ECO 1.1 - 1.2
1 Introduction
Over the last 250 years there has been an unprecedented rise in global living standards.
A minority of countries achieved affluence while a significant majority escaped grinding poverty.
A new dominant force in the economy: capitalism. The capitalist revolution enabled the escape from poverty through:
technology advances
increasing specialization
massive increases in productive assets (capital)
Consequences accompanying capitalism:
unprecedented global economic inequalities
growing threats to the natural environment
Democracy emerged in response to inequality, providing political equality and usually mitigating economic inequality.
A South African example (Cyril Ramaphosa)
Born 1952, apartheid excluded Black South Africans from schools, healthcare, public bathrooms, and the right to vote.
By 2012 Ramaphosa became deputy president and was the 29th-richest person in Africa with wealth over $700 million.
Under apartheid, whites prospered while Black income per capita was around 11% of White income in the late 1980s; this gap persisted for decades.
Ramaphosa participated in strikes and protests that contributed to the anti-apartheid movement; Mandela was released from prison; Mandela later became president in 1994, Ramaphosa elected to parliament.
Democracy (1994) brought legal equality and voting rights to people of all races, and later updates reduced formal exclusions.
Post-apartheid economic changes included:
abolition of legally-imposed racial separation in schools and healthcare
expanded access to piped water and electricity for many families
Changes in inequality:
Differences between major population groups narrowed.
Inequality within those groups rose dramatically.
Ramaphosa’s life is an extreme example of these dynamics.
Economic and democratic changes after the end of apartheid
The abolition and transition to democracy reduced group-based differences but increased within-group inequality.
Using after-tax income and government transfers, the overall inequality in South Africa did not decline in the 20 years after the end of apartheid.
Looking ahead (context for the unit)
This unit surveys how capitalism spread globally in the last 250 years and how democracy emerged later, both reflecting and shaping capitalism and its effects on living standards, inequality, and environmental sustainability.
The discussion will connect to broader questions of political economy, development, and policy.
1.1 Introduction – Key themes and data visualization
Singapore and Niger: the averages of the poorest 10% to the richest 10% across extreme ends of global income distribution.
Measuring inequality relies on statistics and ranking individuals by income worldwide.
World income distribution visualization (Figure 1.1):
3D “skyscraper” figure showing countries ranked left to right from poorest to richest (in 2014, using PPP-adjusted income).
For each country, bars represent deciles (poorest 10% at the front, richest 10% at the back).
Bar width encodes population size; country colors help identify trends (e.g., China colored red; neighbours yellow/green).
Data and interactive simulations are available via the Globalinc website; data are provided for download.
Interpretive points of Figure 1.1:
The height difference between the front bar (poorest 10%) and back bar (richest 10%) shows inequality within a country.
The overall disparity between countries shows inequality across nations.
- Dissecting the skyscraper figure (Figure 1.1a):
Inequality within countries is large: the rich have much more than the poor within each country.
Inequality between countries is also large: wide variation in average incomes across nations.
Rich/poor ratio as a measure of within-country inequality:
Defined as the ratio of average income of the richest decile to the average income of the poorest decile:
This ratio is similar to, but not the same as, the 90/10 ratio (which uses percentile incomes rather than decile averages).
The 90/10 ratio is defined as:
Our rich/poor ratio tends to be higher than the 90/10 ratio because it uses decile-average incomes rather than single percentile values.
2014 data excerpts (illustrative rich/poor gaps):
Botswana: Rich = 24{,}523; Poor = 169; Rich/Poor ≈ 145
Nigeria: Rich = 4{,}449; Poor = 203; Rich/Poor ≈ 22
India: Rich = 4{,}446; Poor = 223; Rich/Poor ≈ 20
United States: Rich = 60{,}418; Poor = 3{,}778; Rich/Poor ≈ 16
Norway: Rich = 45{,}302; Poor = 8{,}325; Rich/Poor ≈ 5.4
Takeaways from the 2014 distribution:
The gap between rich and poor is enormous within almost every country.
There are large cross-country differences in average income.
Even relatively equal countries (e.g., Norway) can have large absolute gaps when compared to much poorer nations (e.g., Nigeria).
Norway’s income is about 19 times that of Nigeria on average, yet even the poorest 10% in Norway earn nearly twice the income of the richest 10% in Nigeria.
Historical context:
A thousand years ago, the world’s income distribution was relatively flat compared to modern times; differences across regions were small in comparison to current disparities.
Data sources and notes:
The rich/poor visualization is from the Global Consumption and Income Project (GCIP).
The first version of the visualization appeared in Sutcliffe (2001) 100 Ways of Seeing an Unequal World.
The data and interactive tools are available on the Globalinc site and are documented in the accompanying notes.
1.2 Affluence and income inequality
Two key empirical observations from the 2014 distribution:
Inequality within countries is enormous: the rich have much more than the poor within any given country.
Inequality between countries is also large: substantial cross-country variation in average incomes.
Rich/poor ratio interpretation:
A country with a higher ratio is more unequal by this metric.
Norway, while arguably the most equal on this list, still has a high absolute average income relative to poorer nations like Nigeria.
South Africa as a case study for the relationship between democracy and inequality:
Democracy expanded political rights to all races, aligning legal rights with democratic values.
Yet the transition did not automatically erase economic disparities; the distribution of income post-tax-and-transfer did not show a decline in inequality in the 20 years after apartheid ended.
Democratic transition and its impact on inequality:
Democracy tends to reduce inequality between racial groups when it broadens political and legal rights.
However, inequality within racial groups can rise, offsetting some of the gains from reducing between-group disparities.
Policy-relevant insight:
Legal and political equality does not automatically guarantee economic equality; distributional outcomes depend on a mix of institutions, policies, and market dynamics.
Summary takeaways
Global inequality is characterized by large disparities both within countries and between countries.
Democracy can reduce disparities between groups but may not automatically reduce overall inequality due to rising within-group inequality.
Understanding inequality requires careful use of statistics, decile-based measures, and cross-country price adjustments (PPP).
The historical trajectory from a relatively flat world economy to today’s highly unequal landscape is central to analyzing current policy debates about growth, distribution, and environmental sustainability.