.
Recreational therapists 0.003 Being newly able to do brain work will not Though inequality could soar in such a world,
Dentists 0.004 stop computers from doing ever more formerly unemployment would not necessarily spike.
Athletic trainers 0.007 manual labour; it will make them better at The current doldrum in wages may, like that of
it. The designers of the latest generation of the early industrial era, be a temporary matter,
Clergy 0.008
industrial robots talk about their creations as with the good times about to roll (see chart 3).
Chemical engineers 0.02 helping workers rather than replacing them; These jobs may look distinctly different from
Editors 0.06 but there is little doubt that the technology those they replace. Just as past mechanisation
Firefighters 0.17 will be able to do a bit of both—probably more freed, or forced, workers into jobs requiring
Actors 0.37 than a bit. A taxi driver will be a rarity in many more cognitive dexterity, leaps in machine
Health technologists 0.40
places by the 2030s or 2040s. That sounds intelligence could create space for people to
like bad news for journalists who rely on that specialise in more emotive occupations, as yet
Economists 0.43
most reliable source of local knowledge and unsuited to machines: a world of artists and
Commercial pilots 0.55 prejudice—but will there be many journalists therapists, love counsellors and yoga instructors.
Machinists 0.65 left to care? Will there be airline pilots? Or Such emotional and relational work could
Word processors and typists 0.81 traffic cops? Or soldiers? be as critical to the future as metal-bashing was
Real estate sales agents 0.86 There will still be jobs. Even Mr Frey and Mr in the past, even if it gets little respect at first.
Technical writers 0.89
Osborne, whose research speaks of 47% of job Cultural norms change slowly. Manufacturing
categories being open to automation within jobs are still often treated as “better”—in some
Retail salespersons 0.92
two decades, accept that some jobs—especially vague, non-pecuniary way—than paper-pushing
Accountants and auditors 0.94 those currently associated with high levels of is. To some 18th-century observers, working
Telemarketers 0.99 education and high wages—will survive (see in the fields was inherently more noble than
Source: “The Future of Employment: How Susceptible are
table). Tyler Cowen, an economist at George making gewgaws.
Jobs to Computerisation?” by C.Frey and M.Osborne (2013) Mason University and a much-read blogger, But though growth in areas of the economy
writes in his most recent book, “Average is Over”, that are not easily automated provides jobs,
that computers were highly unlikely to master. that rich economies seem to be bifurcating into it does not necessarily help real wages. Mr
Now Google cars are rolling round California a small group of workers with skills highly Summers points out that prices of things-
driver-free no one doubts such mastery is complementary with machine intelligence, made-of-widgets have fallen remarkably in past
possible, though the speed at which fully for whom he has high hopes, and the rest, decades; America’s Bureau of Labour Statistics
self-driving cars will come to market remains for whom not so much. reckons that today you could get the equivalent
hard to guess. And although Mr Brynjolfsson and Mr of an early 1980s television for a twentieth of
McAfee rightly point out that developing the its then price, were it not that no televisions
Brave new world business models which make the best use of that poor are still made. However, prices of
Even after computers beat grandmasters at chess new technologies will involve trial and error things not made of widgets, most notably
(once thought highly unlikely), nobody thought and human flexibility, it is also the case that college education and health care, have shot
they could take on people at free-form games the second machine age will make such trial up. If people lived on widgets alone— goods
played in natural language. Then Watson, a and error easier. It will be shockingly easy whose costs have fallen because of both
pattern-recognising supercomputer developed to launch a startup, bring a new product to globalisation and technology—there would
by IBM, bested the best human competitors market and sell to billions of global consumers have been no pause in the increase of real
in America’s popular and syntactically tricksy (see article). Those who create or invest in wages. It is the increase in the prices of stuff
general-knowledge quiz show “Jeopardy!” blockbuster ideas may earn unprecedented that isn’t mechanised (whose supply is often
Versions of Watson are being marketed to returns as a result. under the control of the state and perhaps
firms across a range of industries to help with In a forthcoming book Thomas Piketty, an subject to fundamental scarcity) that means
all sorts of pattern-recognition problems. Its economist at the Paris School of Economics, a pay packet goes no further than it used to.
