Rich-Poor Divide: Equality Paradise Still Over 100 Years Away

The world’s poorest nations have many years of catching up to do with the richest before dawn of equality is achieved

Inequality between rich and poor countries will exist for another 100 to 200 years. (Photo: Reuters)

Ever dream of a world where no one is poor and hungry? Where everyone has about the same level of income? We know that will not happen anytime soon, or for that matter ever. Yet, if we were to give in to some indulgence to speculate, we would discover how difficult it is to achieve income equality. It could take anywhere between 100 and 200 years for the poorest in the world to catch up with the richest on per capita GDP.

Now, that is based on a number of assumption. World Bank Director of Global Indicators and Analysis Augusto Lopez-Claros explains in his various research papers and blogs that if per capita GDP in the poorest nations were to grow at an average rate of 6% per annum while that of the richest nations continues to rise at 1.8% per annum, it will take about 100 years before the poor catch up with the rich.

However, if per capita GDP of poor nations were to rise at a slower – 4% per annum – while that of the rich grows at 1.8%, the convergence between per capita GDP of the poor and rich would take as many as 200 years.

Poorer Nations More Populous

Lopez-Claros has used the per capita GDP of nations in 2011 as the base to make these calculations. At that point, the per capita GDP of poor nations was about $583 while that of the rich nations over 70 times bigger at $41,062. The poorer nations are more populous than the richer ones and that serves to depress the per capita GDP. This is well illustrated by India. Its economy is the ninth largest but its per capita GDP, although about thrice that of the poorest nations, ranks very low due to its huge population.

The gap between the rich and poor countries will increase to reach a maximum in the year 2087. (Photo: Reuters)

The gulf between the per capita GDP of the poor nations and the rich will widen before convergence begins, Lopez-Claros explains, citing World Bank data and analysis of various economists. For instance, if the per capita GDP of poor nations were to grow at 6% per annum, the gap between the per capita GDP will widen to peak at $110,506 in 2087 before converging in 2116. That will be nearly three times bigger than the $40,479 gap in per capita GDP in 2011.

The divergence between rich and poor nations widened rapidly since the 1990s, even as extreme poverty declined, mostly sharply in East Asia and relatively moderately in South Asia and marginally in Sub-Saharan Africa. In 1992, the ratio of per capita GDP of the five richest nations to the five poorest nations was 72 and by 2011 it had increased to 268, according to various analysis.

Disparity between poor and rich nations has been accentuated by the population differentials of these regions. (Photo: Reuters)

Concentration of Wealth

The yawning gap in per capita GDP is also reflected in the concentration of wealth in the richer nations. For instance, the combined GDP of Switzerland and The Netherlands, territorially very small nations, exceed the combined GDP of Sub-Saharan Africa. The disparity is accentuated by the population of these regions. Switzerland and The Netherlands together have just about 2.8% of the population of Sub-Saharan Africa.

For a more stark comparison, consider Australia. The country-continent’s GDP too exceeds that of Sub-Saharan Africa, and its population at just 2.7% of Sub-Saharan Africa, which results in very high per capita GDP.

As we observe another World Population Day later this week, remember how unequal the world is: one-fifth of global income is in the hands of the richest 1.7% of the world population and another one-fifth is the hands of 75% of the world population, of which over one billion live on less than $1.25 a day. And, between 1998 and 2008, the period leading to irrational exuberance in stock markets and the eventual financial crisis of 2008, more than half the absolute gains in income went to the richest 5%.

(The writer is a Delhi-based senior journalist)