2016 shocked many with the election of
President Trump in the US and the Brexit vote in the UK referendum. Since then,
it is widely held that rising inequality may explain the march of populism in a
number of recent elections, notably in Europe. Branko Milanovic´s famous
elephant chart[i] is
often used to support the notion that globalization, as suggested also by the
Stolper-Samuelson theorem, has hurt the middle class in advanced countries to
the benefit of China and other emerging countries. The Finnish think tank SITRA
warns, however, that those who dominated the 75th-85th
percentiles of the global income distribution in 1988 were not those in 2008. Then,
that same bracket was primarily made up of middle class Chinese[ii].
Milanovic´s Elephant Chart
Source:
Goodreads
A brilliant article in the New York Times[i]
has just shown that the United States leads the income inequality league across
OECD nations. There, the richest 1% to have roughly
doubled their share of national income since 1980, to 20 percent in 2016. In
Europe, it is in Britain where the richest 1% have extended their claim on
national income the most during 1980-2016, from 6 to 14%. (The article also
rejects some common misconceptions by showing that a rise in international
trade - measured as a country´s import or export share of GDP - is associated
with more income equality, not inequality.)
In 2017, however, the narrative that it is the
rise in income inequality that explains populism has been scratched by election
results in Austria or the Czech Republic, comparatively egalitarian countries
that voted for populists nonetheless. Before that, fast growing Hungary and
Poland with similar characteristics had turned to rightist populism.
The Timbro
Authoritarian Populism Index claims to be the only Europe-wide
comprehensive study that explores the rise of authoritarian populism in Europe
by analysing electoral data from 1980. As their data show, “Authoritarian-Populism
has overtaken Liberalism and has now established itself as the third
ideological force in European politics, behind Conservatism/Christian Democracy
and Social Democracy”. It provides numbers only for Europe.
Top 1% Claim
on National Income and Timbro Populism Index
Sources: Rothwell,
NYT 17th 11. 2017 (based on World Income Database); Timbro Authoritarian Populism Index 2016; own calculations based on Spearman´s rank
correlation and rho test as in http://www.real-statistics.com.
I have collected the
numbers from the New York Times article and the Timbro index in the table
above. It allows me to carry out a back-of-the-envelope calculation of the Spearman rank correlation[ii]
between rise and level of income inequality and the Timbro Populism Index. Not
less, not more. The formula used for Spearman´s Rho is
Rho = 1-
(6∑Diff_Sq)/(n3 – n),
with n = 12 and
Diff_Sq denoting the squared difference in country ranking between the Timbro
Index and the rise 1980-2016, and 2016 level, respectively, of the percentage
share of national income captured by the richest 1% of each country´s
population.
The Spearman Rho
values are negative, not positive as most would expect, but statistically
insignificant. Between the Timbro Populism Index and the rise of the percentage share in national income captured by the top
1%, Spearman´s Rho is = -0.357; for the level
of the percentage share in national income captured by the top 1%, Rho is
almost zero at -0.052. The results for
Spearman’s Rho are lower than the critical value for two-tail tests (n=12 =>
0.406). I therefore have
to reject the null hypothesis that there is a correlation between the 2016 Timbro Authoritarian Populism Index with
either the rise 1980-2016 or the 2016 level of Income Inequality in a panel of 12 European
countries. My back-of-the-envelope
calculation certainly does not imply any causality. It may suggest, however,
that other explanations, such as homogeneity in a fairly egalitarian (often
small-country) context may encourage populist voting when people think their
way of living is under threat.
[i] Branko Milanovic (2016), Global Inequality, Harvard University Press
[ii] SITRA (2017), Spoiler: It's not the rise of populism. What does the elephant chart really tell us?, Helsinki.
[iii] Jonathan
Rothwell, Dispelling
misconceptions about what’s driving income inequality in the U.S, New York
Times, 17th November 2017.
[iv] When data is not normally distributed or when the presence of
outliers gives a distorted picture of the association between two random
variables, the Spearman’s rank correlation is a non-parametric test that is
preferred over the Pearson’s correlation coefficient.
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