On global economic inequality: a vital book for education

I wanted to share some thoughts about a recent book, as it bears strongly on the future of education. Branko Milanović’s Global Inequality A New Approach for the Age of Globalization (2016: Amazon) is a major work in current events, forecasting, and economics. It offers powerful ideas for understanding the present, recent history, and the medium term future. I fear people won’t read it.

That’s because Global Inequality: A New Approach for the Age of Globalization attempts a tricky thing. First, it looks hard at economic inequality, which is a subject that already appalls most people, or just skates over their heads. Second, it places the subject on an international level. This means that many people who see a world limited by their nation’s borders for whatever reason – nationalism, xenophobia, education, lack of time – will stop paying attention. Third: it’s macroeconomics, usually guaranteed to drive most people away in shuddering terror.

That’s a shame, because Milanović’s findings are very, very important.

Branko Milanović is famous among some policymakers for identifying a crucial fact: that while incomes rose in many nations over the past generation (from 1988; 3), they did so unevenly. Poor and middle class people experienced serious income growth in the developing world, starting to catch up with developed nations (a form of “economic convergence”), while those in some advanced nations (including the US) saw their incomes stagnate or decline. Meanwhile, the richest people everywhere got richer.

This appears very clearly in what has been nicknamed “the elephant graph”:
Milanovich elephant chart
(source)

To be too reductive, Milanović derived these findings from using several rich datasets from multiple nations, than analyzing them in comparison.  (Check the “Excursus” sections for more) . What can we learn from this data?

It helps explain populism and panic in certain advanced nations – i.e., Trump, Brexit, the Euro right’s resurgence. If you’re watching the rich get richer while you go nowhere, you won’t be happy about those in charge, to be blunt. “People… belong[ing] to the lower halves of their countries’ income distributions… are certainly not the winners of globalization.” (20) And it might feed xenophobia, if people link their stagnant or declining condition to people doing better elsewhere.

China’s extraordinary post-Mao economic boom played a huge and often underappreciated role in this transformation. So did globalization (although Milanović takes care to distinguish between the free flow of capital across borders, versus the movement of labor).

There’s also a bit of macroeconomic argument over the Kuznets cycle. This is a famous idea, stating that economic growth tends to grow income inequality, but then the gaps start to fade.

Apparently this model has been controversial for decades.  Milanović argues that the cycle is broken now – or rather that there’s a new model, where development (income growth) now means steady inequality rising in the post-industrial era (4).

As examples of this revised Kuznets cycle Milanović dwells on arguably the two biggest and most influential nations in the world, China and the United States, and offers a sobering analysis of why income inequality is likely to keep growing in both. (176ff) In China, urban concentration of wealth is widening a gap with the countryside, and a centralized authority structure might not decide to act against inequality for reasons of self-interest. For the United Staters, reasons include: substituting capital for labor (i.e., automation); concentrating wealth with education; assortative mating; the fierce political power of the economic elite. Corruption plays a role in both, albeit in different forms (regulatory capture, political party control, local favoritism, etc).

The author also does a great job of distinguishing between economic inequality within nations (rich versus poor in Italy), economic inequality between nations (average income in Kazakhstan versus Brazil), and comparing economic strata across nations (118ff). I’ve rarely seen anyone do this. Among other things, this leads Milanović to see Frantz Fanon‘s model of a world separated by colonial and colonized nations are a better guide to present day global inequality than Marx’s description (128-9), while suggesting class will overwhelm geography in this sense in the future, as inequality between nations (weighted for populations!) seems to be declining (131, 166).  So: Fanon for now, Marx to come.

As a futurist I found much to appreciate in Global Inequality, starting with his bracing review of economic forecasting in the mid- and late 20th century. Based on a range of books, Milanović argues that futurists all too often fall into certain errors: overstating present-day factors; failing to account for dramatic changes, up to black swans; paying too much attention to certain actors, while failing to account for others – China is a great example of the latter, largely missing from these forecasts (155ff).  These are sound critiques – not absent from the futures field, but still salutary.

Along these lines, after a great deal of hedging, the author offers up some tentative forecasts. Perhaps the darkest is this:

[S]ocial separatism [or c]lass bifurcation has many implications: politically, the middle class becomes increasingly irrelevant; production shifts toward luxuries, and social expenditures change from being directed toward education and infrastructure to policing. (198-9)
While the political system remains democratic in form because the freedom of speech and the right of association have been preserved and elections are free, the system is increasingly coming to resemble a plutocracy. (199)

Moreover, accidents of birth are starting to eclipse the American Dream’s potential for economic mobility (216).  This leads us to Thomas Piketty’s* grim view that the 21st century will resemble the 19th, being less a world of careers and compensation open to talent, and more about the birth lottery.

There’s also an interesting note about different attitudes towards economic growth in developed and developing nations. A rising argument in the former holds that we should consider restraining GDP growth, as it contributes to carbon emissions. However, as the author points out, without growth the latter nations won’t catch up with the former. This implies a very interesting global tension to anticipate. (233)

The book offers some policy solutions, but, as with Thomas Piketty’s great work, isn’t happy about their prospects. Intriguingly, Milanović is less interested in states redistributing wealth through income taxes than in having them address “endowments” – i.e., taxing personal fortunes through inheritance and getting companies to give more shares to workers (221; this comes close to advocating for worker-owned and -run enterprises). In a breathtaking challenge to American education, the author calls for equalizing educational access, including

mak[ing] access to the best schools more or less equal regardless of parental income and, more importantly, to equalize the quality of education across schools. (222)

I was surprised by a few items missing from Global Inequality. There isn’t a discussion of financialization, which has played an enormous role in the American economy. That sector grew enormously over the past generation and now has not only great wealth but vast political clout… and it’s a key factor in generating inequality. I was also surprised that the book relies heavily on the Gini method of measuring inequality, as Piketty – cited many times here – took great care to slam it as a poor measurement.

Then again, this is a very short book, just around 240 pages, and very accessible. It’s a good sign when you leave a book wanting it to say more.

Strongly recommended.

*On Piketty: please see here for our book club’s discussion of his groundbreaking Capital in the Twenty-First Century.

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One Response to On global economic inequality: a vital book for education

  1. from David F. Ruccio’s blog, occasional links & commentary, on economics, culture and society https://anticap.wordpress.com/2016/06/30/globalization-imperialism-and-inequality/

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