Any inequality analysis should start by recognising the following point: the globalisation process which began in the 1950s, and, despite its ups and downs, is still underway in the third decade of this century, has had an overall positive effect on the world’s population. Regardless of the statistical indicator you choose (GDP per capita, disposable income, life expectancy, malnutrition, etc.), the vast majority of the world’s population have a ‘better’ life in 2022 than they did 100 years ago, not to mention earlier periods in history. Economic globalisation, despite all its faults, should be seen as a success for humanity as a whole.
Leading research experts in economic inequality indicate that, overall, economic growth in India and China as a result of globalisation has reduced the economic inequality that previously existed between western countries and the rest of the world. For example, economist Branko Milanovic published his ‘elephant’ curve, describing the changes in disposable income at various percentiles of the world’s population and the emergence of a new global middle class – mainly in Asia – over the period 1988 to 2008 (see figure below). Milanovic’s own work indicates it has continued to grow from 2008 to the present day.
Figure 1. Changes in real income between 1988 and 2008 at various percentiles of global income distribution (calculated in 2005 international dollars).
Source: Milanovic, Branko (2012)
If this is the case, and there is little dispute to the contrary, why should we be concerned about inequality as a ‘problem’ to be solved? Shouldn’t we welcome this improvement in global conditions and decline in inequality, and continue along the same path?
It is a paradox, perhaps as a result of this success, that we are now becoming increasingly aware of the clear winners and losers in this process. Milanovic’s graph clearly shows that it is not only the new middle classes in Asia that have benefited, but also the richest 1% of the population (who started from a much higher base). However, his graph also shows that the population groups in the 80% to 85% percentile, who have the highest disposable incomes and mainly live in ‘developed’ countries, have not seen their resources increase in recent years and, in some cases, have seen them decrease.
Winners and losers of globalization
So, why should we show concern for the ‘richest’ groups on the planet? It is by answering this question that some of the unexpected consequences and dilemmas we must face begin to emerge, adding complexity to an already fragile global situation. Who belongs to this population group and why are their problems significant? In terms of the world’s population, this group is made up of working and lower-middle classes in developed countries (including Spain). As Anthea Roberts and Nicholas Lamp highlight in their recent book “Six Faces of Globalization”, the perception among these groups that globalisation has only benefited ‘other’ groups is the basis of a discourse that criticises globalisation and presents significant challenges to the continuity of this process.
On the one hand, when the spotlight focuses on the huge increase in wealth of the richest percentage of the population (the top 5% worldwide), the ‘losers’ of globalisation start to become aware of how fiscal policies over recent decades have favoured those with the most income and capital (Thomas Piketty has published successful theses on this topic), and how the enormous concentration of wealth that has created companies that are ‘too big to fail’ can demand large subsidies and tax breaks from governments by threatening to offshore their production.
On the other hand, when the focus of this discontent is on the rising income of workers in Asian countries (the new middle classes, as referred to above), as a consequence of relocating production abroad, the discourse easily adopts xenophobic and nationalist tones, seeking protectionist solutions against free trade – as seen recently in the success of Donald Trump in the US and ‘Brexit’ in the UK (despite the superficial rhetoric of the latter appearing otherwise).
And between these two discourses we run into the main dilemma of inequality in the 21st century: the policies that have generated the most equality at global level – mainly the offshoring of companies to countries with very low per capita income – are the same ones that often generate inequality at local level. The problem lies in the fact that any move to improve inequality in developed countries is likely to create greater inequality with developing countries. The working classes in OECD countries have, in effect, been the main contributors to the growth of the working classes in developing countries in an experiment of forced degrowth that, due to the increasing virtualisation of labour, may soon include the middle classes in developed countries. Needless to say, these policies have also greatly benefited the top 5% of the world’s population with the greatest accumulated wealth, and especially the 0.1% who own the most capital.
A moral dilemma
In this experiment, we return to the same moral dilemmas observed in the famous debate surrounding our ‘ecological’ or ‘carbon’ footprint; where the need to improve the living conditions of 80% of the human population living in emerging economies demands those of us living in developed countries to dramatically reduce our consumption. The difficulties surrounding the challenge that lies ahead should not be underestimated, and we should be asking ourselves whether one social group can exempt itself from the sacrifices and responsibilities that this involves, by shifting the burden to groups in more precarious social situations.
In a very recent study, Harvard economist Stefanie Stantcheva and her colleagues showed that the environmental policies needed to achieve the Paris targets – the famous ‘Net Zero’ – are evaluated by citizens on the basis of three criteria:
1) Are they effective in reducing emissions?
2) Will they hurt my family’s finances?
3) Will they negatively affect poor people and those on low incomes?
Beyond the implicit difficulties associated with the first criterion, balancing criteria 2 and 3 will be the core challenge of any proposal.
Written by Ramon Noguera, Academic Director of EADA Business School