acumen will grow, and its costs fall, as firms argues along similar lines that America may So technological progress squeezes some
learn to harness its abilities. be pioneering a hyper-unequal economic incomes in the short term before making
The machines are not just cleverer, they also model in which a top 1% of capital-owners
have access to far more data. The combination and “supermanagers” grab a growing share of Not what it was 2
of big data and smart machines will take over national income and accumulate an increasing US employment by sector, % of total employment
some occupations wholesale; in others it will concentration of national wealth. The rise of
allow firms to do more with fewer workers. the middle-class—a 20th-century innovation— 70
Text-mining programs will displace professional was a hugely important political and social 60
jobs in legal services. Biopsies will be analysed development across the world. The squeezing out Services
more efficiently by image-processing software of that class could generate a more antagonistic, 50
than lab technicians. Accountants may follow unstable and potentially dangerous politics. 40
travel agents and tellers into the unemployment The potential for dramatic change is Manufacturing 30
line as tax software improves. Machines are clear. A future of widespread technological
Government
already turning basic sports results and financial unemployment is harder for many to accept. 20
data into good-enough news stories. Every great period of innovation has produced 10
Jobs that are not easily automated may its share of labour-market doomsayers, but Agriculture
still be transformed. New data-processing technological progress has never previously failed 0
1948 60 70 80 90 2000 11
technology could break “cognitive” jobs down to generate new employment opportunities.
Source: US Bureau of Labour Statistics
into smaller and smaller tasks. As well as The productivity gains from future automation
6
Livelihoods: The big picture
Reprinted from The Economist - 2014
3 than a bygone peasant to have savings. This concentration of incomes over the past 30 years,
A history to repeat? means that the “reservation wage”—the wage on a scale that matches, or even exceeds, the
Average real wage, year 1=100 below which a worker will not accept a job—is first Gilded Age. Including capital gains, the
Britain, year 1=1770 now high in historical terms. If governments share of national income going to the richest
180
United States, year 1=1970 refuse to allow jobless workers to fall too far 1% of Americans has doubled since 1980, from
160 below the average standard of living, then this 10% to 20%, roughly where it was a century ago.
140 reservation wage will rise steadily, and ever Even more striking, the share going to the top
more workers may find work unattractive. And 0.01%—some 16,000 families with an average
120 the higher it rises, the greater the incentive to income of $24m—has quadrupled, from just
100 invest in capital that replaces labour. over 1% to almost 5%. That is a bigger slice of
Everyone should be able to benefit from the national pie than the top 0.01% received
80 productivity gains—in that, Keynes was united 100 years ago.
1 10 20 30 40 50 60 70 80 90 100
with his successors. His worry about technological This is an extraordinary development, and
Years since start
unemployment was mainly a worry about it is not confined to America. Many countries,
Sources: “Pessimism Preserved: Real Wages in the
British Industrial Revolution” by R.C. Allen (2013); a “temporary phase of maladjustment” as including Britain, Canada, China, India and
US Bureau of Labour Statistics society and the economy adjusted to ever even egalitarian Sweden, have seen a rise in
greater levels of productivity. So it could the share of national income taken by the top
everyone richer in the long term, and can drive well prove. However, society may find itself 1%. The numbers of the ultra-wealthy have
up the costs of some things even more than it sorely tested if, as seems possible, growth soared around the globe. According to Forbes
eventually increases earnings. As innovation and innovation deliver handsome gains to magazine’s rich list, America has some 421
continues, automation may bring down costs the skilled, while the rest cling to dwindling billionaires, Russia 96, China 95 and India 48.
in some of those stubborn areas as well, employment opportunities at stagnant wages. n The world’s richest man is a Mexican (Carlos
though those dominated by scarcity—such as Slim, worth some $69 billion). The world’s
houses in desirable places—are likely to resist largest new house belongs to an Indian. Mukesh
the trend, as may those where the state keeps Ambani’s 27-storey skyscraper in Mumbai
market forces at bay. But if innovation does occupies 400,000 square feet, making it 1,300
make health care or higher education cheaper, The world economy times bigger than the average shack in the
it will probably be at the cost of more jobs, and slums that surround it.
