The Haves and the Have-Nots

The Haves and the Have-Nots Plot Summary

Introduction

Imagine a world where your economic fate is largely determined not by your talents or efforts, but by where you were born. Throughout human history, the distribution of wealth and resources has followed distinct patterns that have profoundly shaped societies and individual lives. From the striking disparities in ancient Rome to the complex global economic landscape of the 21st century, inequality has been a persistent yet evolving feature of human civilization. The story of global inequality is one of remarkable transformations. We witness how industrial revolutions created unprecedented wealth while simultaneously generating new forms of disparity. We explore how socialist experiments attempted to address inequality through radical redistribution, only to face their own contradictions. And perhaps most importantly, we discover how modern globalization has transformed inequality from primarily a national concern to an international phenomenon, where the gap between countries often matters more than the gap between individuals within the same society. This historical journey provides crucial insights for policymakers, economists, and anyone seeking to understand one of the most pressing challenges of our time.

Chapter 1: Ancient Inequalities: From Rome to Early Modern Times

In ancient societies, inequality manifested in remarkably different ways than it does today. The Roman Empire, spanning from 31 BCE to around 180 CE, represents one of the first extensively documented cases of significant economic stratification. At the top of this society stood the emperor and a tiny elite who controlled vast wealth. An emperor like Augustus had an annual income equivalent to about 0.08 percent of the entire empire's GDP - approximately eight times greater than what King George III of England would command in the early 19th century. Roman senators, though not at the imperial level, enjoyed annual incomes about five hundred times the average Roman citizen. This would translate to roughly $21 million annually in today's terms - vastly surpassing the income of modern U.S. senators. However, these elites represented less than 1 percent of a population of approximately 50-55 million. The vast majority lived at or just above subsistence level, with relatively small income differences among them. The gradient was remarkably flat for most of the population but increased dramatically at the very top - unlike modern societies where income rises more gradually throughout the distribution. This pattern of extreme concentration at the top with a large, relatively homogenous bottom continued through medieval and early modern times. In 13th century Paris, the richest parish (St. Jacques) had incomes about six times higher than the poorest parish (St. Marcel). What's particularly notable about preindustrial inequality is that it was largely geographically determined - the wealthy concentrated in specific districts, with little mobility between classes. By analyzing tax records from 1292, researchers found that the wealth pattern of Paris differed markedly from today's configuration, with richest areas migrating from the city center westward over centuries. The economic structure of these early societies posed a fundamental constraint on inequality. With average incomes close to subsistence level, there simply wasn't enough surplus for inequality to reach modern levels. Economic historians have identified an "inequality possibility frontier" that shows the maximum possible inequality at any given level of economic development. When a society's average income is just twice the subsistence minimum, even if the elite extract every bit of surplus, the maximum Gini coefficient (a measure of inequality) can only reach 50. This explains why many historical societies, despite seemingly exploitative elites, had lower overall inequality measures than today's wealthy nations.

Chapter 2: The Industrial Revolution and the Great Divergence (1800-1950)

The Industrial Revolution triggered the most profound transformation in human inequality patterns since the dawn of civilization. Beginning in late 18th century Britain and spreading across Western Europe and North America, this period saw average incomes rise far above subsistence levels for the first time in history. This new wealth initially concentrated in the hands of industrialists and property owners, driving inequality within industrializing nations to unprecedented heights. By the mid-19th century, the Gini coefficient in Britain had reached its historical peak, reflecting the stark contrast between factory owners' mansions and workers' slums. Karl Marx, observing this period, predicted increasing polarization between workers and capitalists would eventually trigger revolution. His analysis wasn't entirely wrong for his time - Britain and other developed capitalist countries did experience steadily rising inequality throughout the 18th century and first half of the 19th century. However, Marx failed to anticipate a crucial development: around 1870, shortly after the publication of Das Kapital, real wages finally began a secular rise that continues to this day. The working classes in industrialized nations started gaining ground, even as the capitalist class remained wealthy. Perhaps more consequentially, this period marked the beginning of what economic historians call "the Great Divergence" - when income differences between nations exploded. In 1820, the richest countries (Great Britain and the Netherlands) were only about three times wealthier than India or China. By 1950, this gap had widened dramatically, with Western nations becoming 15-30 times richer than their Asian counterparts. This fundamentally altered the nature of global inequality, shifting it from primarily within-nation differences to between-nation differences. The Great Divergence created a fundamentally new world order. For the first time, citizenship became a primary determinant of economic prospects. The income gap between industrialized and non-industrialized areas created enormous migration pressures, with millions leaving Europe for opportunity in the Americas. It also provided justification for colonial exploitation, as imperial powers extracted resources from less developed regions. The colonial economic structure often created extreme inequality, with European colonizers enjoying incomes that would place them in the top 1% of global income distribution even by today's standards. This transformation had profound implications for social and political movements. Working class solidarity, which Marx had expected to transcend national boundaries, instead fragmented along national lines. Workers in advanced capitalist countries increasingly found common cause with their own national bourgeoisie rather than with poorer workers elsewhere, as their own economic situations improved relative to workers in less developed regions. By the early 20th century, the world had been fundamentally reshaped by both industrial technology and the new geography of inequality it created.

