The New Geography of Global Income Inequality

When I first came to the United States in 1983 as a graduate student at the University of Wisconsin, I was overwhelmed by how much money Americans made. Sure, I also noticed inequality in America, but what struck me the most was that almost all Americans were better off than all Chinese. My parents were medical doctors and had higher salaries than their peers. With a combined income of about $100 a month, however, they earned only a fraction of what a minimum-wage American worker would earn. As a graduate student in the United States, I was considered rich in China and was therefore expected to bring home luxury items (such as color TVs and cameras), which I did in 1984.Twenty years later, I am now relatively well paid as a University of Michigan professor. China has changed far more dramatically during that time, however. When I visit China now, I often encounter situations in which friends make a concerted effort to let me know that they are financially more successful. Indeed, the rapid pace of economic development in China over the past 25 years has led to sharp increases in both personal income and income inequality, so that many among the Chinese elite now enjoy standards of living that surpass those commonly seen in America and other industrialized nations.Personal observations are no substitute for systematic studies. If you want to understand how global income equality has evolved in recent decades and why, look no further. Glenn Firebaugh has provided the most complete, thoughtful, and intriguing study on the subject, The New Geography of Global Income Inequality.Global income inequality can be divided into two components: Income inequality within countries and income inequality between countries. Firebaugh's book centers on the latter -- between-nation inequality. We know that income inequality within many countries (such as U.S. and China) has been increasing in recent decades. However, the vast majority of global income inequality in the past two centuries has been attributable to between-nation rather than within-nation inequality. Firebaugh divides the history of global inequality into two phases. Phase 1, which occurred between the beginning of western industrialization in the late eighteenth century and the middle of the twentieth century, was characterized by rapid growth in between-nation inequality. In phase 2, which immediately followed, Firebaugh observes a reversal of that trend -- a steady decline in between-nation inequality. Hence his "new geography of global income inequality" is one of a decreasing trend in between-nation income inequality accompanied by a modest increase in within-nation inequality. Firebaugh provides persuasive explanations for his new geography, chief among which is the spread of industrialization to poor countries and the reduction of distance barriers due to advances in technology and the culture of globalization.This is an outstanding book, showcasing what sociology can offer by enhancing our empirical knowledge of the world. While powerfully conceptualized and methodologically sophisticated, Firebaugh's case ultimately rests on the analyses of data from the Penn World Table. It is no small task to draw an empirical generalization from the data. Indeed, much of the book is devoted to discussions of measurement issues that may lead to an alternative conclusion - the continuation of the increase in between-national inequality. Two issues are crucial. First, Firebaugh argues that an international comparison of economic well-being should be based on purchasing power parity rather than exchange rates. Second, because the focus is on individual-level economic well-being, he presents a compelling case that comparisons between nations should be weighted by population size. As much as I like the book, I encourage readers to appreciate Firebaugh's excellent scholarship as much for the questions it raises as for the concrete conclusions it reaches. I have a few questions of my own. First, as Firebaugh realizes, his conclusions are mainly driven by a single case: China. China is the most populous nation and has recently experienced rapid economic development. Since his measures are weighted by population size, China exerts overwhelming influence on the decreasing trend of between-nation inequality. How to interpret the rise of economic power in China in the post-1978 period is a complicated issue requiring further research, perhaps into the role of social institutions. Second, the national average of personal income, the raw material for the study, contains no information about within-nation variability. Yet, regional (thus geographical) variation and rural-urban difference in income can be very large in some countries (such as China). Would the trend look the same if we disaggregated China geographically? More broadly, should the "new geography" be based merely on discrete, internally homogeneous units called "countries"? If there is good reason for doing so, one would want to include the role of government and economic exclusivity within national boundaries in the discussion. Finally, despite the word "geography" in the book's title, Firebaugh's measures of between-nation inequality are not truly geographic, as distances between countries (within a continent) are not considered. In the final analysis, these questions and comments do not detract from the important contributions made by this book. Firebaugh's argument is articulate, forceful, and well-presented. All who are concerned with issues of income inequality, scholars and laypersons alike, will find much to learn from this book, as will students seeking to master the art of conducting empirical social science. For these reasons, I highly recommend Firebaugh's latest contribution.

Glenn Firebaugh is the first scholar to document an extraordinarily important pattern in modern economic history. Prior to industrialization, persons in one nation fared about as well as persons in other nations with respect to income and standard of living. Within nations, however,individual deviations from the means of national income were commonly quite large. One effect of industrialization was to reverse this situation. Today dramatic disparities in income are found between industrial and non-industrial nations, with industrial nations and their citizens being quite well off and non-industrial nations and their citizens being quite poor, on average. Using highly regarded national income data and bringing to his analysis a set of well-reasoned assumptions, Firebaugh makes an astounding discovery. In the last quarter of the 20th Century income inequality began to increase within nations anddecline across nations. An economic process that has pointed in one direction for over a hundred years has begun to reverse itself. Firebaugh coins the term "inequality transition" to identify the two stages of an economic process related to the global spread of industrialization. In the first stage, the principal source of global income inequality moves from within-nations to between-nations. In the second stage, the principal source of global income is restored to the historic norm, namely, within-nations. Today we are in the early stages of the second phase of the inequality transition. Critics of modern, capitalist, industrial expansion have it wrong. Contrary to their pessimistic pronouncements, today, the overwhelming majority of the world's poor are not getting poorer but are getting richer. Spreading industrialization is improving the lot of most of the world's peoples. Indeed, the promise of global economic justice is inherent in the notion "inequality transition."

Much of what you thought you knew is wrong! If you are seriously interested in globabilization and recent trends in world income inequality, you need to read Glenn Firebaugh's The New Geography of Global Income Inequality (Harvard U. Press, 2003). In a straightforward and detailed presentation, Firebaugh explains the arithmetic of inequality -- how it divides into within-nation and between-nation components. He then charts each of these, both over-time and at the present time. You will learn where the U.S. fits in the world, and which countries and continents are at the top and the bottom in terms of income and inequality in income. Most important, you will see that, contrary to much current journalistic and even scholarly writing, world income inequality has actually been decreasing since the 1990s. This books complements and in important ways adds to recent books by Stiglitz, Easterly, Soros, Bhalla, Diamond, and Landes