give rise to yet more concentration of income. For richer, for The concentration of wealth at the very top
The machine stops poorer is part of a much broader rise in disparities
all along the income distribution. The best-
Even if the long-term outlook is rosy, with known way of measuring inequality is the Gini
the potential for greater wealth and lots of Reprinted from The Economist, Oct 13th 2012 coefficient, named after an Italian statistician
new jobs, it does not mean that policymakers called Corrado Gini. It aggregates the gaps
should simply sit on their hands in the mean Growing inequality is one of the biggest between people’s incomes into a single measure.
time. Adaptation to past waves of progress social, economic and political challenges If everyone in a group has the same income,
rested on political and policy responses. The of our time. But it is not inevitable, says the Gini coefficient is 0; if all income goes to
most obvious are the massive improvements Zanny Minton Beddoes one person, it is 1.
in educational attainment brought on first The level of inequality differs widely around
by the institution of universal secondary IN 1889, at the height of America’s first Gilded the world. Emerging economies are more
education and then by the rise of university Age, George Vanderbilt II, grandson of the unequal than rich ones. Scandinavian countries
attendance. Policies aimed at similar gains original railway magnate, set out to build a have the smallest income disparities, with
would now seem to be in order. But as Mr country estate in the Blue Ridge mountains of a Gini coefficient for disposable income of
Cowen has pointed out, the gains of the 19th North Carolina. He hired the most prominent around 0.25. At the other end of the spectrum
and 20th centuries will be hard to duplicate. architect of the time, toured the chateaux of the the world’s most unequal, such as South
Boosting the skills and earning power of Loire for inspiration, laid a railway to bring in Africa, register Ginis of around 0.6. (Because
the children of 19th-century farmers and limestone from Indiana and employed more of the way the scale is constructed, a modest-
labourers took little more than offering schools than 1,000 labourers. Six years later “Biltmore” sounding difference in the Gini ratio implies
where they could learn to read, write and do was completed. With 250 rooms spread over a big difference in inequality.)
algebra. Pushing a large proportion of college 175,000 square feet (16,000 square metres), the Income gaps have also changed to varying
graduates to complete graduate work successfully mansion was 300 times bigger than the average degrees. America’s Gini for disposable income is
will be harder and more expensive. Perhaps dwelling of its day. It had central heating, an up by almost 30% since 1980, to 0.39. Sweden’s
cheap and innovative online education will indoor swimming pool, a bowling alley, lifts is up by a quarter, to 0.24. China’s has risen by
indeed make new attainment possible. But and an intercom system at a time when most
as Mr Cowen notes, such programmes may American homes had neither electricity nor
tend to deliver big gains only for the most indoor plumbing.
conscientious students. A bit over a century later, America’s second
Another way in which previous adaptation Gilded Age has nothing quite like the Vanderbilt
is not necessarily a good guide to future extravaganza. Bill Gates’s home near Seattle is
employment is the existence of welfare. The full of high-tech gizmos, but, at 66,000 square
alternative to joining the 19th-century industrial feet, it is a mere 30 times bigger than the average
proletariat was malnourished deprivation. modern American home. Disparities in wealth
Today, because of measures introduced in are less visible in Americans’ everyday lives
response to, and to some extent on the proceeds today than they were a century ago. Even
of, industrialisation, people in the developed poor people have televisions, air conditioners
world are provided with unemployment and cars.
benefits, disability allowances and other forms But appearances deceive. The democratisation
of welfare. They are also much more likely of living standards has masked a dramatic
7
Livelihoods: The big picture
Reprinted from The Economist - 2014
96
36 18.6
4.0 Russia
421‡ Britain
More or less unequal 10.5
Income inequality, Gini coefficient* 55 95
United States 7.2 48 2.6
1980 or earliest 2010 or latest 10.9
Germany China
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 India
South Africa % change in
Brazil inequality
1980-2010†
China 37
More equal 6.2 Number of
United States 20 No data inequality of disposable income; where
Sources: Forbes; unavailable consumption or expenditure data
Sweden More unequal IMF; The Economist †Or closest year available ‡September 2012 §March 2012
around 50% to 0.42 (and by some measures narrowing seemed so inevitable that Simon economies, more inequality often means that
to 0.48). The biggest exception to the generalKuznets, a Belarusian-born Harvard economist, people at the bottom and even in the middle
upward trend is Latin America, long the world’s
in 1955 famously described the relationship of the income distribution are falling behind
most unequal continent, where Gini coefficients
between inequality and prosperity as an not just in relative but also in absolute terms.
