SECOND ROUND EFFECTS: Revising ‘the most powerful chart of the decade’

Added 23rd September 2016

Dubbed, ‘the elephant graph’, it has been touted among other things as ‘the most powerful chart of the last decade. But, a recent briefing paper from the Resolution Foundation interrogates exactly how much can be drawn from it.

SECOND ROUND EFFECTS: Revising ‘the most powerful chart of the decade’

Replicated below, the graph which was created by Branko Milanovic and Christoph Lakner based on a significant dataset of global household incomes. The chart has been used to demonstrate that there have been clear winners and losers from globalisation. The winners have been the middle classes of the emerging world, while the losers have been the lower middle classes of the developed world. And, so the common narrative goes, this stagnation in incomes within economies like the US and the UK goes a long way to explaining things like the rise of Donald Trump in the US and the decision by the UK to leave the European Union.

 

According to the Resolution Foundation, however, while the graph remains useful, it may not tell quite the story it is being used to tell.

First, the paper explains, it is important to understand that the chart looks at income groups rather than the growth rates of particular people. In other words, it points out, the globally poor in 1988 and those in 2008 are not necessarily the same groups of people.

Second, the two data sets, include different countries, which does change the data, as it says: “The addition in the latter year of countries with below-average incomes drags down the growth figures significantly. Using a consistent set of countries in both years shows a global average income growth of 32%, rather than 24%, and slow growth, rather than stagnation, for those around the 80th percentile.”

And, third, while income changes have contributed to the distribution, there have also been significant population changes that have informed that shift as well.

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Geoff Candy

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Geoff Candy joined Portfolio Adviser as News Editor in May 2014. He has been a financial journalist and broadcaster since 2005 and, in that time has worked in both South Africa and the Netherlands, covering everything from high street retailers and construction companies to mining and insurance.

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