Welcome back to our class on analyzing global trends for business and society. If you remember, last week, we covered population trends. And this week, we're going to be examining trends that have to do with money and the distribution of money wealth around the world. We're going to be examining first the topic of global poverty and inequality, and then we're going to take on the issue of the rise of the global middle class. We're going to analyze what exactly are companies doing about the growth of middle class consumption around the world. And we're going to take a look at the relationship between changing gender dynamics and wealth in the world. Let's just start by analyzing poverty. Poverty has to do with the bottom segment of the income distribution. If you draw the line at $1.90 per individual and day, then in the year 1990, there were about 1.9 billion poor people in the world. That number came down to about 1.1 billion poor people by the year 2010 and 0.8 billion people, that is 800 million people by the year 2013. Most of the decrease in the number of people living under the poverty line has to do with the growth of emerging economies. Meanwhile, poverty has been increasing in both Europe and the United States. Now, the distribution of the numbers of poor people around the world is very skewed. About 389 million poor people live in Sub-Saharan Africa, 256 million in South Asia, 71 million in East Asia and 34 million in Latin America. Now as I just mentioned, poverty is on the increase in Europe and in the United States. In the United State, the government calculates that there are about 43.1 million people under the poverty threshold as of the year 2015, and the poverty threshold is defined in the United States as income for a family of four that is below $24,036 for the year. Those 43.1 million people represent about 13.5% of the total population in the United States. This rate is about 1% point higher than in 2007, so there has been an increase over the last 10 or 15 years. Nearly 4 million Americans were in extreme poverty in the year 2011, the last year for which we have this information. And extreme poverty in the context of the US is defined as people who live on less than $2 per day. In the European Union, a similar proportion of the population, about 17.2% lived in poverty or other risk of being poor as of the year 2014. Now let me ask you this question. What is the difference between the concept of poverty and the concept of inequality? Well, we just saw that poverty is about the bottom part of the income or the wealth. Distribution is about people who have to live on less than a certain amount of dollars per day or per year. Inequality, by contrast, refers to the entire distribution of Income or wealth across the entire population, not just the poor. So the big question regarding inequality is whether it is on the decrease or it is on the increase. Remember that in the case of poverty, poverty is declining in most emerging economies and less developed countries, but it has been increasing over the last 10 or 15 years in both Europe and the United States. So, what's the situation? What are the trends with inequality? I'd also like to address with you what are the causes, what are the drivers of inequality in the world? And also, whether too little or too much inequality is something that affects the incentive to work hard and to invest. And more broadly, I would like to ask you, what is it that we should do about inequality in the world? First, let me say a couple of things about measuring income inequality. One thing that you can do to measure income inequality in a given country is to compare the difference in income between those at the top and those at the bottom of the distribution. A second more accurate way of measuring income inequality is to use the so-called Gini coefficient which is a measure of the deviation of the distribution of income among individuals, households or countries from a perfectly equal distribution. When the Gini coefficient equals 0, that means that each individual or household or country has the same income, while a value of 100 means that just one of them enjoys all of the income. So the question that I would like us to analyze next is whether there is more or less income inequality in the world today than 20 years ago. You will notice in a moment that the answer to this question is not that simple. First of all, income inequality across countries in the world has been on the decline since about the year 1990. And if you exclude China from the calculations which is a country where incomes have been growing very quickly over the last 20 years, then we see that income inequality has been on the decline since, more or less, the year 2000. This is Singapore, perhaps the most spectacular example of the rapid rise from third world to first. After separating from Malaysia in 1965, the country went through one of the fastest and most successful processes of economic growth that the world has ever seen. Nowadays, Singapore's 5.6 million people enjoy one of the highest standards of living anywhere in the world. What this means, essentially, is that poorer countries have reduced the gap in terms of income that separates them from the rich countries in the world. But that doesn't meant that everybody is better off than 10 or 20 years ago. In fact, if we take a look at income inequality within countries, then we see that in many countries around the world, income inequality has gone up while in a few of them, it has come down. On this chart we have data since the year 1950 all the way to the present time. So, in Gini Coefficients, which again range between 0 and 100. As the Gini Coefficients approaches 100, we see that more of the income is going to fewer of the individuals or the families or households in that country. We see that quite clearly in the United States, income inequality has been going up. That has also happened in several other rich countries in the world, especially in Europe. When we take a look at emerging economies, here we have a similar chart also starting in the 1950s, and so in income inequality measured by the Gini coefficients. We see that in some emerging markets, inequality has been on the increase, while in others, it has declined over the last 10 or 15 years. For example, in Brazil for the past 15 or 20 years, income inequality has been coming down mostly as a result of robust economic growth that has reached people who were disadvantaged several generations ago. Now, let me share with you another indicator that gives us a longer view on this issue of income inequality. Instead of using the Gini coefficient, now we're going to use the ratio of how much income goes to the top 1%, to those who are within the 1% richest people in the country in terms of income. You see there in the Great Recession that started in the year 2008, the income and the wealth of those in the top 1% of the population came under scrutiny. Everybody was asking, how about the top 1%? Why are they not feeling the impact of the crisis? Just to give you a sense as to what are the thresholds for being in the top 1%, here in the United States as of the year 2013, if a family makes more than $389,000 in income, that family would be within the top 1%. Or if a family has more than $7.9 million in wealth, net worth that is, then that family would be within the top 1% of the wealth distribution in the United States. If we consider this indicator of the income that goes to the top 1% of the population as a percentage of all income in the country, we can then see the evolution over a longer period of time. We have here a chart that starts in the year 1910 and goes all the way to the present time. And we have a number of reach countries as well as emerging markets represented on the chart. And what we can see is that when we adopt a longer time period, since the beginning of the 20th century, then we see a u-shaped pattern, whereby, inequality was relatively high in the 1910s and the 1920s. And it started come down at around 1940 or 1945, 1950 reaching a low as of the year 1980 and then starting to increase again in most of these countries. So in other words, the 1950s and the 1960s were years during which economic growth and prosperity was more widely shared than either in the 1910s or 20s or in the 1980s, 1990s and at the present time. It's important to keep in mind then that essentially over time, we see very complex patterns in the evolution of income inequality in the world.