have fallen sharply over the past ten years. upside-down U. According to the “Kuznets The Occupy Wall Street campaign proved
But the majority of the people on the planet curve”, inequality rises in the early stages of incoherent and ephemeral, but inequality and
live in countries where income disparities industrialisation as people leave the land, fairness have moved right up the political
are bigger than they were a generation ago. become more productive and earn more in agenda. America’s presidential election is
That does not mean the world as a whole hasfactories. Once industrialisation is complete and largely being fought over questions such as
become more unequal. Global inequality—the better-educated citizens demand redistribution whether taxes should rise at the top, and how
income gaps between all people on the planet— from their government, it declines again. big a role government should play in helping
has begun to fall as poorer countries catch Until 1980 this prediction appeared to have the rest. In Europe France’s new president,
up with richer ones. Two French economists, been vindicated. But the past 30 years have put François Hollande, wants a top income-tax
François Bourguignon and Christian Morrisson, paid to the Kuznets curve, at least in advanced rate of 75%. New surcharges on the richest
have calculated a “global Gini” that measures economies. These days the inverted U has turned are part of austerity programmes in Portugal
the scale of income disparities among everyoneinto something closer to an italicised N, with and Spain.
in the world. Their index shows that global the final stroke pointing menacingly upwards. Even in more buoyant emerging economies,
inequality rose in the 19th and 20th centuries Although inequality has been on the rise inequality is a growing worry. India’s government
because richer economies, on average, grew for three decades, its political prominence is under fire for the lack of “inclusive growth”
faster than poorer ones. Recently that patternis newer. During the go-go years before the and for cronyism that has enriched insiders,
has reversed and global inequality has startedfinancial crisis, growing disparities were hardly evident from dubious mobile-phone-spectrum
to fall even as inequality within many countries
at the top of politicians’ to-do list. One reason auctions and dodgy mining deals. China’s leaders
has risen. By that measure, the planet as a was that asset bubbles and cheap credit eased fear that growing disparities will cause social
whole is becoming a fairer place. But in a life for everyone. Financiers were growing unrest. Wen Jiabao, the outgoing prime minister,
world of nation states it is inequality withinfabulously wealthy in the early 2000s, but has long pushed for a “harmonious society”.
countries that has political salience, and this
others could also borrow ever more against Many economists, too, now worry that
special report will focus on that. the value of their home. widening income disparities may have
That changed after the crash. The bank damaging side-effects. In theory, inequality
From U to N rescues shone a spotlight on the unfairness has an ambiguous relationship with prosperity.
The widening of income gaps is a reversal of of a system in which affluent bankers were It can boost growth, because richer folk save
the pattern in much of the 20th century, when bailed out whereas ordinary folk lost their and invest more and because people work
inequality narrowed in many countries. That houses and jobs. And in today’s sluggish harder in response to incentives. But big
Gini coefficient*, late 2000s Global inequality, Gini coefficient* Top 1% income share‡, %
Market income Disposable income US Britain Germany France Sweden
0 0.1 0.2 0.3 0.4 0.5 0.70 30
United
States 0.65 25
Britain 20
0.60
Japan 15
OECD-29 0.55
10
average
Germany 0.50 5
0
Sweden 1820 50 70 90 1910 29 50 70 92 2008† 1913 20 30 40 50 60 70 80 90 2000 10
Sources: The World Top Incomes Database; IMF; OECD; World Bank; “Inequality among World Citizens: 1820-1992", by Bourguignon & Morrisson, The American *0=perfect equality, 1=perfect inequality †Estimate
Economic Review, 2002; "A short history of global inequality: The past two centuries”, by Branko Milanovic, Explorations in Economic History, May 2011 ‡Includes capital gains, except Britain and France
8
Livelihoods: The big picture
Reprinted from The Economist - 2014
income gaps can also be inefficient, because do not do very well. Yet the 20th century’s focus
they can bar talented poor people from access on redistribution brought its own problems.
