GLOBAL INEQUALITY a New Approach for the Age of Globalization
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GLOBAL IN EQUALITY GLOBAL INEQUALITY A New Approach for the Age of Globalization BRANKO MILANOVIC THE BELKNAP PRESS OF HARVARD UNIVERSITY PRESS Cambridge, Massachusetts London, England 2016 Copyright © 2016 by Th e President and Fellows of Harvard College All rights reserved Printed in the United States of Amer i ca First printing Library of Congress Cataloging- in- Publication Data Names: Milanović, Branko, author. Title: Global in equality : a new approach for the age of globalization / Branko Milanovic. Description: Cambridge, Mas sa chu setts : Harvard University Press, 2016. | Includes bibliographical references and index. Identifi ers: LCCN 2015043601 | ISBN 9780674737136 (alk. paper) Subjects: LCSH: Equality. | Income distribution. | Globalization— Social aspects. | Globalization— Economic aspects. Classifi cation: LCC HM821 .M555 2016 | DDC 305— dc23 LC rec ord available at http:// lccn . loc . gov / 2015043601 Contents Acknowl edgments . vii Introduction . .1 1. Th e Rise of the Global Middle Class and Global Plutocrats . .10 2. In equality within Countries . 46 Introducing Kuznets Waves to Explain Long- Term Trends in In equality 3. In equality among Countries . .118 From Karl Marx to Frantz Fanon, and Th en Back to Marx? 4. Global In equality in Th is Century and the Next . .155 5. What Next? . .212 Ten Short Refl ections on the Future of Income In equality and Globalization Notes . 241 References . 265 Index . 283 vi Contents Acknowl edgments Th is book is the product of years of work on income in e qual ity in general and, more specifi cally, on global income in e qual ity. Th anking everyone from whom I learned over such a long period is impossible, so I will focus more narrowly on the writing of this book. As every one knows, the most diffi cult part is fi guring out the structure of a book. Once I decided to begin with the greatest reshuffl ing of personal in- comes in the past two centuries, that is, with the eff ects of globaliza- tion on the distribution of incomes in the world, the rest of the chapters, as in a jigsaw puzzle, quickly fell into place. Th e second most diffi cult prob lem in writing a book is starting it. Th e dread of the fi rst sentence. On the advice of my friend Niels Planel, who is himself a writer of nonfi ction, I deci ded to jump- start the book by going for a week to Bocas del Toro in Panama. It was an excellent decision. Aft er a week almost fully dedicated to the book (with a few dips in the Ca rib bean in between), a good part of the text was done. vii It was a plea sure to learn early on from Ian Malcolm of Harvard University Press that the press was interested in publishing the book. Th ere was also, as is oft en the case in such situations, an ele ment of serendipity: I happened to be in London then, and we agreed on all the details over a coff ee (or was it a tea?). Ian made signifi cant contri- butions as an editor. He went through the text with great care and curiosity, all the while keeping in mind the author’s best interests and suggesting revisions with precision and tact. His suggestions im- proved the book, and some structural modifi cations that he pro- posed made it more focused and easier to read. Louise Robbins did a fabulous job in editing the text. I was very happy that we quickly agreed on a workable approach— where the voice of the writer would be left unaltered, but mistakes would be cor- rected and inconsistencies highlighted and ultimately fi xed. I am very grateful to Louise for making the book better. It was a real plea- sure working with her. Others at Harvard University Press whose assistance I appreciate include Anne McGuire, who carefully checked the references, and Stephanie Vyce, who was most helpful in doing the review of the sources and quotes I used in the book. Parts of the chapters that deal with global income distribution have been presented in various talks and conferences, and I am thankful for the feedback I received. For the material in Chapter 2, where I redefi ne the Kuznets hypothesis and introduce the concept of Kuznets waves, I am grateful for the excellent written comments I received from (in alphabetical order) Guido Alfani, Bob Allen, Christoph Lakner, Peter Lindert, Leandro Prados de la Escosura, and Walter Scheidel, and also for the comments that I received at sem- inars and conferences where I presented that part of the book: from Steve Broadberry, Ljubomir Madžar, and Filip Novokmet in Belgrade; Leandro Prados de la Escosura, Francisco Goerlich, Facundo Alvaredo, Roy van der