Ignoring Income Inequality Won’t Protect You !

Approximately 17.5 million Americans fall in the same category as Mexico, Guatemala, Cuba and the likes — the category conventionally tagged as ‘developing’ or ‘third world’

Before you start reading this post, I ask that you note down whatever comes to your mind as an example for each of the two terms : ‘Developed Region’ and ‘Developing Region’. Now, match your picks against World Bank’s Income Inequality Map, assuming that your definition of Developed is represented by High Income and Developing is represented by rest of the pool (Upper Middle, Lower Middle and Low Income) of countries :

Based on those assumptions, chances are your choices are spot-on! We all know that United States is developed and Guatemala isn’t. The only problem? This ‘knowledge’ is factually incorrect and heavily outdated. While selecting those countries, not only was reality squeezed from the levels of high, upper-middle, lower-middle & low income countries into a binary world version but there was also no question asked as to what a ‘region’ is. Simply put, most people’s brains match ‘Developing Regions’ to a list of ‘Third World Countries’, which in itself is supremely flawed for a reference in 2019.

World Bank has tried to fix part of the problem by expanding the binary version into four distinct income levels. Calculated using the World Bank Atlas method, low-income economies are defined as those with a GNI per capita of $1,025 or less; lower middle-income economies are those with a GNI per capita between $1,026 and $3,995; upper middle-income economies are those with a GNI per capita between $3,996 and $12,375; high-income economies are those with a GNI per capita of $12,376 or more in 2018. This is a very effective system since it takes away vague classifications of developing, developed, first or third world and replaces them with $-values — something tangible and measurable. Unfortunately, as effective as a first step that is, painting an entire country in a single color of income bracket is still far away from reality.

Take a look, for example, at the average wage distribution in United States :

in 2017, about 12% of America reported earning less than $10000 per annum. Translating that number to World Bank’s classification brackets, approximately 17.5 million Americans fall in the same category as Mexico, Guatemala, Cuba and the likes — the category conventionally tagged as ‘developing’ or ‘third world’. As a matter of fact, 18.5 million Americans live in ‘extreme poverty’ with their wages below national poverty line threshold of $12.5k per year.

To contrast this, now let’s pick a country from Upper Middle Income category and since we have already used it as a reference, let’s look at Mexico. The datasets available for Mexico aren’t as granular as United States’. Nevertheless, I’ve tried to draw a close comparison using regional per capita annual income and population datasets from OECD :

Wage Distribution Across Mexico (2016)

About 7% of Mexico’s population (~8.8 million people) earns more than $12500 per year, in the World Bank bracket of ‘high income economies’. That doesn’t cover the fact that around 11% of Mexico also struggles with the same challenges of extreme poverty as their American counterparts do, but that’s beside the main point of this article.

I hope by now, you’ve recognized the pattern — no matter which income category World Bank has assigned to your country, chances are your nation suffers from the same issues of income inequality as the rest of the countries around the world. One then begins to wonder whether poverty is the real issue? And if the social reforms of ‘eradicating poverty’ or ‘uplifting the poor’ make any sense when there is a section of society that is clearly the winner no matter what?

Economies across the globe try to come up with innovative policies that financially assist people facing hardships, homelessness or hunger when they should instead be focusing on root-causing the existence of extreme poverty in the face of extreme wealth, in the same country. They should figure out how free markets allowed a fraction of its population to hoard more than 60% of its wealth, and what can they do as the government, to level the playing-field.

That the problem isn’t presence of poverty but market forces that allow poverty to creep in, needs to be acknowledged by governments across the world. Only then can they get on to the bigger task of fixing the lopsided, unjust distribution of access to resources and wealth generated due to that access.

References:

  1. “World Bank Country and Lending Groups.” World Bank Country and Lending Groups — World Bank Data Help Desk, https://datahelpdesk.worldbank.org/knowledgebase/articles/906519.
  2. US Census Bureau. “Income and Poverty in the United States: 2017.” Income and Poverty in the United States: 2017, September 12, 2018. https://www.census.gov/data/tables/2018/demo/income-poverty/p60-263.html.
  3. “2019 Poverty Guidelines.” ASPE, May 22, 2019. https://aspe.hhs.gov/2019-poverty-guidelines.

I innovate ’cause I’m lazy.

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