to education or feed resentment that results in Too often high-tax welfare states turned out to
growth-destroying populist policies. be inefficient and unsustainable. Government
The mainstream consensus has long been cures for inequality have sometimes been
that a growing economy raises all boats, to worse than the disease itself.
much better effect than incentive-dulling This special report will explore how 21st-
redistribution. Robert Lucas, a Nobel prize- century capitalism should respond to the present
winner, epitomised the orthodoxy when challenge; it will examine the recent history
he wrote in 2003 that “of the tendencies of both inequality and social mobility; and it
that are harmful to sound economics, the will offer four contemporary case studies: the
most seductive and…poisonous is to focus United States, emerging Asia, Latin America
on questions of distribution.” and Sweden. Based on this evidence it will poverty could be halved in the past two decades,
But now the economics establishment has make three arguments. First, although the why should the other half not be got rid of
become concerned about who gets what. modern global economy is leading to wider in the next two? If 21% was possible in 2010,
Research by economists at the IMF suggests gaps between the more and the less educated, why not 1% in 2030?
that income inequality slows growth, causes a big driver of today’s income distributions Why not indeed? In April at a press conference
financial crises and weakens demand. In a recent is government policy. Second, a lot of today’s during the spring meeting of the international
report the Asian Development Bank argued inequality is inefficient, particularly in the financial institutions in Washington, DC, the
that if emerging Asia’s income distribution most unequal countries. It reflects market and president of the World Bank, Jim Yong Kim,
had not worsened over the past 20 years, the government failures that also reduce growth. scrawled the figure “2030” on a sheet of
region’s rapid growth would have lifted an And where this is happening, bigger income paper, held it up and announced, “This is it.
extra 240m people out of extreme poverty. gaps themselves are likely to reduce both social This is the global target to end poverty.” He
More controversial studies purport to link mobility and future prosperity. was echoing Barack Obama who, in February,
widening income gaps with all manner of Third, there is a reform agenda to reduce promised that “the United States will join with
ills, from obesity to suicide. income disparities that makes sense whatever our allies to eradicate such extreme poverty
The widening gaps within many countries your attitude towards fairness. It is not about in the next two decades.”
are beginning to worry even the plutocrats. higher taxes and more handouts. Both in rich This week, that target takes its first step
A survey for the World Economic Forum and emerging economies, it is about attacking towards formal endorsement as an aim of
meeting at Davos pointed to inequality as the cronyism and investing in the young. You could policy round the world. The leaders of Britain,
most pressing problem of the coming decade call it a “True Progressivism”. n Indonesia and Liberia are due to recommend
(alongside fiscal imbalances). In all sections of to the UN a list of post-2015 MDGs. It will be
society, there is growing agreement that the headed by a promise to end extreme poverty
world is becoming more unequal, and that by 2030.
today’s disparities and their likely trajectory There is a lot of debate about what exactly
are dangerous. Poverty counts as poverty and how best to measure
it. But by any measure, the eradication of
Not so fast Not always with us $1.25-a-day poverty would be an astonishing
That is too simplistic. Inequality, as measured achievement. Throughout history, dire poverty
by Gini coefficients, is simply a snapshot of Reprinted from The Economist, Jun 1st 2013 has been a basic condition of the mass of
outcomes. It does not tell you why those gaps mankind. Thomas Malthus, a British clergyman
have opened up or what the trend is over The world has an astonishing chance to who founded the science of demography, wrote
time. And like any snapshot, the picture can take a billion people out of extreme poverty in 1798 that it was impossible for people to
be misleading. Income gaps can arise for good by 2030 “feel no anxiety about providing the means of
reasons (such as when people are rewarded subsistence for themselves and [their] families”
for productive work) or for bad ones (if poorer IN SEPTEMBER 2000 the heads of 147 and that “no possible form of society could
children do not get the same opportunities as governments pledged that they would halve prevent the almost constant action of misery
richer ones). Equally, inequality of outcomes the proportion of people on the Earth living in upon a great part of mankind.” For most
might be acceptable if the gaps are between the direst poverty by 2015, using the poverty countries, poverty was not even a problem;
young people and older folk, so may shrink rate in 1990 as a baseline. It was the first of it was a plain, unchangeable fact.