Weide, and Peter Lanjouw in Valencia; John Bonin at viii Acknowl edgments Wesleyan University; Walter Scheidel, Peter Turchin, and Peer Vries in Vienna; and Joe Stiglitz and Suresh Naidu in New York City. Carla Yumatle was very helpful with her comments and discussion of Frantz Fanon’s work. I am grateful to friends who generously shared their data with me and answered my many questions: Leandro Prados de la Escosura and Carlos Álvarez Nogal, Peter Lindert and Jeff rey Williamson, Giovanni Vecchi and Andrea Brandolini, Jonathan Cribb, Guido Al- fani, Walter Ryckbosch, Javier Rodríguez Weber, Christoph Lakner and Tony Atkinson, Luis Bértola, Jan Luiten van Zanden, Wenjie Zhang, Larry Mishel, Michael Clemens, and Çağlar Özden. I would especially like to thank Ann Harrison and Peter Nolan, who were fi rst- rate reviewers and whose many suggestions I took very seri- ously and tried to incorporate into the text. Janet Gornick of the Graduate Center of the City University of New York and Luxem- bourg Income Study, where I was based during the entire period of the writing and production of this book, was extraordinarily under- standing and encouraged me to press on, even during times when I had some doubts. My wife, Michele de Nevers, and our sons, Nikola and Georgie, were happy to see me write another book. It provided entertainment for me, and gave more free time to them. I am grateful to Michele for gracefully accepting our commuting lifestyle between New York and Washington, DC. Acknowledgments ix GLOBAL IN EQUALITY Introduction Th is is a book about global in equal ity. Th roughout the book, I look at both income in e qual ity and po liti cal issues related to in e qual ity from a global perspective. Because the world is not united under a single government, however, we cannot dispense with the need to look at individual nation- states. On the contrary, many global issues are played out po liti cally at the level of the nation- state. Th us, greater openness (commercial interchange between individuals from dif- fer ent countries) will have po liti cal consequences not at some imagi- nary worldwide level but within actual countries where the people who are aff ected by trade live. As a consequence of globalization, for example, Chinese workers might ask for free- trade- union rights from their government, and US workers might ask for protective duties from their government. Although individual nation- state economies are impor tant, and al- most all politi cal action takes place at this level, globalization is an ever stronger force aff ecting every thing from our income levels, our em- ployment prospects, and the extent of our knowledge and information, 1 to the costs of the goods we buy daily and the availability of fresh fruit in the middle of winter. Globalization also introduces new rules of the game through the nascent process of global governance, whether through the World Trade Organ ization, limits on CO2 emis- sions, or crackdowns on international tax evasion. It is therefore time to look at income in e qual ity not as a national phenomenon only, as has been done for the past century, but as a global one. One reason to do so is simply out of curiosity (a trait much appreciated by Adam Smith)— our abiding interest in how other people, outside our own country, live. But in addition to “mere” curi- osity, information about the lives and incomes of others may also serve more pragmatic purposes: it may help us in evaluating what to buy or sell and where, in learning ways to do things better and more effi ciently, in making decisions about where to migrate. Or we may use the knowledge acquired from how things are done else- where in the world to renegotiate our salary with the boss, to com- plain about too much cigarette smoke, or to ask the waiter for a doggy bag (a custom that has spread from one country to another). A second reason to focus on global in equal ity is that we now have the ability to do so: in the past decade or so, the data required to as- sess and compare income levels of all individuals in the world have become available for the fi rst time in human history. But the most impor tant reason, as I believe the reader of this book will appreciate, is that a study of global ine qual ity over the past two centuries, and especially during the past twenty- fi ve years, allows us to see how the world has changed, oft en in fundamental ways. Shift s in global in e qual ity refl ect the economic (and frequently po liti cal) rise, stagnation, and decline of countries, changes in in e qual ity levels within countries, and transitions from one social system or po liti cal regime to another.