Global Winners & Losers: The “Elephant” Diagram

By Shlomo Maital

Source: World Bank: Christoph Lakner, Branko Milanovic, 2014

     The above diagram tells the story. On the “X” axis: the global distribution of income, from the poorest 5% to the richest 5%. On the “Y” axis:   the global rate of growth of the income for each of the 20     5% groups.   The time period is the two decades, from 1988 through 2008. In these two decades, the Berlin Wall fell, global trade boomed, China grew by double digits, Asia prospered…and then it ended, in 2008, when the ceiling fell, with the global financial crisis.

     The diagram has been dubbed the ‘elephant’ diagram, because it does look like an elephant, trunk and all.

       What is the story it tells?   The poorest 5% were left out – their incomes did not grow at all. The ‘middle class’ in the poorer countries, mainly China, enjoyed strong growth. The ‘middle class’ in the wealthy countries were hard hit — the 80th percentile did not grow at all, in income.   And the top 5%?   Their income soared.

     Now — looking at elections in the UK, in the US, and elsewhere — I think you could have made strong predictions just based on the ‘elephant’. A large underclass, in the left-out economy. A large middle-class hard hit and struggling. A wealthy elite, able to buy political influence. The rising economic power of China.

     Britain’s Labor Party leader Corbyn was crushed, because he lost touch with his voters. There is a real and present danger that the Democrats in the US may do the same – though I understand, they are studying the UK election closely.

       The two groups of big-time losers, in the elephant diagram, will stay home or vote against you, if you ignore what matters to them and if you ignore policies that they believe will help them. It happened before – it could happen again.*

* “Lakner & Milanovic: “democracy is correlated with a large and vibrant middle class, its continued hollowing-out in the rich world would, combined with growth of incomes at the top, imply a movement away from democracy and towards forms of plutocracy. Could then the developing countries, with their rising middle classes, become more democratic and the US, with its shrinking middle class, less?”