Global Inequality | Branko Milanović

Summary of: Global Inequality: A New Approach for the Age of Globalization
By: Branko Milanović

Introduction

Dive into the fascinating world of Global Inequality: A New Approach for the Age of Globalization, where author Branko Milanović explores the complexities of globalization and its impact on the global economy. In this essential read, you’ll discover the winners and losers of globalization, from the Asian poor and middle classes to the lower middle classes of the rich world. By examining the disparities in wealth and income, as well as the shifting trends in inequality, the book offers a fresh perspective on how wealth is distributed and accumulated in our rapidly changing world. Uncover the truth behind the Kuznets curve, the rise and fall of inequality over the centuries, and the various factors that have shaped the modern economic landscape.

The Winners and Losers of Globalization

Globalization promised to improve everyone’s lives, but the reality is that only the middle-income earners and wealthy have benefited. The global middle class, living mostly in Asia, experienced economic growth, while the top 1% of the world’s population became wealthier. European and North American residents make up the majority of the “global plutocrats” who experienced a significant increase in wealth. The promise of globalization improving life for all has fallen short, and economic growth has been experienced unequally among different parts of the world.

Global Wealth Disparities

The lower middle class in advanced economies has experienced a stagnation of real incomes over the past two post-Cold War decades. The world’s richest 5% were the great winners, obtaining 44% of global income growth between 1988 and 2008. The lower middle class in wealthy countries only gained 1% of the global income gains during the same period. Meanwhile, worldwide wealth disparities are greater than income disparities, with one-quarter to one-third of most nations’ populations having zero or negative net worth. The number of super-rich individuals is rapidly increasing, as evidenced by Forbes’s annual rankings of global billionaires; in 2013, 735 hyper-rich individuals owned a total of $2.25 trillion in assets. The Asian poor and middle classes are among the great winners, while the lower middle classes in wealthy countries are the great losers. These dynamics have resulted in wealth concentration among the few at the expense of the many.

The False Inverted U-Curve

Economist Simon Kuznets’ Inverted U-Curve theory suggested that inequality first increases and then decreases as an economy develops. However, recent data disproves this theory, suggesting that economic inequality is still prevalent today. Explanations for this include the relative incomes of skilled versus unskilled laborers and the effects of war, high taxation, and socialism. Economist Thomas Piketty also attributed economic deregulation to the rise of asset concentration and further inequality. However, these explanations do not account for developments prior to the 20th century, leading to a need for continued research and analysis.

The Undulating Inequality

The rise and fall of inequality over the centuries can be viewed as Kuznets waves influenced by various factors. The expansion of education, higher social transfers, and progressive taxation lead to inequality reduction while wars and famines can increase it. In the 20th century, two World Wars and the establishment of public welfare systems resulted in a decline in inequality. However, benefit cuts to social safety nets, tax reductions for high-income earners, and technological advancement intensified inequality in the 1980s. Labor unions also lost influence in the services sector, while industries like telecommunications, banking, and pharmaceuticals profited, making it difficult for governments to collect taxes.

Global Wealth Disparities

Global wealth inequalities have fluctuated throughout history, with Western Europe and the United States becoming richer while countries like China and India remained poor until the 1980s. The income gap between the US and China/India peaked in 1970, reaching the highest disparity since the 19th century. However, today, 1.5 billion people are wealthier than they were 30 years ago, and emerging markets’ growth rate surpasses that of developed markets. Therefore, wealth disparities will likely continue to decrease with the narrowing economic gap between Asia and the West. Nonetheless, the developing world’s economic growth has been uneven, with only Asia moving towards income convergence while Africa lags behind. Overall, global income convergence remains incomplete in today’s society.

Inequality and the Rich

In the book, the author explores how inequality within countries varies, and how the wealthy have a powerful influence on politics and economics. The United States’ wealth gap is likely to grow, as the rich concentrate capital income and control policy-making. Additionally, high-income men often marry high-income women, perpetuating a wealth divide. The influence of money on politics is especially strong in the US, where election campaigns are expensive and wealthy donors have significant sway. The author suggests that popular distractions, such as social and media issues, divert attention from vital economic and social problems, such as unemployment and war profits. The concentration of capital income and political power among the rich contributes to persistent inequality and prevents progress towards a more equal society.

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