Ms. Rand, Meet Singapore. Mr. Hayek, Meet Norway.

Posted by: Mark Gimein on October 24, 2011 at 12:45 PM

Percapita.png

Is rising inequality the price of rapid economic growth? Advocates of deregulation often argue that the increasing concentration of wealth is driven by greater rewards going to innovators and entrepreneurs who drive the economy forward.

But is this kind of trade-off really a given? Not really. Above, you can see a chart of per capita income in the United States and two countries, Norway and Singapore, that have enjoyed a long period of sustained expansion. Based on World Bank data it tracks per capita income from 1980 to the present—a period in which Norway and Singapore became two of the world’s wealthiest nations.

Below is a chart of the share of income going to the top 1% of earners, for the same three countries. This comes from the World Top Incomes Database, a goldmine of information on wealth around the world. In both Singapore and Norway, the share of income going to the top percentile has risen—but much less markedly than in the United States. In Norway it generally stays at half or less what it is in the U.S. (except for a brief jump in 2004 and 2005 that comes from a rush to take capital gains in advance of a 2006 tax change).

NO-SP-US Income Shares.png

Certainly there’s a lot more data that could be brought to bear here. The Singapore income share data ends in 2005, and doesn’t include several years of strong growth. Oil is a major component of the Norway’s ascent. Both are small countries, and neither is really a model for the United States. Still, they are instructive. In parts of the world—China, Russia since the fall of communism—economic growth has been accompanied by stunning disparities of wealth. That doesn’t mean the two have to go together.

Reader Comments

Greg Ransom

October 24, 2011 2:58 PM

Mr. Gimein,

How about this: Read some Hayek before spouting off ..

RobD

October 24, 2011 3:12 PM

So why did Communism fail? Because there's no incentive for anyone except the "Leaders". Why won't our current crony capitalism where only the elite have incentives (read rewards) work? "the problem with common sense is that it's not that common"...

David Loucks

October 24, 2011 4:49 PM

Norway has high income because of oil, Singapore because of trade and manufacturing. Neither have world class leading industries.
The US leads the world in many industries: drugs (The legal kind),entertainment, finance, technology, baseball, football, hockey,computer games. etc.
Maybe that leadership goes with the so called disproprtionate earnings.

RobD

October 24, 2011 7:31 PM

David, problem is that the leadership is slipping fast...and if you think about it a lot of that leadership actually has it's originals in another time - when there was a more even distribution in US incomes.

Never-Newspaper!

October 24, 2011 9:37 PM

October 24 2011 - 9:28pm

Little confused does this mean that criminal or corporate offenders in Norway earn more money than everyone else?

There is a reason that the graph from 2004 - 2006 not necessarily reflects any financial statistics.

Referencing citations from Social Science: one percent does not refer to individuals or corporations that should be counted, rather they are left off.

Reference: Never-Newspaper!
Recent Article, https://docs.google.com/document/pub?id=1xiGA3OVRyAIVfWfIcZsiOkhIch69adjM-qnQcWa1yf8
Place of Origin:
German/Estonia

RobD

October 25, 2011 10:41 AM

David, problem is that the leadership is slipping fast...and if you think about it a lot of that leadership actually has it's originals in another time - when there was a more even distribution in US incomes.

Jamal Rodriguez

October 26, 2011 3:50 AM

So wait one moment, market-making and liquidity issues aside, might this not encourage more frequent trading of higher beta securities? CDS perhaps? Do we really want to encourage that?

Furthermore, do people not realize that those hurt most will be 401k holders, as in 90% of the 99%?

Ross Smith

October 26, 2011 5:13 AM

In a true free market - no central banks, commodity-based private money, full reserve banking, tough regulations on fraud and coercion against private property infringements - the current income disparity would not exist. Yet many if not most of the protestors seem to be arguing for more protection, more certainty, more stripping of private property rights which all equals more government power. it is this centralisation of state power, particularly in relation to money that has allowed the banking fraud and the welfare-warfare state that characterises the US to proliferate.

Jake T

October 28, 2011 10:03 AM

+1 Ross Smith

To imply that the US currently reflects either Ms. Rand or Mr. Hayek's ideas is preposterous.

