Brazil in Focus

Brazil shrinks the wealth gap

by Marcelo Côrtes Neri
Long known and criticized for its world beating gap between rich and poor, Brazil has seen income inequality decline to record levels in recent years. This is the mirror opposite of the picture in almost every other country in the world where income inequality spiked before the global economic crisis, receded briefly during the downtown, and now is on the rise again. This is the case in China and India, where simultaneous economic booms lifted the poor but helped the rich even more, widening social inequality. It was also the story of Brazil during the 1960s.

On a global scale, the story line is somewhat different. Thanks to rapid economic growth in China and India - which together are home to half the world's poor - the gap between have and have-not nations has fallen by unprecedented proportions over the last century. But before taking on these parallels and paradoxes, let's look at some underlying concepts.

First, a word on methodology. Many measures of social well-being are aggregate numbers, which is to say they synthesize the overall well-being of the nation in a single data point. GDP per capita is the most widely used measure of social well-being. This can be misleading. For example, in a "society" of ten people, if one community member has an income of ten and the rest of zero they would have the exact same overall gdp per capita as another society where ten members draw an income of one each. By definition, GDP is a measure of social well-being that disregards the differences between individuals, looking instead at the sum of the riches produced.

On the other extreme is an alternative metric of well-being that gives greater weight to those in society who have less. By this method, first we classify people by their earnings then assign a weight to each individual income, proportional to his respective place in the overall ranking. In this way, the richest of the rich are "worth" less on the social scale (that is, their income carries a weighs of one) while the poorest of the poor are worth more (income carries weight of ten). By this measure, each individual's value is inversely proportional to what they earn, inverting the mathematical logic of GDP calculations.

Measures of inequality are derived from functions of well-being. For example, the Gini coefficient - the most widely used indicator of inequality - draws on the weighted measures cited above, by which the poorest matter most. The Gini coefficient rages from 0 to 1: the closer a society's Gini score is to zero, the nearer that society is to perfect equality, in which all members are equal. On the other hand, a Gini ranking of 1 means one individual holds all the wealth. Of course, there is no definitive measure of inequality or well-being, but these different metrics offer important perspectives from which we can observe varying aspects of the same situation.

In his 2011 book, the World Bank's Branko Milotovic takes the numbers game to another level by calculating global Gni, analyzing the differences in the average incomes between nations, each weighed according to its respective population. This exercise assumes perfect equality within each country.

In the words of Roberto Martins, the income inequality curve in Brazil between 1970 and 2000 resembles an electrocardiogram of a corpse. The only vital signs appeared during the intensely income concentration decade of 1960 and 1970, when the country's Gini climbed (or worsened) to 0.6 and stabilized there.