Why should large aid organizations spin off more start-ups? What kind?

April 15, 2016

Book Review: Branko Milanovic’s brilliant take on Global Inequality

April 15, 2016
empty image
empty image

Some of my favourite development economists are nomads, people with feet in different regions, which seems to global inequality covermake them better able to identify interesting patterns and similarities/differences between countries. Ha-Joon Chang (Korea/UK), Dani Rodrik (Turkey/US) and now Branko Milanovic (Serbia/US), whose latest book Global Inequality: A New Approach for the Age of Globalization is a brilliant and thought-provoking essay stuffed with enough graphs to satisfy the numerati, anecdotes for the general reader and political insights for the policy wonks. Read it.

Milanovic is best known for his number crunching, especially his great graph of where the money from global growth went from 1988-2008 (see left). There’s no better way of showing the simultaneous rise of the emerging world (mainly Asian) middle class and the global plutocracy, accompanied by the hollowing out of the Western middle class and the neglect of the poorest.

But this book, even more than his previous oneMilanovic curves, shows he is much more than a tweeter of top graphs: his level of political curiosity and insight is uncommon for an economist. He introduces politics much more centrally than other inequality gurus like Thomas Piketty or Angus Deaton, for example. In fact, I wish he’d given more time to the politics bit, and less to the economics. More on that later.

Milanovic also writes Kerouac-fast: his acknowledgements section depressed me deeply when he said of a writing trip to Panama ‘After a week almost fully dedicated to the book (with a few dips in the Caribbean in between), a good part of the text was done’. If that ‘a week almost fully dedicated’ is not some kind of typo, he will be hated by authors everywhere.

So what does he say? He sums up the book structure with a nice ‘executive infographic’. He shows the overall trajectory of global inequality, then decomposes it into what happens within and between countries. Like Piketty, Milanovic p8Deaton or Chang, he takes the long historical view – centuries rather than decades, with erudite asides on inequality in the Roman Empire. He then pulls it together to discuss how inequality is likely to evolve in the 21st Century (the best section, IMO).

There is so much in here that doing it justice in a blog post is pretty much impossible, but the things that most struck me included:

  1. Moving from Kuznets curves to Kuznets waves: Simon Kuznets predicted that income inequality would follow an inverted U shape as countries develop: rising first as societies grew, while the large pool of un/underemployed poor people kept wages low, but then falling as countries reach full employment and wages start to rise. Trouble is, that doesn’t explain the rebound of inequality in much of the West since 1980. Piketty’s response was to replace Kuznets’ optimism with his own pessimism, arguing that the downslope of the U was an unusual event driven by the destruction of capital by two world wars, and that normal service (i.e. rising inequality) has now resumed. Milanovic thinks it’s more like a long wave, with contending forces alternating over time. Growth, differentiation and elite capture of politics increase inequality; war, welfare and progressive politics decrease it.
  2. On inequality between countries, he argues that the convergence between rich and poor countries is returning the world to the status quo circa 1820, when the main source of inequality was class, rather than location (i.e. where you stood in the social pecking order of your country, rather than whether you were born Indian or American). The younger Karl Marx would recognize the new order more than, say Frantz Fanon.
  3. His most readable section was the speculative chapter 4 on where the 21st Century is likely to take us on the Kuznets rollercoaster. He argues that China’s high inequality levels are likely to fall, as labour shortages push up wages, but is much more pessimistic about the US, where he sees the drivers of inequality (eg political capture by the rich) as far stronger than the countervailing forces, leading to its politics acquiring a ‘quasi-dynastic look, which the country shares with India, Greece, the Philippines and Pakistan’. He thinks inequality is leading to a ‘hollowed out democracy’ in both Europe and North America, in which state spending moves from providing services to funding police and security to protect the rich. He compares the West to the Roman Empire, where an increasingly autocratic regime masqueraded as a Republic, before crumbling.
Inequality within countries is becoming the decisive factor. credit Paul Smith, Panos

Inequality within countries is becoming the decisive factor. credit Paul Smith, Panos

The writing reminded me a lot of Piketty – like a very long dinner listening to a particularly erudite and interesting guest. Milanovic finishes with ‘ten short reflections on the future’, in which there are some great points, for example that given the mobility both of capital and high earners, future attempts to reduce inequality will have to be more like East Asian ‘predistribution’ of assets and education, than European tax and spend. But he then wandered down some eccentric or disappointing blind alleys, eg arguing that ‘the root cause of prostitution is income inequality’ or dismissing as hypocrites those concerned with planetary boundaries and limits to growth.

And then, suddenly and frustratingly, the book stopped. I wanted him to push himself harder to take the great political insights in chapter 4 to produce a real conclusion and advice on the most promising political pathways and opportunities for those wishing to tackle the scourge of inequality in this century. Any chance he had could spend an extra week in the Caribbean sometime and finish the job?

P.S. I’m not the only fan, here’s Martin Wolf’s rave review in the FT

2 comments

  1. I share your enthusiasm for the book, but I think my concerns go a little further.

    It wasn’t just that there were some odd bits on gender.

    Rather, by so briefly dismissing gender inequalities, the entire analysis is weakened.

    As I understand it, Milanovic argues that we should focus on reducing overall income inequality, instead of gender or race-based income inequalities. He suggests two reasons for this. (1) Focusing on overall income inequality is more politically effective, as it can be supported by a wider group. (2) Reducing overall income inequality will reduce gender income inequalities.

    This is a really interesting idea, I think. Might campaigns for gender equality actually gain more traction if they framed them in terms of income equality? E.g. campaigns for decent work and living wages?

    But I still have some questions…

    (i) Why focus on reducing *income* inequality? Surely we’ve all moved beyond this? voice, power, norms, self-esteem, prejudice etc?

    [I accept that understanding global income inequality is important. And limited data prevents us from doing a similar kind of analysis for a more holistic idea of well-being, but surely you can’t use a very narrow form of data on inequality to then dismiss the importance of the politics of recognition? – rather than just redistribution or predistribution]

    (ii) Even if we accept the goal of reducing income inequality, you can’t achieve that without addressing gender norms.

    For example, BM calls for more state investment to ensure all schools are of equal quality. this totally neglects gender norms in the classroom: male dominance, boys speaking out more, girls being told they’re less good at Maths, girls being asked to do routine cleaning tasks etc. So even if states spend more equalising schools, this wouldn’t undermine the gender norms that reinforce gender income inequalities in the labour market.

    (iii) A meta-point. While the analysis of income inequalities is based on careful empirical research, the seeming dismissal of identity-based politics appears rather brief.. Like, not really taking it seriously. Or much feminist economics? This was true of Piketty’s work. And a number of mighty white male tomes. A professor at my uni has a book with a caveat, ‘We don’t look at gender or race here, given space limitations’. [I paraphrase but that’s the gist of it].

    Maybe I’ve misinterpreted these aspects or perhaps the brevity was intended to make the book concise and widely accessible.

    Both are likely of course.

  2. We all accept that inequality within countries is driven by rising returns to capital over labour. But the fundamental unit of economies (the company) is engineered to maximise growth of capital of investors (by-and-large the rich). So shouldn’t it be a bigger deal that we’ve misdesigned the purpose and architecture of companies? Having the 99% own companies, or instilling social mission into them is very possible. Why isn’t this a bigger deal in articulating what drives and can address rising inequality?

Leave a comment

Translate »