The world is more equal than you think

In this episode of Data Talks, World Data Lab CEO Wolfgang Fengler speaks with co-founder and global middle class expert Homi Kharas about new research that challenges one of the most widely discussed narratives in economics today.

Featured prominently in The Economist, World Data Lab’s latest analysis examines inequality through the lens of consumption rather than wealth. By comparing how much the bottom 50% of the global population consumes relative to the top 10%, the data reveals a surprising trend: global inequality in consumption is improving, largely driven by rapid economic growth in countries such as India, China, Indonesia, and across Southeast Asia.

Together, Wolfgang and Homi explore:

• Why consumption inequality may be a more meaningful measure of real living standards than wealth inequality
• How global economic growth is lifting billions of people out of extreme poverty
• Why the rise of emerging economies is reshaping the global distribution of prosperity
• The role of government policies, taxation, and public services in influencing inequality within countries
• And why, despite ongoing global uncertainty, the long-term trajectory for human welfare may be more positive than many assume.

The conversation offers a data-driven perspective on one of the defining debates of our time — and highlights how new global datasets can help policymakers, businesses, and researchers better understand the real progress happening across the world economy.

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Data Talks is produced by World Data Lab, bringing global data to life through insights, conversations, and stories that matter.

Transcript

SPEAKER_01 0:00

Homie, welcome again to the show. This is a brief exchange on our latest data. Homie, welcome again.

SPEAKER_00 0:08

Thank you. Great to be here.

SPEAKER_01 0:10

Homie, last week was a special week for World Data Lab. Not the first time, but we were extremely prominent in the Economist. Even if you opened, I think, the website of The Economist, we were on the front page on an insight that we created why inequality is better than expected in the world. Tell us about the work you did with Jesus Crespo and Shuraf Suman.

SPEAKER_00 0:33

Well, I think it was interesting because last week, of course, was uh when uh there was this uh big gathering at uh Davos and uh all of the world's billionaires were uh there. There have been uh lots of uh discussions about the uh growing inequality as uh just a few people seem to uh control these uh uh big uh uh gains that have been happening on artificial intelligence and other kind elements of the uh digital economy. So I think that uh there's been a lot of uh conversation about how much worse inequality is getting and how much more concentrated wealth is getting in the uh world. And we uh at World Data Lab uh uh did some uh numbers because we now have uh data that covers uh every country in the world, uh, and asked a uh fairly simple question, not so much about the inequality of income and wealth, but about the inequality of consumption. Uh and that's a question which is what's really happening to people at the bottom of the distribution? Uh in our case, uh, we measured the ratio of the uh the bottom 50% of the poorest people in the world, how much are they consuming compared to the top 10%? It's a fairly standard ratio of uh uh inequality, a measure of inequality in uh economics. And to our surprise, what we found was actually there's a very substantial trend to show that things are getting better. And if you step back a little bit and you say, well, how could this be true? the answer is uh quite straightforward. It's that you still have a lot of relatively poor people, relative compared to the living conditions of people in, say, Europe or the United States or uh Japan, but very large numbers in India, in China, in Indonesia, Southeast Asia, or in a few other countries uh around the world, which are growing uh quite rapidly. And uh these countries are uh getting the benefits of uh uh of global growth, of uh trade, of uh having uh uh done things to uh fix their own economies, and uh what we used to call trickle down is actually trickling down, but more than trickling, it's uh uh a uh a decent flood. And so the strength of this uh has really been, I think, quite uh uh uh quite dramatic, and uh that's what uh I think has generated the uh interest. And we did various things, we broke it down into uh is this, we we showed that the what was driving this trend was the fact that these poorer countries were catching up, and then we showed that, well, yes, but within each country, you have a very mixed picture. So you do have some countries like the United States where even consumption inequality appears to be getting worse, but these are smaller numbers and they're balanced by other countries where consumption inequality is getting better. So what we've called that within country inequality uh component was actually uh uh fairly stable once you uh aggregate across all countries over time.

SPEAKER_01 4:12

Brilliant, homie. I want to pick up on two things. One, um obviously we wouldn't both stories could still be true and are probably true, right? Wealth inequality is getting bigger, but income uh spending inequality, consumption inequality is getting better if you want to have a more equal world. Um give us a perspective on those both measures and why would you argue that this consumption inequality and the lens of consumption is at least as important as the one conventionally debated in Davos and elsewhere?

