Saturday 3 December 2016

How incomes in the West have stagnated: 'the chart that explains Brexit and Donald Trump'

Richard Evans

Published 12/07/2016 | 10:22

How the West's lower earners have missed out on the benefits of globalisation. The world's lowest earners are to the left, the highest are to the right Credit: Branko Milanovic, Toby Nangle
How the West's lower earners have missed out on the benefits of globalisation. The world's lowest earners are to the left, the highest are to the right Credit: Branko Milanovic, Toby Nangle

Middle-income earners in developed countries such as Britain are the only group anywhere in the world not to have benefited from globalisation, research from the World Bank suggests.

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While many people in poorer parts of the globe saw their incomes rise by as much as 80pc in real terms over the two decades before the financial crises, some in the West suffered a 5pc decline in their income after allowing for inflation, the report found.

The richest parts of society in the West also gained, by as much as 60pc, leaving the “squeezed middle” as the only group to lose. This failure to share in the benefits of an increasingly globalised economy is the “elephant in the room” that may help to account for the rise of “deglobalisation” movements in Europe and America, is has been suggested.

The report’s findings are summarised in the chart above. It shows how those who earned the least in 2008, on the far left of the graph or the elephant’s tail, experienced no rise in income (in real terms) over the two previous decades.

However, the incomes of those who were only slightly richer increased sharply over the period, a trend that continued all the way to the halfway point on the income scale (the elephant’s back). These are the middle classes in developing countries.

From that point onwards, improvements in real incomes fall sharply (the animal’s nose), reaching their nadir at the lower end of the top 25pc of the global population – who include those on relatively low incomes in the advanced nations.

But the very highest earners – who are concentrated in the richest nations – found that their incomes rose sharply, as shown by the elephant’s trunk.

The research appeared in a World Bank working paper, Global Income Inequality by the Numbers: in History and Now, An Overview, by Branko Milanovic, which was published in 2012 but has been attracting increasing attention of late.

Mr Milanovic said: “Global income distribution has thus changed in a remarkable way. It was probably the profoundest global reshuffle of people’s economic positions since the Industrial Revolution.”

Toby Nangle, a multi-asset manager at Columbia Threadneedle, the fund group, said the stark inequality in improvements in living standards identified by the report could be one of the causes of “deglobalisation” movements in the West, such as elements of the campaign for Brexit and for Donald Trump to be the next US president.

Telegraph.co.uk

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