Des from Singapore

October 28, 2011 11:22 AM

Please update your charts. Singapore now ranks as the 1st or 2nd (can't remember if Singapore or Hong Kong is tops) in income inequality as measured through the Gini coefficient.

stockman

October 28, 2011 11:40 AM

Explain the difference between a free market of many entities and one heavily populated by a few large ones. Oligarcial decision making is far different-your competitor is your friend and the customer is the enemy. talk of a free market when discussing a few large industry leaders is dishonest. how big of a income disparity is enough-think of the ramifications for volicity of money

Expat

October 28, 2011 3:19 PM

"The US leads the world in many industries: drugs (The legal kind),entertainment, finance, technology, baseball, football, hockey,computer games."

Hockey is a major industry? Finance is productive? Which industry got us into this mess in the first place?
I would add ad hominem comments, but given the quality of your own comment, there is no need.

bonalibro

October 28, 2011 6:18 PM

@ Greg Ranson - Economics is just a minor branch of philosophy. It's so called laws are written to serve those who would benefit the most from them. They use those laws to convince the workers that those benefits are inevitable. They aren't.

Anything any economist says should be taken with a huge dose of salt. Hayek included. For the last fifty years, two centrally planned economies have out competed the US. in a whole host of industries. If Hayek were correct, that should not have happened. But it's historical fact that it did.

What caused the Soviet Union to fail was not central planning so much as imperial overreach and bureaucratic corruption. We are headed down the same path ourselves.

For the most astute analysis of our current calamity, read Karl Marx.

Martin

October 29, 2011 6:43 AM

Bonalibro, let me get this straight: economics is a vast conspiracy keeping the people down and the USSR and China are examples of how wonderful central planning is?

With regard to the first one, I can just say 'Lol'. With regard to the second one, I don't think you know what you're talking about.

Both countries were (and are) far and far away from the technological frontier the US and other major developed countries are at and what success they had is due to the liberalization.

The USSR implemented the NEP in the 1920's when Lenin saw firsthand how production was collapsing in the face of collectivization and Deng Xiaoping implemented liberalization in 1979 after the various disasters Mao's China had faced between 1949-1979.

If you don't believe, go and have a look in both China and the former Soviet Bloc or its satellite states, you'll see the wonders of central planning firsthand. The destruction of capital has impoverished some of what were the richest nations in the inter-bellum.

Tim Worstall

October 29, 2011 7:16 AM

I wouldn't say that I'm hugely convinced by these numbers. The Norwegian tax system taxes (largely) on the basis of individual income. Given that the database is constructed from tax records we are therefore (largely) seeing the income share of the top 1% individuals.

The US humbers are based upon households. So we are largely seeing the income share of the top 1% households.

The two numbers simply are not directly comparable in the way used above.

OK, let me soften this a little: this is true as far as I know and absolutely delighted to be shown to be wrong, if I am indeed so.

John Hall

October 30, 2011 6:35 PM

The data you present are nominal GDP, not real GDP.
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita

Eric Titus

October 30, 2011 11:01 PM

The US also had natural resources, like Norway. Sure, Norway has oil, but the US has natural gas, oil, coal, copper, and other minerals within its borders. It has plenty of farmland, oil from the Gulf, and owns many of the world's large oil and mining companies. Norway isn't perfect, but they are better at putting their country's resources to work for the people.

Mark Gimein

October 31, 2011 12:00 AM

John,
You're right. I would have preferred real (that is, inflation adjusted) GDP. So they make it look like *all three* economies have risen faster than than they have. Data for inflation adjusted GDP wasn't as easily available. With a chart of real GDP, it would actually be easier to see how much faster Norway's economy grew.
You provide a link to GDP that's also adjusted for purchasing power. That puts Norway lower--because things are just more expensive there. I agree that's the best measure to use for most purposes, but probably not this one. It also wouldn't change the basic point.

Jugesen

October 31, 2011 6:30 PM

Rubbish. Norway is on that list because of oil. We tax the oil companies very hard. When the price of oil goes up the tax follows. The rise in GDP is not because someone produced or invented anything, its because we Norwegians have a coastline that borders a sea with humongous amounts of energy. Global demand for that energy put us on that list. We are a homogeneous population with little inequality to begin with.

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"The Wealth Debate" is a running discussion of wealth, poverty, the economy and income inequality in the U.S. and the world. It was started shortly after the Occupy Wall Street movement sparked a global protest about the fallout from the financial crisis and money in politics. You can reach the editors, Dan Beucke and Mark Gimein, by email, or follow BloombergNow on Twitter to keep up with posts.

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