SPEAKER_00 4:44

The thing about the wealth inequality is that uh it's uh very difficult to get measures of uh wealth that are uh consistent. So are we talking about uh pre-tax wealth or post-tax wealth? And uh, you know, most people have their wealth in financial assets, and there are some uh tax obligations associated with those if you sell. So uh how do you uh compute those? If you have a uh, you know, several different uh houses, uh uh you can't be living in all of them at the same time. So uh you know there are there are f several of those kinds of things that uh make the uh wealth comparisons across countries uh somewhat uh, I would say, uh you can you can get an order of magnitude, but uh those metrics tend to be a little bit more imprecise. Uh whereas spending is something where national statistical offices uh actually do some uh hard, serious work. Uh that's where we at World Data Lab uh get uh most of our uh uh numbers. And uh there one can uh uh see different groups, different people, and you can identify uh you know individuals, households, etc. Even in wealth, you know, if you've got a pension fund, for example, that's holding a lot of wealth. Do you try to say, well, every member person who has something a piece of that pension fund uh, you know, has a bit of wealth? Or so you see you see what I mean? It's just not quite as uh straightforward, uh, other than to say, you know, we know a few people like Bill Gates and uh Elon Musk are uh billionaires, or uh you know, etc. Uh so when you're looking for a whole distribution, I think uh looking at consumption is a uh uh something. And ultimately, if you're thinking about the welfare of the world and how well are people doing in the world, it's all about their consumption and whether they have the ability to uh uh to survive and thrive and uh take vacations and send their children to school and uh to have decent health care and uh real things, I would say.

SPEAKER_01 7:11

Real things. That's brilliant, homie. And these are the real things that we do indeed measure and work with many companies and and policy makers together. Um uh on the other point I want to briefly come to, homie, because that was indeed a surprise, where the within country inequality has gotten slightly better or rather stable, and you have some countries that are getting worse, others getting better. Um what would be the um insight that countries within country inequality would get better? What are the stories behind those also positive developments?

SPEAKER_00 7:46

So most countries have uh some kind of uh uh fiscal mechanisms for changing the distribution of uh consumption, of the distribution between uh uh income and consumption. So you have both taxes and you have uh the ways in which governments spend money. And uh you know, governments, for example, in uh Europe where you are uh Wolfgang, uh healthcare is uh largely free. It's uh provided by the uh government. You probably spend uh very little out of pocket on uh uh healthcare for uh uh your family, uh similarly with uh uh education. Um so the way in which governments uh spend money, and uh governments have lots of programs for taking poor, taking care of people who are uh somewhat poorer in their uh countries, uh, the way governments spend money tends to be uh a very powerful force in changing uh the distribution of spending uh and how spending uh within any country gets allocated. And that's why it's a force that only operates within a country because all of those programs accrue to the citizens of that country. Uh, and they vary a lot depending on which country you're in. So historically, Scandinavian countries have been much more generous and more progressive in uh these kinds of uh programs. Countries like the United States have been uh uh slightly less, uh somewhat less progressive on that uh uh side. Uh they have lower uh uh tax rates. So you have uh lots of those kinds of things that uh change the uh the distribution of income before you get to the distribution of spending.

SPEAKER_01 9:40

Brilliant, homie. So as we close this part, um just some final uh takeaways of what you think um this contribution, it would also be published, I think, in Brookings now, uh, can make to the discussion. Do you think there can be one can nudge a bit how people think about the world and inequality and any other takeaways you want to leave the audience with?

SPEAKER_00 10:00

I think the principal um uh takeaway is that uh despite all of the uh uh the angst, if you will, about the uh global economy, uh and many people feeling that the global economy is just not doing well and isn't really delivering, uh I think that that may be uh somewhat uh overstated and that actually in many of the most populous countries in the world, economies are actually uh doing quite well, the lives of people are uh getting better, uh fewer people are in uh extreme poverty, and the ones that have escaped extreme poverty uh now have improved financial health, actual physical uh health, life expectancies are getting better, they're moving to cities, they're getting jobs, uh, that they're taking vacations. More people are just enjoying the kind of uh material benefits of uh uh economic uh prosperity than uh ever before. Uh, and that's a very good trend. And what we saw in these uh numbers is that it's a very powerful trend that isn't really affected by these day-to-day fluctuations. Just coming back to this discussion we had on uh wealth. I mean, if you were to have uh you know looked at uh wealth and the wealth in uh cryptocurrencies or the wealth in gold, I mean, one day you have one valuation, the next day, literally in one day, I think with uh gold and silver, something like three trillion dollars in the world of uh wealth was wiped out. So there's huge volatility in these uh uh measures that uh you don't see on the uh the consumption side. So keep uh keep your eyes focused on the basics, things are getting better despite all the uh this um uh kind of upheaval that we're uh seeing. Uh and uh I think that uh many of the new technologies uh that are being introduced can be now introduced into other countries as well. Uh and when we say this inequality is going uh is getting better, what we really mean is that a range of countries are now starting to use global best practice technologies in their own economies, and that's lifting them up. The improvement in inequality is not because some countries are getting poorer, it's because other countries are getting richer. And that's a good thing.

SPEAKER_01 12:46

Well, Paul, thanks so much, homie. Indeed. The rich are still doing fine, but also the poor are fortunately doing good. And if you want to understand more about the data, contact us at World Data Lab. We'll be happy to help you to understand the future and the the role that consumption plays. Thank you so much, homie.

SPEAKER_00 13:01

Thank you, Wolfgang.