Chapter 3: Socialist Experiments and Their Aftermath on Inequality

The Russian Revolution of 1917 marked the beginning of history's most ambitious experiment in economic equality. Inspired by Marxist ideals, communist regimes sought to eliminate class differences through the abolition of private property and the creation of centrally planned economies. By most empirical measures, they achieved significant reductions in inequality. The Gini coefficients for socialist countries typically ranged from the upper 20s to lower 30s - among the lowest values recorded after World War II and approximately 6-7 points lower than in comparable capitalist countries during the same period. This greater equality was achieved through several mechanisms. First, the nationalization of industry and large-scale land reform eliminated the fortunes of industrial and land-owning elites. Second, full employment policies ensured everyone had some income, however modest. Third, extensive education systems combined with policies that deliberately limited wage differentials between intellectual and physical laborers reduced the education premium by about half compared to market economies. Finally, a network of social transfers - from subsidized transportation to universal pensions - further leveled incomes. However, this egalitarianism came at significant costs. By removing nearly all financial incentives for harder work or innovation, socialist economies suffered from chronically low productivity growth. As one economic historian notes, in their 50-70 years of existence, socialist economies never produced a single internationally successful consumer product. Even the most technologically advanced socialist country, East Germany, could produce nothing better than Trabants and Wartburgs - poor imitations of Western automobiles. The leveling of incomes removed both the carrot of higher earnings and the stick of potential failure. Additionally, socialist regimes created new forms of inequality based on political power rather than wealth. High-ranking party officials enjoyed significant privileges - spacious apartments, access to special stores, country dachas, and sometimes chauffeur-driven cars. Importantly, these privileges were attached to specific positions rather than coming as higher monetary income. This system ensured that those who fell from favor would lose everything, creating strong incentives to maintain political loyalty. As dissident Milovan Djilas observed in 1953, communism had simply created a "new class" of privileged elites. When socialist systems collapsed in the late 1980s and early 1990s, they were followed by dramatic increases in inequality. In Russia, the Gini coefficient doubled during the transition period. This partly reflected the removal of artificial constraints on inequality, but also resulted from corrupt privatization processes that created immense wealth for some while leaving others in poverty. The post-socialist experience demonstrated that inequality, once suppressed, can return with even greater force when institutional constraints are removed without adequate replacements.

Chapter 4: Globalization and the Rise of Between-Country Inequality

The post-World War II period witnessed an unprecedented expansion of international trade, investment, and communication - a phenomenon we now call globalization. Contrary to simple economic theory, which predicted that globalization would reduce differences between countries, the gap between rich and poor nations actually widened significantly until the late 1970s. In 1950, the ratio between the richest and poorest countries had grown to approximately 30:1, compared to just 3:1 in 1820. This divergence fundamentally transformed the nature of global inequality. Traditional economic theories suggested that under globalization, capital would flow from rich to poor countries seeking higher returns, technology would transfer easily, and specialization would benefit all participants. However, the actual patterns observed during most of the post-war era contradicted these expectations. Capital predominantly flowed between rich countries rather than from rich to poor. Between 2000-2007, three-quarters of global foreign direct investment went to already wealthy nations - what economists call the "Lucas paradox." Similarly, technology transfers proved more difficult and costly than anticipated, as intellectual property protections allowed innovators to charge for their use. The watershed moment came in the late 1970s and early 1980s when China and later India began their remarkable economic transformations. With their enormous populations and rapid growth rates, these two countries created a countervailing force against the trend of divergence. When measuring inequality across countries while weighting by population, we observe a decline in global inequality starting around 1980. However, when treating each country equally regardless of population, inequality continued to increase as many Latin American, African, and Eastern European countries stagnated or declined economically during the "lost decades" of the 1980s and 1990s. This creates a stark contrast: today's world features both some countries catching up spectacularly (mainly in Asia) while others fall further behind (much of Africa and parts of Latin America). The absolute income differences remain staggering. In 2007, India's GDP per capita was $2,600, China's was $5,050, while the United States stood at $43,200 (all in purchasing power parity terms). These differences mean that for a poor country to merely prevent the absolute gap from widening, it must grow at extraordinary rates. If the U.S. grows by just 1%, India would need to grow by 17% - an almost impossible feat - just to maintain the same absolute distance. The consequences of these vast between-country differences have been profound. They have created enormous migration pressures, with millions seeking to move from poor to rich countries. They have also fundamentally altered how inequality is experienced globally. Today, approximately 80% of global inequality is explained by differences between countries rather than within them. This means your citizenship - largely determined by birth - has become the primary determinant of your economic prospects, creating what economists call a "citizenship premium" for those born in wealthy nations.

