The Haves and the Have-Nots | Branko Milanović

Summary of: The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality
By: Branko Milanović

Introduction

Delve into the world of economic inequality in Branko Milanović’s book ‘The Haves and the Have-Nots: A Brief and Idiosyncratic History of Global Inequality’. Explore how prominent economists, such as Vilfredo Pareto and Simon Kuznets, impacted the study of income distribution and the role of social arrangement in shaping inequality. This summary unravels the concepts of good and bad inequality, the intricacies of measuring income disparities, and the implications of socialism on equality. Learn about the role of one’s place of birth in determining their financial prospects and the comparisons between the United States and Europe in terms of economic inequality.

Does Social Arrangement Affect Income Distribution?

The early 1900s saw Vilfredo Pareto conclude that income distribution is not affected by social arrangement. He formed this opinion through the omnipresent 80/20 law, which states that 80 percent of an economy’s effects are caused by 20 percent of the causes. However, Simon Kuznets challenged Pareto’s beliefs in 1955 by theorizing that inequalities do change as society advances. After conducting extensive research, Kuznets found that economic growth initially increases iIncome inequality, but later decreases it. Improved education and progressive state policies, like income redistribution mechanisms, showed that social arrangements do have an effect on income inequality.

The Cholesterol of Inequality

Inequality can be both beneficial and detrimental to a society’s economic growth. It can motivate people to work hard and pursue entrepreneurial projects, which is considered good. However, it can also create complacency in society, limiting economic growth, and stifling creativity, which is considered bad. Inequality is directly linked to a society’s economic efficiency, and it is also strongly linked to economic justice. When inequality is the result of discrimination based on race, gender, or inheritance, it is unjust, even if it doesn’t negatively impact economic growth. In this way, inequality can be compared to cholesterol; it can be good or bad, depending on the amount and the effect it has on society’s overall “body.” Protesters demanding a refashioning of social foundations exposed the relationship between inequality and economic justice.

Measuring Income Inequality

Investigating Gini Coefficient as a Tool

Measuring income inequality is crucial to understanding its effects on a society. However, it is a challenging task as household income surveys haven’t existed for long, making data for developing countries scarce. Besides, when it comes to measuring inequality, it’s complex to discern each person’s income’s distribution pattern. Italian economist Corrado Gini’s invented method, Gini coefficient, measures inequality by comparing an individual’s income with the rest of the population. Gini’s formula calculates the sum of income differences divided by the total number of people and their average income. This calculation provides a unit of measurement ranging from zero to one. Accordingly, Latin America is the most unequal continent, whereas Nordic countries are the most egalitarian. Measuring income inequality with the Gini coefficient helps compare inequality levels between countries and continents.

Comparing Wealth Across Time and Countries

Comparing the wealth of nations across different times and countries can be complicated, but there are methods to enable such comparisons. One method is by converting the currency of different countries into an imaginary standard currency, called the PPP. By utilizing complicated math, we can project backward to find GDP per capita in the past, using the growth rates over the years and measuring income by its ability to purchase human labor. Using this method, American industrialist John D. Rockefeller is considered the richest person ever. Another method allows us to look at the global makeup of wealth distribution, revealing that half of the world’s richest 1% is made up of 29 million Americans, with no significant numbers from Russia or Africa, India, and Eastern Europe.

The Perils of Socialism

Socialism can create equality, but it also hinders innovation and growth, leading to corruption at the top.

While socialism may seem like a promising solution for equality, historical evidence shows that it comes with its own set of challenges. Before World War II, socialist systems were more egalitarian than capitalist ones, but the nationalization of large industrial and landowning fortunes led to little incentive for citizens to work hard or creatively. Thus, socialist economies failed to produce internationally successful products that could compete with Western counterparts. A socialist government’s lofty ideals do not guarantee a corruption-free regime, as those at the top often use their power to funnel money from society. While socialism aimed for equality, it stifled innovation and growth, raising doubts about whether equality was a worthwhile goal. Therefore, it is essential to consider the economic incentives and opportunities for innovation in creating an egalitarian society.

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