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The Gini Coefficient and the Offshore First World

July 22nd , 2012

When I was "a bit" younger I spent some time studying development economics. One of the most fascinating things I learned about was something called the Gini Coefficient. The Gini Coefficent, when applied to income structures, describes the relative inequality of incomes in an economy.

One of the interesting things about this is that the income inequality isn't just an accident of a small group of people having too much money but is in fact structurally desirable for those people. In development economics we learned how less developed countries with high Gini Coefficients (poorly distributed incomes) are very useful for more developed countries.

In simple terms the poorer the general population of a country the less able they are to create the infrastructure for developing their own wealth. And so, some countries become the cheap manual labour for other countries. At the same time people in those exploited countries want to own the same things that people in more equal income countries own. So exports for the "first world" countries are good too. Finally, countries with small groups of exceedingly rich people are great for exports of our luxury goods.

All in all it's a win win for the more developed world.

So, when we see increasingly high Gini Coefficients in our own, richer country, it makes me wonder. After all, we're the ones who are supposed to be exploiting everyone else. But this is missing the point. This article, about the $21tn currently being hidden in offshore accounts makes something very clear. At some point in recent history EVERY country became part of the less developed world. People who benefit from high Gini Coefficients don't really live in a country at all anymore. And they're not looking for things to change any time soon.