It doesn’t take much to be well off in global terms: “Even the poorest Americans make it above the median” said Branko Milanovic.
The disparity with the rest of the world is even more pronounced in more egalitarian countries — the bottom one percent in Denmark, Milanovic pointed out, is still better off than the top one percent in either Mali, Tanzania, Uganda, or Mozambique.
From the Occupy Wall Street protests to the much-celebrated release of Thomas Pikkety’s Capital in the Twenty-First Century, rising inequality and the consequences of it have entered the zeitgeist.
Yet inequality is a complex phenomenon, Milanovic emphasized, and measured globally, it actually appears to be decreasing.
On February 20, Dalhousie hosted a seminar on Global Income Inequality. Led by Branko Milanovic, visiting Presidential Professor at the Graduate Centre at the City University of New York and former lead economist in the World Bank’s research department, the seminar discussed the competing dynamics of income inequality within nations and between them.
Global inequality on the decline
Milanovic is a major figure in the debate over inequality. But unlike that other major figure, Thomas Pikkety, Milanovic relies not on fiscal data, which is the amount due for income tax, but household surveys, which cover a broader swath of the population.
Even with this different method, he said, it’s clear that inequality within nations is on the rise. Nonetheless, as he pointed out, citizenship remains the biggest determinant of income, with gaps between nations causing two-thirds of global inequality — in other words, he said, income, and therefore one’s position on the index of inequality, is determined largely by where you’re born.
Yet the influence of location on income is in some ways the same variable responsible for decreasing global inequality.
Relatively poor and populous countries such as India and China, Milanovic said, have grown rapidly. When combined with the steady growth of other countries, particularly in Africa — a rate of growth that continues to outstrip that of more economically developed nations — this trend effectively counterbalances the competing force of rising inequality within nations to provide an outlook that Milanovic described as “potentially quite rosy.”
Imprecision
That said, he emphasized that there are difficulties with measuring the decline of global inequality, difficulties which are as political as they are technical.
It’s increasingly difficult to capture the top one percent in household surveys, he said, which may make things look more equal than they are.
This could be in part due to the misrepresentation of actual amounts of income from capital, Milanovic suggested, but added a speculation this imprecision is also because “rich people really don’t participate anymore, they live in seclusion…there is much greater ability to hide your income.”
Accounting for the effect of refusal to participate and underestimation of that participation, he said, could reduce the drop in the Gini coefficient — the most common measure of inequality — from 2.9 over the past 30 years, to 0.4.
Yet either way you look at it, said Milanovic, global inequality is decreasing. But, he stressed, this doesn’t mean that there aren’t reasons to be concerned.
Political challenges
There are major political changes associated with the changing distribution of income. The first of these, said Milanovic, are worries over ability of large, rapidly growing countries to handle demands for democratization from the growing global middle class.
In countries where the middle class has long been established but has stagnated for 20 years, he said, there’s the issue of whether democratic systems can handle this stagnation while the top one percent continues to gain.
In the US, there are social factors that suggest this issue is already well advanced, and there is a “perfect storm” for inequality, said Milanovic. “I have a hard time seeing which are the social forces which could overturn this increasing inequality,” he said. “I see on the other hand social developments that all seem to point towards greater inequality.”
The first of these was the rising capital-income ratio; in other words, the share of income from capital in total income is increasing. Because ownership of capital is heavily concentrated, this exacerbates inequality. “How do you reverse this trend? Redistribute capital,” he suggested. ‘But who is going to redistribute capital?”
Capital and labour are also increasingly linked, he explained, saying that the same people rich in labour income are using that income to also become rich in capital. This development in capitalism, he said, is “on the face of it meritocratic” but actually “this association between capital and labour income at the very top makes inequality worse.”
These trends are reinforced by increased homogamy — the partnering of individuals in the same class, a trend resulting in part, Milanovic said, from the increased participation of women in the labour force – and the dominance of the rich in the political process, which as Milanovic points out is increasingly well-documented.
“Empirically now, we know how much more representatives care about rich people compared to the poor,” he said, pointing out that as a result of this shift, which he suggests resembles Max Weber’s political capitalism, “I think the US is looking more like what we believed is the third world.”
“If you line up all these trends, I just don’t see how this is going to reverse. That’s my nightmare scenario.’
Ambiguous optimism
Despite the dire prognostications, Milanovic emphasized that there are enough ambiguities in the shifting dynamics of global inequality to make it difficult to say definitively whether, and which, trends will actually be negative.
“In everything that you touch about global inequality you very seldom have something that is throughout negative or throughout positive,” he said. “So it just depends how you are going to spin it.”