Wednesday, January 24, 2007

Globalization is tired, Inequality is wired

In the coming years, we will see more discussion on Inequality around the world; people will increasingly share news and analysis on inequalities and how it affects their lives and neighborhoods.

I write this while thousands join BPO companies in India on $300 per month and above salaries and many more are queuing up daily. This is globalization – giving everyone a TV and a cell phone while the rich get richer doing so.

In New Delhi’s central business district, where my office is, as I write, people with fancy offices, salary and cars are completely surrounded by the unending multitude of peons, couriers, personal loan/credit card sellers, tea sellers all surviving on anything from $75 per month to $300 per month. [This writer make $1000 per month and abouts]

You will be surprised to see that inequality is a bigger disease in the so-called 'first world'.

The Economist provides interesting figures:

- In the rich world labor’s share of GDP has fallen to historic lows, while profits are soaring.
- If you look back 20 years, the total pay of the typical top American manager has increased from roughly 40 times the average—the level for four decades—to 110 times the average now.

While the Economist somewhat justifies high pay as it helps to attract and motivate gifted managers, it is worthwhile to note that the guru of gurus, Peter Drucker once reportedly said that High executive pay was one of the biggest problems with business.

Charles Wheelan writes about the Gini coefficient, a useful statistic for measuring income inequality – it measures a country's distribution of income from 0 (absolute equality, with each person sharing the same amount of wealth) to 1 (absolute inequality, with one person controlling all of the nation's wealth).

He comes up with a comparison of Gini coefficients for some countries and finds that Inequality is rifer in America than in India.

• Japan: .25
• Sweden: .25
• India: .33
• The United States 1970: .39
• The United States 2005: .47 (Note that a small fraction of the increase over time is due to a change in the methodology for calculating the Gini coefficient; still, income inequality has climbed steadily by this measure over the past four decades.)
• Brazil: .58

The Information Economy is another name for the Superstar Economy, namely 80% or a few top performers corner most of the market. The often cited example is that of the difference between what Brad Pit earns for a movie and what a character actor earns.

P.S. I wonder what Microsoft and Google do with all that high profile hiring of Smart People?


At 11:30 AM , Anonymous Arnab Chowdhury said...

It is wrong to compare India's Gini coefficient of 33 with US's 47. India's Gini coefficient is based on consumption data rather that income data. Since people spend decreasing proportion of income on consumption as their incomes increase, India's true income inequality must be higher. But no one knows by how much.

At 12:48 PM , Blogger Pramit Singh said...

You may be right Arnab. But it is fascinating to know about the widespread inequality in America, namely amongst CEOS and low-level workers.


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