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October 13, 2016

Event Summary: ‘Global Inequality: A New Approach for the Age of Globalization’

by
Henry Jackson Society

On Monday 3rd October, the Henry Jackson Society welcomed Branko Milanovic to discuss his book Global Inequality: A New Approach for the Age of Globalization. Unsurprisingly the talk focused on global inequality, its history, how it has shifted in the past three decades and its future political implications. Before beginning, Milanovic briefly mentioned his two sources of data, household surveys carried out by the World Bank across 120 countries and purchasing power parity (PPP)  exchange rates computed by the World Bank’s International Comparison Project, ‘the single largest empirical exercise ever conducted in economics’. He also defined ‘global inequality’ as being ‘income inequality between all citizens of the world’.

The talk initially tackled the history of global inequality. Milanovic demonstrated that, starting in 1820, global inequality increased continually until the beginning of the 21st Century. This was, at least initially, a result of the rapid development that the West embarked upon following the Industrial Revolution. A decline in global inequality since the beginning of the 21st century, Milanovic argued, is mainly a result of the growth of East Asian economies, especially China. It was noted, for example, that the mean Chinese income is now equal to the average income of a poor European.

Moving on to more recent historical analysis, Milanovic then presented his ‘Elephant Chart’. The chart plots, in the years 1988 to 2008, the gains or losses in real income made by each vigintile of the global income distribution.  Milanovic showed that those in the 35th to 75th percentiles of income experienced a huge increase in their real income. This was also true of the top 1 percent of global earners who experienced a 65 percent gain in their real income. In contrast, the working classes and lower middle classes in Western countries, who largely make up the 75th to 90th percentiles of the global income distribution, saw almost no gain in their real income.

Examining this data, Milanovic’s conclusion was that globalisation has been extremely beneficial to the groups that experienced income growth but detrimental to poorer people in Western countries. These poorer people, however, still remained in the top 25 percent of the world’s earners. Indeed, Milanovic pointed out that some people will be on the upper end of the income scale purely because of their place of birth and described this as a ‘citizenship premium’.  Milanovic also pointed out that members of an urban elite, particularly those in the United States, are able to espouse the value of globalisation because they benefit from it and are unable to see the negative consequences it has on poorer people in their own countries.

These developments, Milanovic claimed, were likely to have negative political effects. Despite globalisation, those in the West that have been negatively affected by globalisation will, however, express their frustrations on a national level. Moreover, Milanovic added that he had doubts as to whether governments have the ability to enact policy that would stem the underlying causes of the anger felt by those people. Finishing on a more positive note, Milanovic did note that the rise in earnings had lifted a billion people out of poverty and estimated that by 2030 only 3 percent of the world will be living in extreme poverty.