Branko Milanovic weighs in on global inequality
Which isn’t suprising, given that’s what he does for a living. The NYT this morning had an interesting interview with Milanovic this morning, where he discussed issues of inequality both within and between countries, globalization, national policy and the simultaneous rise of a global economic elite and growing populism around the world.
The context here is that while inequality is rising in wealthy countries like the United States, on a global level, inequality in incomes and lifestyles is shrinking quickly, most due to the rise of China and India.
Inequality calculated among all individuals in the world, as if they were part of one single nation, has been edging slightly downward over the past 10 to 15 years, mostly thanks to very high growth rates in China and India. These relatively poor giants (particularly India) have pulled quite a lot of people out of poverty and into something that can be called “the global middle class.”
That is the key factor behind the decline of global inequality: The distance between their incomes and the rather stagnant incomes of the middle class in rich countries has diminished. Yet global inequality is still extremely high by the standards of any single country. It is, for example, significantly higher than inequality in South Africa, which is the most unequal country in the world.
Obviously, we still have work to do. Many African countries, due to an unfortunate poor hand of geography, internal ethnic struggles and an unforgivable failure of government still sit in the same mess they sat in around the time of independence. For these countries, the future continues to look bleak.
The contrast is between a globalized economy that largely determines our employment and income level, and political systems that remain national. This contrast was not nearly as strong before the 1980s, when national economies were not as interdependent and capital could not flow easily across the borders. Then, countries could more or less design the economic policies that suited them. Today this is no longer the case.
The danger is that these dynamics could lead to populism — a sort of a Luddite reaction against globalization — or to plutocratic rule. We can already see some hints of the latter. Rule of the rich would ensure the continuation of globalization, but it would deprive political democracy of any meaning. If I wanted to be somewhat melodramatic, I would have said that the challenge is to navigate between the Scylla of populism, which would do away with globalization, and the Charybdis of plutocracy. Our defining challenge is how to maintain both globalization and meaningful national democratic systems.
I fear the erosion of political rights of low and middle class citizens that has occurred in the context of rising inequality. I believe that I fear populism and it’s myopic focus on short term solutions to complex problems even more. A response to rising inequality in the US or Europe is not to close the borders or embark on destructive protectionist policies which benefit only a small minority of people.
My feeling is that domestic (US) inequality is best handled through re-distributional policies such as income subsidies, the provision of health care and investments in education and infrastructure. International inequality should be attacked through a combined effort to increase opportunities of movement of people to areas which present economic opportunities, through the encouragement of policies of good governance which reduce onerous and bureaucratic restrictions on economic development within developing countries, an increase in access to capital by individuals and policies which encourage the granting of true democratic rights and protection for citizens, something we don’t see a whole lot of in African countries. Looking at this, I’m realizing the solutions to inequality in in wealthy countries seem much easier to implement.