over time. But in societies without this sort a litany of worthy aims enshrined in the To eradicate extreme poverty would also
of mobility a high Gini is troubling. United Nations “millennium development be remarkable given the number of occasions
Some societies are more concerned about goals” (MDGs). Many of these aims—such as
equality of opportunity, others more about cutting maternal mortality by three quarters Hooray! 1
equality of outcome. Europeans tend to be and child mortality by two thirds—have not Global poverty rate, %
more egalitarian, believing that in a fair society been met. But the goal of halving poverty has 50
there should be no big income gaps. Americans been. Indeed, it was achieved five years early. Baseline scenario
and Chinese put more emphasis on equality In 1990, 43% of the population of developing Range based on best 40
of opportunity. Provided people can move up countries lived in extreme poverty (then and worst scenarios
the social ladder, they believe a society with defined as subsisting on $1 a day); the absolute 30
wide income gaps can still be fair. Whatever number was 1.9 billion people. By 2000 the 20
people’s preferences, static measures of income proportion was down to a third. By 2010 it was
gaps tell only half the story. 21% (or 1.2 billion; the poverty line was then 10
Despite the lack of nuance, today’s debate over $1.25, the average of the 15 poorest countries’
inequality will have important consequences. own poverty lines in 2005 prices, adjusted for 0
The unstable history of Latin America, long the differences in purchasing power). The global 1990 95 2000 05 10 15 20 25 30
continent with the biggest income gaps, suggests poverty rate had been cut in half in 20 years. Source: Laurence Chandy, Natasha Ledlie and
Veronika Penciakova
that countries run by entrenched wealthy elites That raised an obvious question. If extreme
9
Livelihoods: The big picture
Reprinted from The Economist - 2014
since the 1930s. The three regions with the would have to be maintained at something like
The fireman’s helmet 2
largest numbers of poor people all registered its current rate. Most forecasters do expect that
Number of people in poverty, m strong gains in GDP after the recession: at 8% to happen, though problems in Europe could
$1.25
a year in East Asia; 7% in South Asia; 5% in spill over and damage the global economy. Such
80 Africa. As a rough guide, every 1% increase in long-range forecasts are inevitably unreliable but
1990
70 GDP per head reduces poverty by around 1.7%. two broad trends make an optimistic account
GDP, though, is not necessarily the best measure somewhat plausible. One is that fast-growing
60
2000 of living standards and poverty reduction. It is developing countries are trading more with
50 usually better to look at household consumption each other, making them more resilient than
2010
40 based on surveys. Martin Ravallion, until they used to be to shocks from the rich world.
2020 recently the World Bank’s head of research, The other trend is that the two parts of the
30
2030 took 900 such surveys in 125 developing world with the largest numbers of poor people,
20
countries. These show, he calculates, that India and Africa, are seeing an expansion
10
consumption in developing countries has of their working-age populations relative to
0 grown by just under 2% a year since 1980. But the numbers of dependent children and old
0 1 2 3 4 5 there has been a sharp increase since 2000. people. Even so, countries potentially face a
Mean daily consumption (PPP $)
Before that, annual growth was 0.9%; after it, problem of diminishing returns which could
Source: Laurence Chandy, Natasha Ledlie
and Veronika Penciakova
the rate leapt to 4.3%. make progress at the second stage slower
Growth alone does not guarantee less than at the first.
when politicians have promised to achieve poverty. Income distribution matters, too. There is no sign so far that returns are in
the goal and failed. “We do have an historic One estimate found that two thirds of the fact diminishing. The poverty rate has fallen
opportunity this year to make poverty history,” fall in poverty was the result of growth; one- at a robust one percentage point a year over
said Tony Blair, Britain’s prime minister in third came from greater equality. More equal the past 30 years—and there has been no
2005. Three years before that, Thabo Mbeki, countries cut poverty further and faster than tailing off since 2005. But diminishing returns
South Africa’s president said that “for the unequal ones. Mr Ravallion reckons that a could occur for two reasons. When poverty
first time in human history, society has the 1% increase in incomes cut poverty by 0.6% within a country falls to very low levels, the
capacity, the knowledge and the resources to in the most unequal countries but by 4.3% in few remaining poor are the hardest to reach.
