Gini index: How Ukraine became economic success leader

Author : Mykhailo Pozhyvanov

Source :

In Ukraine, the Gini coefficient is the lowest in Europe. Which, however, does not fit real situation. And the World Report on Happiness of 2017 puts us on 132nd place out of 155
23:32, 9 January 2018

112 Agency

An amazing thing: Ukraine has entered the list of the most prosperous countries in Europe - according to the Gini coefficient. The Gini coefficient is one of the many indicators of the country's economic success. It means the shortest distance between the richest and poorest segments of the population. This variable is named after the Italian economist and statistics of the last century Corrado Gini.

And it means next: the greater the ratio, the deeper the abyss - in other words, 1% indicates complete equality of incomes in all population groups, and 100% indicates that all income in the country belongs to one person. According to the UN, Ukraine has a degree of income distribution of about 25%, among European countries. An economist Olexander Okhrimenko wittily commented on such statistics, while answering a question "What is this – victory or defeat?”, "This is a big victory for those who know how to make ratings."

We will return to the "making" the ratings, but for now - a little more about the index.

Rich also cry but less than poor

The rich and the poor are "two nations, between which there is neither communication nor sympathy, which do not know each other's habits, thoughts, and feelings because they are inhabitants of different planets, they bring up children differently, eat different kinds of food, learn different manners, live according to different laws ... "- wrote Benjamin Disraeli. For 200 years in this sense little has changed. Today, according to Oxfam, the international association for combating poverty, one percent of the world's richest people have half the world's wealth.

And yet, according to numerous sociological studies, the more democratic the country is, the less inequality in the population in terms of income we see. Developing countries are characterized by greater inequality than developed countries.

Thus, the smallest income difference is evident in the Scandinavian countries, where the Gini coefficient is about 27% (in Sweden, for example). Countries with the greatest inequality - the Republic of South Africa, the Republic of Seychelles - this figure is approximately 63%. Among the 28 EU member states the lowest value of this indicator in 2014 was Slovenia - 25%, and the highest - Latvia - 35.5%.

The biggest surprise is Ukraine and the level of its Gini coefficient of 25%, especially if we take into account the fact that over few decades inequality in the world is only growing. Thus, the share of national income attributable to 1% of the richest Americans has doubled since 1980, from 10% to 20%. And the share of the richest population in the US (families with an average income of more than $ 24 million) quadrupled - almost to 5%. In many countries, in particular, Britain, Canada, China, India, Sweden, the share of national income per 1% of the population has increased.

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A joint report of international auditing companies UBS and Pricewaterhouse Coopers notes that the wealth of billionaires is growing faster than the world economy: since 1995, the wealth of world's richest people have grown eight times - to 5.4 trillion dollars in 2014, while world GDP for the same period has grown only three times - up to 77 trillion dollars.

In such situation, any government that respects itself considers the priority task to prevent the polarization of society in terms of income. After all, unjustified social and economic inequality is always extremely negatively perceived by the society. And if we talk about Ukraine, then exactly this inequality in the absence of "social elevators" is the main reason for the migration of the population from Ukraine.

When the "shadow" casts a shadow

However, let me say. After all, it is in Ukraine that the Gini coefficient is the lowest in Europe. That, however, does not fit well with reality, and the World Report on Happiness of 2017 puts us the 132nd place out of 155. Life shows: the UN statistics are somewhat superficial, closer to the truth is the data of the Institute of Demography and Social Research of the National Academy of Sciences of Ukraine: wealth of 10% the richest and 10% of the poorest Ukrainians, taking into account the shadow income, differ 40 times. In Ukraine there is practically no middle class, which would balance the situation at least at the level of subjective feelings of citizens.

So, is the reason found? Is the discrepancy between the Gini coefficient calculated abroad and the actual state of things in Ukraine explained by the fact that the shadow economy of our country is not taken into account? Yes, it can be one version. It is interesting that the peak of unevenness in the incomes of Ukrainians was observed in 1995, when the figure reached a record 39%. By the way, Russians stuck at about the same level and - their Gini index now stands at 40.5%.

However, in addition to the "shadow money" that dominates in the Ukrainian economy, one should also take into account the low quality of incomes of the richest and poorest sections of population statistics, on which, in fact, the assessments of international institutions are based. In other words, at least two factors are not taken into account when calculations made in the West, and therefore distort the real picture.

Commentators say: it turns out that Ukraine has moved far enough from Honduras (with its Gini coefficient of 57%), with which we usually ironically compare ourselves. Also, Ukraine is taking higher place then neighboring Poland (Gini coefficient 32%), to which we are constantly equal, but for some reason the "effect" is not perceived by us.

Meanwhile, the Ukrainian government, generous with promises, expects to contain the widening gap between the incomes of rich and poor Ukrainians, not allowing inequality in the country to be more than 35%. Such a strategic goal, top management of Ukraine plans to implement until 2020. But how to correctly calculate the real Gini coefficient?

Although this is probably not the most important issue, if we take into account the realities of Ukraine. It is more important to understand how to overcome the resulting inequality. You can use a socially-oriented economy as a cornerstone - the way it is done in Scandinavian countries. They are paid standard benefits and services to all segments of the population, regardless of income and labor participation, but they control the observance of social standards by citizens themselves. The Belgian experience is also interesting - support of social entrepreneurship, microcredits, priority of social programs.

Meanwhile, the deputy director of the IMF's analytical department, Jonathan David Ostry, offers "to continue globalization and raise the average standards of living in all countries." Globalization refers to trade - it can stimulate trade and support economic growth. In response, Ukraine adopts the law "Buy Ukrainian" and only strengthens (de facto, if not de jure) tax pressure on business. With such trends, we will never sell our "elephants", although we will be considered - nominally, of course - the most successful country in Europe.

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