Chapter 5: Regional Disparities: The Cases of Europe, Asia, and Latin America

Regional patterns of inequality reveal striking contrasts in how economic disparities manifest across different parts of the world. The European Union and the United States provide a fascinating comparison - both have similar overall inequality levels (Gini coefficients just above 40), but the underlying structures differ dramatically. In the EU, about 23 of the 40 Gini points come from differences between member nations, while in the U.S., fewer than 5 points derive from between-state differences. Put simply, European inequality stems mainly from having rich and poor countries, while American inequality comes from having rich and poor individuals dispersed across the nation. This structural difference has profound implications. In the European Union, the ratio between the richest region (Luxembourg) and poorest (Romania) is approximately 7:1. The poorest Luxembourgeois are wealthier than the richest Romanians - their distributions don't overlap at all. By contrast, in the United States, the ratio between the richest state (New Hampshire) and poorest (Arkansas) is only about 1.5:1. European policymakers must therefore target poor countries and regions, while American policies must target poor individuals regardless of location. Asia presents yet another distinct pattern. The continent features the world's widest range of national incomes - from Nepal and Bangladesh at around $1,000 per capita to Singapore and Hong Kong at more than $40,000. Yet within most Asian countries, income distributions are relatively compressed, with Gini coefficients typically between 30-50. This creates what economists call "location-based inequality" - your economic fate depends primarily on which Asian country you live in, not your position within that country's income hierarchy. Latin America stands as Asia's mirror image. The continent has remarkably similar average incomes across countries - from Nicaragua at $2,400 to Chile at $13,000, a range of only 5.4:1. However, each Latin American nation has extremely high internal inequality, with Gini coefficients ranging from 45 in Uruguay (the most equal) to nearly 60 in Brazil and Bolivia. Latin America thus exemplifies "class-based inequality" - your economic status depends primarily on your social class within your country, not which Latin American country you inhabit. These regional patterns reflect deep historical legacies. Latin America's extreme internal inequality stems from colonial extraction systems and highly concentrated land ownership that persisted after independence. Asia's between-country disparities reflect different timing and success in industrialization and economic opening. Europe's pattern combines both factors - historical industrialization differences and more recent political integration that has brought together countries at very different development stages. Understanding these regional disparities helps explain why inequality feels and functions differently across various parts of the world, and why policies that work in one region may fail in another.

Chapter 6: Citizenship Premium: How Birth Location Determines Economic Fate

In today's world, where you are born has become the single most important determinant of your lifetime income prospects. Empirical studies show that more than 60 percent of the variation in global incomes is explained simply by the average income of one's country of birth. When parental income class is added to the equation, these two factors - both determined at birth - explain more than 80 percent of a person's income. This means that individual effort, education, and talent collectively determine less than 20 percent of economic outcomes globally. This phenomenon creates what economists call a "citizenship premium" for those born in wealthy countries and a "citizenship penalty" for those born in poor ones. The magnitude of this premium is staggering. Consider the illustrative case of the Obama family across three generations. Barack Obama's grandfather, Hussein Onyango Obama, was born in Kenya in 1895. Despite being hardworking, intelligent, and among the top 10 percent of Kenyans by income, his earnings as a cook for British colonizers were only 240 shillings per year - barely above subsistence level. His British employers earned sixty-six times more, simply by virtue of their citizenship. For Obama's father, independence opened new opportunities unavailable under colonialism, including study in the United States. Yet upon his return to Kenya, he faced a country still far poorer than America. The income gap between the United States and Kenya, which was thirteen to one when Obama Sr. came to America in 1960, widened to thirty to one by the time his son became U.S. president. Barack Obama Jr.'s life illustrates the citizenship premium perfectly - as he recounts in his memoir, his mother sent him from Indonesia to Hawaii precisely because "she had learned the chasm that separated the life chances of an American from those of an Indonesian." This citizenship premium creates enormous incentives for migration. When surveyed, 62 percent of Albanians, 79 percent of Romanian males, and 73 percent of Bangladeshi males expressed interest in moving to another country if legally possible. Economic theory suggests that under conditions of free movement, migration would continue until wages equalized across countries. However, wealthy nations have responded by creating ever-higher barriers to entry - border walls, maritime patrols, detention facilities, and complex visa systems that economist Branko Milanovic likens to "gated communities at the world level." The ethical implications of the citizenship premium are profound. It creates a world where economic outcomes are determined primarily by circumstances beyond individual control - a modern form of inherited privilege that functions similarly to aristocratic birth in earlier centuries. Some philosophers argue this violates basic principles of fairness, while others maintain that nations have legitimate rights to control their borders. What remains clear is that the citizenship premium represents one of the most powerful forms of economic advantage in the modern world, and one that is increasingly defended through physical and legal barriers as globalization makes these differences more visible and migration more feasible.

