CAPITALISM'S ACHILLES HEEL Dirty Money and How to

212 CAPITALISM’S ACHILLES HEEL
the 1994 UN ranking, Brazil, which has an extravagant upper class, was put
into the richest quintile—all of its 150-million-plus people—despite the
fact that Brazil has some of the poorest people on Earth living in favalas,
shanty towns. And China, which has an average income just a bit higher
than the lowest fifth on Earth, had none of its billion-plus population in the
bottom quintile, despite the fact that the country has hundreds of millions
of people whose low incomes qualify them for admission into the ranks of
the poorest. Trying to make world income comparisons by using averages for
entire nations is completely misleading.
In recent years, income breakdowns into 20-percent groupings within
countries that comprise 96 percent of the world’s people have become available.
The World Bank’s annual statistics provide data for almost all nations,
including GDP and quintile shares of GDP. This enables global quintiles to
be compiled regardless of where income groups reside. Economists often
take shares of GDP as an acceptable measure of personal income and use the
terms interchangeably. Unless otherwise indicated, the following pages treat
income as shares of GDP. 3
Using World Bank statistics, we can find the poorest group of people in
the world. This happens to be the bottom quintile in Sierra Leone, with an
annual per capita income of $8 per year! Then we can find the next group a
bit better off, and the next, until we finally reach the richest group of people,
which happens to be the top quintile in Luxembourg with a per capita income
of $92,000 per year.
The five income quintiles of the world are summarized from World
Bank statistics 4 in Table 5.1. There is a major assumption in these data. Income
levels are based on converting the currencies of foreign countries to
U.S. dollars at prevailing exchange rates. If one U.S. dollar can be converted
to six South African rand, then a South African income of R6,000 could be
swapped for a U.S. income of $1,000.
This is not a particularly accurate way to compare incomes. The fact is
R6,000 will get you more food, clothing, and housing in South Africa than
$1,000 will get you food, clothing, and housing in the United States. The
financial exchange rate between the two currencies doesn’t satisfactorily reflect
the difference in what can be purchased with the two equivalent incomes.
A better way to compare the two incomes is to equate what they
will buy locally, rather than what they can be exchanged for at a bank or
bureau de change.