eradicate poverty.” Going further back: “For the most equal ones. And, globally, as more people in countries
the first time in our history,” said Lyndon The country that cut poverty the most was such as China become middle class, poverty
Johnson, “it is possible to conquer poverty.” China, which in 1980 had the largest number will become concentrated in fragile or failing
That was in 1964. Much will have to change of poor people anywhere. China saw a huge states which have seen little poverty reduction
if Mr Kim’s piece of paper is not to become increase in income inequality—but even more to date.
one more empty promise. growth. Between 1981 and 2010 it lifted a
So how realistic is it to think the world can stunning 680m people out poverty—more The sweetest spot
end extreme poverty in a generation? To meet than the entire current population of Latin In a study for the Brookings Institution, a think-
its target would mean maintaining the annual America. This cut its poverty rate from 84% tank in Washington, DC, Laurence Chandy,
one-percentage-point cut in the poverty rate in 1980 to about 10% now. China alone Natasha Ledlie and Veronika Penciakova look
achieved in 1990-2010 for another 20 years. accounts for around three quarters of the at the distribution of consumption (how many
That would be hard. It will be more difficult world’s total decline in extreme poverty over people consume $1 a day, $2 a day and so on)
to rescue the second billion from poverty the past 30 years. in developing countries. They show how it has
than it was the first. Yet it can be done. The What is less often realised is that the recent changed over time, and how it might change
world has not only cut poverty a lot but also story of poverty reduction has not been all in future. Plotted on a chart, the distribution
learned much about how to do it. Poverty can about China. Between 1980 and 2000 growth looks like a fireman’s helmet, with a peak in
be reduced, albeit not to zero. But a lot will in developing countries outside the Middle front and a long tail behind. In 1990 there
have to go right if that is to happen. Kingdom was 0.6% a year. From 2000 to 2010 were hardly any people with no income at
the rate rose to 3.8%—similar to the pattern if all, then a peak just below the poverty line
Growth Decreases Poverty you include China. Mr Ravallion calculates and then a long tail of richer folk extending
In 1990-2010 the driving force behind the that the acceleration in growth outside China off to the right (see chart 2).
reduction of worldwide poverty was growth. since 2000 has cut the number of people in As countries get richer, the helmet moves to
Over the past decade, developing countries extreme poverty by 280m. the right, reflecting the growth in household
have boosted their GDP about 6% a year—1.5 Can this continue? And if it does, will it consumption. The faster the rate, the farther
points more than in 1960-90. This happened eradicate extreme poverty by 2030? to the right the line moves, so the strong 4.3%
despite the worst worldwide economic crisis To keep poverty reduction going, growth annual growth in consumption since 2000 has
pushed the line a good distance rightward.
Chapters one to three 3 But the shape of the line also matters. The
chart shows that in 1990 and 2000, the peak
Number of people in poverty, m 1990 2010 2030
was positioned slightly to the left of the poverty
China India Sub-saharan Africa line. As the shape moved to the right, it took
$1.25 $1.25 $1.25
30 30 30 a section of the peak to the other side of the
25 25 25 poverty mark. This represents the surge of
20 20 20 people who escaped poverty in 1990-2010.
15 15 15 At the moment the world is at a unique sweet
10 10 10 spot. More people are living at $1.25 than at
5 5 5 any other level of consumption. This means
0 0 0 growth will result in more people moving
0 1 2 3 4 5 6 0 1 2 3 4 5 6 0 1 2 3 4 5 6
across the international poverty line than
Mean daily consumption (PPP $) Mean daily consumption (PPP $) Mean daily consumption (PPP $)
across any other level of consumption. This
Source: Laurence Chandy, Natasha Ledlie and Veronika Penciakova
is a big reason why growth is still producing
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