Summary: Human progress has lifted living standards worldwide, with people living longer, becoming wealthier, and enjoying greater political freedom. Contrary to popular belief, this progress has been widely shared, with globalization and market liberalization raising living standards and reducing overall inequality. Using recent data and the Inequality of Human Progress Index, it can be seen that global inequality has declined across key measures such as life expectancy, education, and income since 1990.
Over the past two and a half centuries, the world has seen significant progress. People live longer, are richer and better educated, and enjoy greater political freedom. (I previously explored the role of cities as engines of such progress for the Liberty Fund’s AdamSmithWorks project). But has that progress been enjoyed by only a few? Has the improvement in living conditions accrued mainly to a small elite, leaving much of the world behind?
What many don’t realize is that these improvements have indeed been widely shared. It seems that globalization and market liberalization—whose power Adam Smith recognized more than two centuries ago—have raised absolute living standards to unprecedented heights and reduced overall inequality. The world is not only wealthier but also more equal.
In this series, I will discuss what inequality is, how it’s measured, and how to understand it’s decline.
Part 1: Understanding Inequality
A popular adage states that “the rich get richer and the poor get poorer”—encapsulating the view that progress is enjoyed only by some. In a much-quoted passage subject to various interpretations, Smith wrote, “Wherever there is great property, there is great inequality. For one very rich man, there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many.” How readers understand Smith’s words on inequality often depends on whether and to what extent they consider inequality to be a problem.
Smith was hardly the first to bring attention to the subject of inequality. Some research even suggests that concern about inequality may be evolutionarily hardwired. Human psychology evolved at a time when people lived in small hunter-gatherer bands that tended to divide meat in an egalitarian manner. Society has altered considerably, but moral intuitions remain largely unchanged—highly unequal distributions of resources often strike people as unjust.
Of course, our genetic predispositions for thinking in certain ways should not be given undue weight: human impulses can be bad as well as good. What Smith calls “the odious and detestable passion of envy” is sometimes implicated in the desire to reduce inequality and has long been characterized as negative by sources such as the biblical Book of Proverbs (which says that “envy rots the bones”) and the playwright William Shakespeare (who wrote that “envy breeds unkind division”). The tendency to focus on relative, rather than absolute, measures of well-being can also be harmful because absolute rather than relative measures of progress are the best standard to assess the success of different institutions and policies.
Furthermore, the majority of people have no objection to inequality arrived at by merit, and there is no evidence of widespread inequality-induced unhappiness. In developing countries, increased economic inequality that arises as part of the population escapes poverty is often seen as heartening—proof that upward mobility is possible—and can coincide with greater average happiness. Research has similarly found “a complete lack of any effect of inequality on the happiness of the American poor.”
Of course, when the rich are protected through privileged status in law, inequality seems far more troubling. Smith recognized that incumbent businesses sometimes gain unfair privileges from the government—in the form of regulations that strangle competition, for example:
The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. . . . The proposal of any new law or regulation of commerce which comes from this order ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.
Wealth of Nations, Bk 1, Ch 11
The growth of government since Smith’s time makes those concerns even more relevant. Examples of such laws range from a needlessly expansive regime of occupational licensing stopping individual competitors from entering a field and overbearing regulatory barriers blocking new businesses from entering an industry to bailouts, mandates, and subsidies that artificially boost sales and coddle entire industries. Inequality that arises from such cronyistic government policies is concerning, and reforms to prevent governments from increasing inequality in this manner are a prudent idea with broad appeal.
There are of course other possible causes of inequality, particularly in rich countries. Consider income inequality. As countries develop economically, income inequality becomes less and less useful as a measure of well-being. In subsistence economies, everyone is engaged in the same struggle for survival. In contrast, people are engaged in different pursuits in affluent societies because such societies offer diverse avenues for fulfillment.
While some individuals seek to maximize their income, others may choose lower-paid professions that they find enjoyable or meaningful or that confer prestige or greater flexibility. Individuals may prefer work that allows more time for leisure or caring for their children. Smith famously observed that each person pursues self-interest—“the care of his own happiness, of that of his family, his friends, his country”—but as Lauren Hall previously noted for AdamSmithWorks, “Smith never argues that economic interest is or should be the sum total of all human activities” (emphasis added).
When income inequality results from personal decisions that some people make to pursue things other than material prosperity, it is hardly a good measure of well-being. Income inequality in such societies reflects personal choices, not overall well-being. In other words, advanced economies provide numerous paths to happiness, diminishing the significance of income inequality. Fortunately, there is a more meaningful way of measuring inequality which I will discuss in part two of this series by focusing on the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso.
