May 23, 2013

Economies of Emerging Markets Better Rated During Difficult Times

Chapter 3. Inequality and Economic Mobility

Inequality is on the rise in most advanced economies, according to the Organization for Economic Cooperation and Development (OECD) in Paris. People at the upper end of the income and wealth distribution in most societies receive far more income and control significantly more wealth than those at the lower end. A 2013 report from the OECD shows that income inequality among OECD countries “has increased by more over the past three years to the end of 2010 than in the previous twelve.” The increase has been especially large in many of the countries that have been hit hardest by the economic crisis, including Spain and Greece, as well as in France.

Emerging market economies face similar challenges. “All [emerging economies] have levels of income inequality significantly higher than the OECD average,” the OECD concluded in 2011. And the gap between the rich and the poor rose in recent years in South Africa, Russia and China.

Latin America is the exception. Income inequality is actually falling in most countries in the region, according to the World Bank. In the first decade of the 21st century, inequality fell in Mexico, Argentina, Brazil, El Salvador, Bolivia and Chile. “This is not just a statistical anomaly,” said Augusto de la Torre, the World Bank’s chief economist for Latin America and the Caribbean. “It is a significant reduction in inequality.”

Economic mobility – long seen as an antidote to inequality in many societies – varies among economies. A 2010 OECD report concluded that among OECD countries: “Low mobility across generations, as measured by a close link between parents’ and children’s earnings, is particularly pronounced in the United Kingdom, Italy, the United States and France, while mobility is higher in the Nordic countries, Australia and Canada.”

ECON46Meanwhile, people in developing nations are the most worried about the current gap between the rich and the poor. Those surveyed in advanced economies are the most likely to believe that inequality has grown over the past five years. And people in advanced economies, emerging markets and developing countries all agree that the economic system generally favors the wealthy. Nevertheless, reducing inequality is a relatively low public priority for governmental action across most countries and types of economy. Only in Germany do people want their leaders to first focus on narrowing the gap between the rich and the poor.

Notably, in Greece, Italy and Spain, three victims of the euro crisis, concern about inequality is quite high. And, overall, the highest level of anxiety is expressed by the Lebanese and Pakistanis.

Malaysians are one of the least troubled with inequality. They are among the least concerned about it as a problem, the least likely to think it is growing, and one of the least likely to say the economic system is unfair.

Publics also differ over whether economic mobility will enable children to be better off than their parents. Many people in advanced economies think kids will be worse off. A median of roughly six-in-ten of those surveyed in 11 emerging markets believe children will do better, as do 45% in 14 developing nations.

Inequality Is a Major Concern

ECON25In 31 of the 39 countries surveyed, half or more of the population believe that the gap between the rich and the poor is a very big problem in their societies.

This is particularly true in developing economies, where a median of 74% cite inequality as a major issue. This includes 86% of Lebanese, 85% of Pakistanis and 82% of Tunisians, as well as 81% of Ghanaians and 78% of Nigerians and Senegalese.

Publics in the emerging markets are also very concerned about the gap between the rich and the poor. Clear majorities in eight of the 11 countries surveyed say this issue is a very big problem for their nation, including 79% of Chileans and 75% of Brazilians.

The range of opinion about the wealth gap is quite wide in advanced economies, where 84% of Greeks say inequality is a very big problem, but only 47% of Americans and 45% of Canadians agree.

Rich-Poor Gap Seen as Increasing

ECON24Publics are also broadly convinced that the gap between the rich and the poor has increased in the past five years.

This concern is particularly prevalent in advanced economies, where a median of 80% believe inequality has gotten worse. Europeans overwhelmingly hold such sentiments: nine-in-ten Spanish (90%) and almost as many Germans (88%), Italians (88%) and Greeks (88%) say the rich-poor gap is getting bigger. But only 66% of Americans, 64% of Australians and 58% of Japanese agree.

Emerging market economies (median of 59%) are the least likely to think the gap between the rich and the poor has gotten worse in recent years. This may be driven in part by the particular emerging markets surveyed in Latin America, a region where the World Bank reported a decline in inequality. By comparison, roughly two-thirds of Chinese (69%) say inequality is growing in their society.

Malaysians (32%), Bolivians (32%), Salvadorans (38%) and Venezuelans (40%) are the least likely among the 39 publics surveyed to think inequality has risen in the past half decade. And in most of these countries – as well as Brazil (25%) – roughly a quarter of the public surveyed thinks the rich-poor gap has actually declined over that period.

Notably, some of the countries with the least intense concern about inequality are also nations with the greatest perception that the rich-poor gap has grown: Germany, Canada and Australia.

System Favors the Wealthy

ECON23Publics in advanced (median of 74%), emerging (70%) and developing (70%) economies are mostly in agreement that the current economic system generally favors the wealthy and is not fair to most people in their country.

This antagonism toward the established economic order is particularly strong in Greece (95%) and Ghana (94%). Among advanced economies, such frustration is notable in southern Europe, particularly Spain (89%) and Italy (86%) in addition to Greece.

The greatest satisfaction with the economic system can be found in Malaysia (56%), Venezuela (53%) and Australia (51%), where about half or more of the public actually thinks the current economic order is fair to most people.

Reducing Inequality Not a Priority

Despite widespread concern about inequality, a belief that it is on the rise and a sense that the economic system is unfair, in no country does a majority believe that narrowing the gap between the rich and the poor should be the government’s number one priority. And only in Germany does even a plurality believe this should be a major policy objective. (Creating more employment opportunities is overwhelmingly the priority of publics in advanced economies and a strong priority in developing countries as well. In emerging markets, publics are split over whether the priority should be jobs or curbing inflation.)

About a quarter of Chinese (26%) and Koreans (24%) would make reducing inequality their government’s main priority, among the options tested. About a fifth of the Canadians (22%), the French (21%) and Chileans (21%) agree. A much longer list of publics accord a low priority to closing the rich-poor gap, including Filipinos (3%), Palestinians (3%) and Venezuelans (3%).

Contrasting Ghanaian perceptions is illustrative. Fully 81% of Ghanaians say the gap between the rich and the poor is a very big problem, above the developing country median. But only 6% see it as their biggest priority for government action. This may be because they are even more worried about joblessness and inflation.

Real Divisions in Faithin Economic Mobility

ECON22Differences over generational economic mobility divide publics in rich economies from those in both societies on the rise and in developing economies. Nearly two-thirds (median of 64%) of those surveyed in advanced economies think that children will be worse off when they grow up than their parents. Meanwhile, 58% of publics in emerging markets believe kids will be better off, as do 45% of those in developing economies.

In just two of the 14 advanced economies surveyed – South Korea (56%) and Israel (41%) – are publics more likely than not to think children will be better off economically. Meanwhile, in seven of 11 emerging markets, respondents are more likely than not to think kids will outdo the current generation, as are people in eight of 14 developing economies.

There is particularly strong faith in economic mobility in China (82%), Brazil (79%), Chile (76%) and Malaysia (72%), all emerging markets that, with the exception of Brazil, have experienced relatively robust economic growth in recent years.

The single most pessimistic country by far about the economic fortunes of the next generation is France (90%), followed by Japan (76%).

Just 33% of Americans think today’s children will end up better off financially than their parents. Recent economic studies suggest they may be right. The Horatio Alger story that young people can rise from rags to riches in the United States is becoming a myth. A majority of Americans do have an income that exceeds that of their parents’ family incomes, according to a 2012 study by the Pew Charitable Trusts. But that achievement is not always enough to move them up the economic ladder. “Only 4 percent of those raised in the bottom quintile make it all the way to the top as adults,” the study concluded.