Chapter 7: Modern Wealth Concentration and Its Societal Consequences

The early 21st century has witnessed an extraordinary concentration of wealth at the top of the global income distribution. By 2005, the richest 1 percent of the world's population (approximately 60 million people) received more than 13 percent of global income. The top 5 percent captured 37 percent of global income, while the bottom 5 percent received less than 0.2 percent. This means the ratio between the top and bottom of the global pyramid reached almost two hundred to one - to make what the richest earn in a year, the poorest would need to work for two centuries. This extreme concentration has created what some economists describe as a "global plutocracy." Of the 60 million people in the global top 1 percent, almost half (29 million) are Americans. The remainder consists primarily of Europeans, Japanese, and small numbers of elites from developing countries. To join this exclusive club requires an annual income of at least $34,000 per person after taxes - a sum unattainable for the vast majority of humanity but within reach for middle-class households in developed nations. The global wealth distribution has thus created a situation where middle-class Americans may have more in common economically with the French or German middle class than with poor Americans. The consequences of this concentration have been profound. The 2008 global financial crisis provides a striking example. According to several economists, rising inequality created a massive pool of investable capital at the top that overwhelmed good investment opportunities, leading to increasingly risky financial behavior. Simultaneously, middle-class incomes stagnated in many developed countries, particularly the United States, where median wages remained flat for nearly 25 years despite GDP per capita almost doubling. Politicians responded by expanding credit to maintain middle-class consumption, resulting in unsustainable household debt that eventually triggered economic collapse. Beyond economic instability, extreme inequality threatens social cohesion and democratic governance. Studies show that societies with very high inequality tend to develop "social distance" between classes, with the wealthy increasingly segregated in exclusive neighborhoods, schools, and social networks. This undermines the sense of shared fate essential for democratic societies. Moreover, concentrated wealth translates into political influence through campaign contributions, lobbying, and media ownership, potentially creating what political scientists call "plutocratic bias" in policy decisions. The question of whether modern inequality levels are sustainable remains open. Some economists point to new forces that might reduce global inequality, particularly rapid growth in China and India that has lifted hundreds of millions from extreme poverty. Others note that within-country inequality continues to rise in most nations, and that the growth of the Asian giants may eventually slow. What seems certain is that the current concentration of global wealth represents a historic peak, comparable to or exceeding the extreme inequality that preceded the social upheavals of the early 20th century - a comparison that gives both hope for possible reduction and concern about the potential costs of adjustment.

Summary

Throughout history, inequality has evolved in both form and magnitude, following discernible patterns that reflect deeper economic and political transformations. The most striking shift has been from a world where inequality was primarily determined by class within nations to one where it is predominantly determined by location between nations. This geographic lottery of birth now explains approximately 80 percent of a person's economic prospects - a modern form of inherited privilege that dwarfs the impact of individual effort or talent. The Industrial Revolution, colonial exploitation, socialist experiments, and globalization have all left their distinctive marks on this evolving landscape of disparity. The historical perspective offers crucial insights for addressing today's challenges. First, extreme inequality is not inevitable - it has risen and fallen throughout history in response to both economic forces and policy choices. Second, different types of inequality require different remedies - addressing between-country inequality demands fundamentally different approaches than within-country disparities. Finally, the evidence suggests that neither unfettered capitalism nor state-dominated socialism provides a complete answer. The most successful models have combined market dynamism with robust social safety nets and investments in human capital. As we confront the highest levels of global inequality in recorded history, the key challenge becomes finding sustainable paths toward greater equality of opportunity without sacrificing the innovation and growth that have raised living standards worldwide.

About Author

Loading...

Branko Milanović

Read more