Gini: the measure of inequality

Rio de Janeiro's rich and poor.

Not everyone has the same amount of money. Some are richer. Some are poorer. That's pretty obvious. But just how much more money do the rich have? How much poorer are the poor?

Those are questions that not that long ago, people didn't really know how to answer.

The going theory in the early 1900s was that in any country, at any point in history, wealth distribution was constant.  That “everywhere, at all time, the top 20 percent have 80 percent of the wealth, and the bottom 80 percent split the 20 percent remaining,” says Professor Jean-Guy Prevost, who studies the history of statistics at the University of Quebec in Montreal. 

A century ago, Prevost says, before there were many wealth or income statistics available, influential economists like Vilfredo Pareto argued there was a natural order to the ratio between the haves and the have-nots.  One that could not be changed.

Then a handsome and stubborn Italian statistician named Corrado Gini came along. Gini found the idea of wealth distribution being always the same absurd. Being a statistician, he expressed this in a 35-page paper called “On the Measurement of Concentration and Variability of Characters,” published in 1914. 

 In the paper, Gini analyzed as much economic data as he could find from different parts of the world— records on income distribution in Denmark versus Norway, on the varying size of inheritance to residents of Swiss cities, on the distribution of property holdings in Tasmania compared to South Australia.

In the process, Gini created what we now call the Gini Index. Basically it’s a scale from zero to 100 that allows you to measure just how concentrated income or wealth is in a given country at a given time.

A perfectly unequal country, where one person has all the wealth, would rank 100 on the Gini Index. On the other end of the spectrum, a country where everyone has exactly the same amount of money would rank as a zero. 

Of course, in the real world countries fall somewhere in the middle. On the relatively equal end, Sweden comes in at about a 23 on the Gini Index*.  The U.S. has gone from the low 40s to the high 40s in the last few decades. South Africa, one of the most unequal countries, is about a 62.

When Gini invented the index at the beginning of the 20th century, many countries, including the U.S., were headed into an era of rising equality and a growing middle class. Today many of those same countries seem headed in reverse, which has made the Gini Index a central measurement for everyone from the Wall Street Occupiers to President Obama.

But in case you're thinking the guy behind this inequality measurement was some kind of liberal softy? Guess again. Corrado Gini was a card-carrying fascist.

Yes, that Fascist Party. The one known for embracing racial supremacy, totalitarianism, and jack boots. Gini wasn't just a member. He built and defended the ideology in his book “The Scientific Basis of Fascism.”

“He was even more fascist than the Fascist Party at the moment,” says Giovanni Favero, an economic historian at Ca'Foscari University in Venice.

For Gini and the Fascist Party he belonged to, measuring inequality wasn't important because they cared so much about the poor, explains Favero. Instead, they cared about maintaining the proper balance between rich and poor. If a country got “too equal,” Gini worried you’d “lose social differences, you have people who are not used to have wealth using their wealth in bad ways and things like that,” says Favero.

But a society that was “too unequal” could also be bad in Gini’s eyes. If kids from wealthy families started inheriting too much money, “they would kind of make a retreat from the productive sector, and became people who lived on their interest only,” explains Prevost. In other words, lazy. “And so lose their function as a ruling class.”

Even though Corrado Gini was a fascist, once he let his Gini Index out of the bottle, so to speak, it became a tool that transcended fascist ideology. Or any ideology at all.

“Just having that measure changes the conversation,” says Andrew Berg, an economist at the International Monetary Fund. What made Gini's work important-- and still relevant 100 years later--is that by having a way to measure inequality you could start asking new questions, from all different points of view, about the way a society's wealth is distributed.

“There's a set of political, ethical or moral questions you might ask whether we care about the ratio between the rich and poor for example, about how inequality matters for things like well being. Or you might ask, is the crime rate higher in unequal countries? Do unequal countries grow faster?”

These are questions that have since been asked by people across the ideological spectrum. From Marxists (some of whom were Gini’s students) to World Bank economists, to market strategists at multi-national corporations.

And if you want to find the most comprehensive list of Gini numbers for countries around the world?  It's on the CIA's website. 

 

*Measured after taxes and government safety net programs. Gini coefficients for countries can vary depending on  survey data used, and whether incomes are measured pre or post-tax.  For example, two of the most comprehensive lists of Gini measurements, from the CIA World Factbook and the World Bank have slightly different rankings for countries.

About the author

Krissy Clark is the senior reporter for Marketplace’s Wealth & Poverty Desk.

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