news Wednesday, June 03, 2015 - 05:30
  Amidst vociferous debates on growing global inequality of opportunity, and economic inequality within countries, a new study by economist Branko Milanovic has found that when it comes to an individual’s income, which country the individual was born in matters the most. It does matter how hard you work, but if you were born in the wrong country, there is only so much you can earn. So if you were born in India, you are bound to be poorer.   For the economic analysis, Milanovic uses 2008 income data of countries calculated at Purchasing Power Parity (PPP) dollars.   The analysis lets us understand, as pointed out by Matt O’Brien, that that 90% of Indians are worse off than 60% of Chinese residents, 40% of Brazilians and the most poorest of Germans. The top 1% in the US make PPP $180,000, but in India it is just PPP $7000. This is having factored in standard and cost of living.     Image Source: Branko Milanovic   The study throws up interesting insights which allow us to further understand how much the overall national growth of the country matters to the poor, who benefits from increasing inequalities within a country, and most importantly, does it matter that you work hard. Does effort pay off?   The analysis finds that for at least half the people in the world, what they earn depends on how developed their country of residence is, and how much the inequality within the country is. Since both are beyond an individual’s control, and hard work can only take you as far as the country’s economic situation allows you to, migration is the only other option. But with just 3% of the world as migrants, that really cannot be the solution for everybody. So the country of birth is an important factor of income.   There are two crucial conclusions of the study which are of immense importance to Indian economy. One, that everybody - the rich, middle class and poor - benefits from higher mean income, or national growth, of a country. So when the country’s economy grows, the poor get richer, as do the middle and richer classes. So focus on economic growth of the country is important to lift people out of poverty. The rich, however, benefit more from a country’s economic growth.   Secondly, higher inequality within the country harms the poor, and benefits the rich. So as the country grows, redistributive measures have to be taken to help the poor benefit more from the economy’s growth.   For the middle classes though, what matters the most is how the country is doing. The country’s economic inequality does not matter to how well the middle class is doing economically.   Here is the good news: The global inequality in opportunity between countries, due to the place of residence, is huge but decreasing. And this is driven by the rapid economic growth of poor and populous countries, especially India and China.   The study makes a significant contribution by adding further perspective to the ongoing debate over growth and welfare spending in India. Economic growth of the country matters to the poor, as the country grows, so do the poor. But, for the poor to benefit more from the growth, income inequalities have to be reduced, and welfare measures tend to do that.   Also read: Twenty eight live larvae and 32 weevils found in Nestle milk powder for infants