Global Inequality

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* Book: Global Inequality. By Branko Milanovic.

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Discussion

John Stutz:

"Branko Milanovic, in his book Global Inequality, provides a global analysis of the distribution of income gains since 1988. Through 2008, the top 1% received 19% of the total increase while the share going to the bottom 10% rounded to zero. Because Milanovic’s data is adjusted for inflation and purchasing power parity, it shows that the new globalization has been accompanied by a real widening of the gap in access to goods and services between those at the top and those at the bottom. If, as is often the case with the very rich, the “extra” 19% was invested rather than consumed, it would have contributed substantially to the gap in wealth that Robinson cites. Of course, correlation alone does not show causation, but Robinson’s extensive discussion of the exploitation that is at the core of the new globalization provides the needed additional support.

One might think that the widening of the gap between top and bottom just described would have produced an increase in a standard inequality metric, the global Gini coefficient. However, that was not the case. Since 1980, the global Gini coefficient has been stable and most recently may have begun to decline. Since measured global inequality rose throughout the previous 200 years, this is a dramatic shift in what appears to be the wrong direction.

But as Milanovic carefully explains, the Gini is behaving just as it and other inequality measures are designed to behave: Almost all of our inequality measures are relative, in the sense that if everybody’s income increases by the same percentage, inequality is deemed unchanged. But an equal percentage increase for all corresponds to absolute gains that may be extremely unequal: a person who started the race with an income one hundred times higher will also have absolute gains that are one hundred times greater.

Think for a moment about what is being said here. If our economy provides one group (the rich) with gains that are 100 times those provided to another (the poor), the level of inequality may be deemed constant, and our measuring tools are designed to reflect that “insight.”

This example illustrates a general point: the importance of perspective. Robinson employs a Marxist frame and thus highlights certain features of the new globalization—the increasingly transnational nature of firms, owner/managers, and capital ,and the massive increases in exploitation and environmental harm that their nature make possible. Others, such as Richard Baldwin in his recent prize-winning book The Great Convergence, adopt a different frame when seeking to understand and explain globalization and its impacts. Baldwin documents the ceaseless pursuit of low-cost labor that is an essential part of the new globalization; however, guided by his nation-based macroeconomic perspective, what Baldwin sees are massive gains for developing nations, indicated by their rising share of global income. Robinson would see the gains as accruing primarily to the Transnational Capitalist Class. The “facts” are the same for Robinson and Baldwin, but their significance differs immensely." (Great Transition list, May 2017)