Part 2: Measuring Inequality
Adam Smith was well aware that money is not the sum total of well-being; he once opined that “the chief part of human happiness arises from the consciousness of being beloved.” Smith would easily comprehend why someone might choose greater flexibility over higher pay to spend more time with loved ones and would understand that such a choice does not render anyone worse off but is merely an example of someone acting on personal preferences. The greater an individual’s freedom to make choices to act on her preferences, the better off she is. “Every man is rich or poor according to the degree in which he can afford to enjoy the necessaries, conveniences, and amusements of human life,” as Smith noted. Income is just one (admittedly important) measure of well-being precisely because greater income often affords more options to individuals.
Well-being is multifaceted. Attempts to measure it should include income but should also recognize the complexity of the topic and avoid focusing myopically on income.
George Mason University economist Vincent Geloso and I tried to do just that by creating a new measure of inequality, the Inequality of Human Progress Index (IHPI). The IHPI assesses well-being holistically by seeking to capture a fuller range of choices available to individuals than can be gleaned from income alone. By examining inequality in a multidimensional way, the IHPI takes inequality more seriously than measures that focus solely on income inequality. In fact, we surveyed international inequality across a greater number of dimensions than any prior index.
We first constructed a Human Progress Index that includes income as well as other metrics, each speaking to a different component of progress that matters in terms of human well‐being: lifespan , childhood survival , nutrition, environmental safety , access to opportunity , access to information, material well‐being, and political freedom.
We chose those variables to capture the multifaceted nature of well-being with the best available data. Smith may be right that “the consciousness of being beloved” is a key component of well-being, but it is rather hard to find a good measure of it; we limited ourselves to readily quantifiable metrics where the extensiveness of each data set’s year range and coverage of different countries allowed for meaningful analysis. Including so many variables meant we had to constrain ourselves to measuring how global inequality has changed since 1990, because data were often not available or limited before that date. The index confirmed that impressive gains have been made since then, with most people around the world becoming better off in absolute terms.
Importantly, were those gains shared, or did a few countries see most of the benefits while other countries were left behind? To find out, we looked at how inequality between countries has changed over time across those dimensions which I will discuss in part three of this series.
Part 3: Declining Inequality
There is a widespread but mistaken belief that the tremendous progress across a range of metrics has coincided with increasing global inequality, but in fact the data in the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso unambiguously show a decline in global inequality. That’s true on a variety of metrics, including income inequality, education inequality, and most important, overall inequality. In fact, across all but two of the dimensions of inequality that we analyzed, the world has become more equal since 1990.
Worldwide equality has grown continuously since 1990 for life expectancy, internet access, and education. Equality of political liberty has similarly improved almost continuously since 1990, although there has been a slight and troubling downturn in recent years. That recent reversal does not cancel out the long‐term trend of widening access to political liberty but is a reminder that progress is neither inevitable nor irreversible. Political freedom can be lost if not safeguarded. Globally, incomes became less equal until the mid‐2000s, but income equality has improved considerably since then. As for adequate nutrition, the trend line has been erratic, with a turn toward greater inequality in the early- to mid‐2000s. Yet the long‐term trend has been one of appreciable gains in nutritional equality, as access to an adequate food supply becomes more common around the world.
What about the two exceptions? Two indicators in the index show trends toward more inequality: mortality resulting from outdoor air pollution and infant mortality. Regarding air pollution deaths, they may be a result of economic growth in progress. Economists talk about this with references to the environmental Kuznets curve (created by Simon Kuznets), which predicts that pollution rises along with economic growth until reaching a critical threshold beyond which pollution decreases. The growing disparity in outdoor air pollution deaths may indicate that some countries are in the midst of this transition. Those developing countries will almost certainly experience gains in environmental quality similar to those seen in today’s rich countries as they, too, grow richer.
Regarding infant mortality, it is important to remember that in absolute terms, infant mortality has fallen around the world. The growing inequality in infant mortality outcomes could be attributed to the fact that reductions in child mortality in high-income countries have outpaced those in low-income countries since 1990. While infant mortality has, again, decreased globally as more and more children survive past their first year of life, advancements since 1990 appear to have simply occurred relatively faster in high-income nations with access to cutting-edge medical technologies.
These exceptions are important but our most significant finding is that overall inequality is down. In fact, when compared with inequality trends in prior indexes of inequality, which surveyed fewer dimensions, the IHPI shows a far greater degree of improvement toward global equality. This result suggests that older indexes tended to underestimate how widespread progress has been, as well as the share of improvements in living standards that have gone to the poorest people in the world. Global equality has grown faster than many appreciate.
In Adam Smith’s day, for each very rich man, there were at least 500 poor ones. Inequality was extreme. The wealth explosion since then has made even ordinary people today rich beyond the wildest 18th century dreams. In the past few decades, the world has become better off, and those gains have been widely shared. Increasing public awareness of the global decline of inequality may bolster support for the systems of free enterprise and liberalized international trade that Smith advocated and that have brought absolute poverty to record lows and made humans across the globe more equal.
This article was published in three installments, part 1, part 2, and part 3, at EconLog in July 2024.
