growing inequality
Growing Inequality
Back in 2015, the French economist Thomas Piketty published his oft-quoted tome, Capital in the Twenty First Century, which focused on the growing gap between rich and poor around the world. As part of his analysis, Piketty emphasised the difference between wealth, which is the net value of your assets, and income, the sum of remuneration for labour and return on assets. Obviously wealth can be passed from one generation to the next through inheritance, as can the assets that generate a return. Piketty’s conclusion was that the rich are getting richer, both through higher remuneration for their labour and through their increasing ownership of productive assets.
I have just finished reading Branko Milanovic’s highly readable and thought provoking book on the same topic, Global Inequality - a New Approach for the Age of Globalization. Prior to 1988, the twentieth century had seen a narrowing of the inequality gap due both to malign forces such as wars, epidemics and natural catastrophes, as well as benign forces such as education, social transfers and the introduction of progressive tax regimes. However the period since 1988 has seen the rise of the global middle class, most of whom are in China and the rest of Asia; the stagnation of lower and middle classes in the rich world; and the emergence of a global plutocracy.
Although the gap between rich and poor is growing in every country he studied, he found that the inequality gap between poor nations and rich is narrowing. This is borne out by a recent study by Euromonitor International which shows, for instance, that the average Chinese manufacturing wage is now higher than that in countries such as Brazil, Argentina and Mexico and could soon surpass that of Portugal. This is not what many people believe. Meanwhile this week several publications commented on an Oxfam report claiming that in Indonesia the four wealthiest men own more than the one hundred million poorest people.
Milanovic believes that the political forces pushing for greater inequality will more likely succeed in the presence of surplus labour or technological change that is capital or high skill biased. In particular he compared the manufacturing and services sectors showing how the latter is seeing greater divergence of equality due to lower unionisation, capital proving stronger than labour and the twin effects of technology and globalisation.
What I liked particularly about his book were some of his asides. In one chapter he started by describing how he had read all the major economic forecasts of the second half of the twentieth century and found every single one was completely wrong. In another section he discusses the impact of migration on levels of inequality. He pointed to the tendency of rich, highly qualified people to marry other rich, highly qualified people and the likely impact thereof. Increasingly rich people are opting out of using state education and health services and at the same time persuading governments to cut funding for programs aimed at helping the poor. Simultaneously the amount being spent by the rich on private security systems is rising. Perhaps his most ominous prediction is that we are seeing the rise of a global plutocracy which is able to distort supposedly democratic elections in favour of legislators who then legislate to further favour the plutocrats.
Back in 2015, the French economist Thomas Piketty published his oft-quoted tome, Capital in the Twenty First Century, which focused on the growing gap between rich and poor around the world. As part of his analysis, Piketty emphasised the difference between wealth, which is the net value of your assets, and income, the sum of remuneration for labour and return on assets. Obviously wealth can be passed from one generation to the next through inheritance, as can the assets that generate a return. Piketty’s conclusion was that the rich are getting richer, both through higher remuneration for their labour and through their increasing ownership of productive assets.
I have just finished reading Branko Milanovic’s highly readable and thought provoking book on the same topic, Global Inequality - a New Approach for the Age of Globalization. Prior to 1988, the twentieth century had seen a narrowing of the inequality gap due both to malign forces such as wars, epidemics and natural catastrophes, as well as benign forces such as education, social transfers and the introduction of progressive tax regimes. However the period since 1988 has seen the rise of the global middle class, most of whom are in China and the rest of Asia; the stagnation of lower and middle classes in the rich world; and the emergence of a global plutocracy.
Although the gap between rich and poor is growing in every country he studied, he found that the inequality gap between poor nations and rich is narrowing. This is borne out by a recent study by Euromonitor International which shows, for instance, that the average Chinese manufacturing wage is now higher than that in countries such as Brazil, Argentina and Mexico and could soon surpass that of Portugal. This is not what many people believe. Meanwhile this week several publications commented on an Oxfam report claiming that in Indonesia the four wealthiest men own more than the one hundred million poorest people.
Milanovic believes that the political forces pushing for greater inequality will more likely succeed in the presence of surplus labour or technological change that is capital or high skill biased. In particular he compared the manufacturing and services sectors showing how the latter is seeing greater divergence of equality due to lower unionisation, capital proving stronger than labour and the twin effects of technology and globalisation.
What I liked particularly about his book were some of his asides. In one chapter he started by describing how he had read all the major economic forecasts of the second half of the twentieth century and found every single one was completely wrong. In another section he discusses the impact of migration on levels of inequality. He pointed to the tendency of rich, highly qualified people to marry other rich, highly qualified people and the likely impact thereof. Increasingly rich people are opting out of using state education and health services and at the same time persuading governments to cut funding for programs aimed at helping the poor. Simultaneously the amount being spent by the rich on private security systems is rising. Perhaps his most ominous prediction is that we are seeing the rise of a global plutocracy which is able to distort supposedly democratic elections in favour of legislators who then legislate to further favour the plutocrats.
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