Branko Milanovic. World inequalities and the European social contract

Notes from the seminar on inequality by Branko Milanovic, organized by the Government of Catalonia and held in Barcelona, Spain, on 14 May 2019.

Branko Milanovic. World inequalities and the European social contract

After 1917 the world had a new way of production that lasted some decades and reached up to 1/3 of the population. And before, there were also different ways of production (e.g. slavery vs. free men, etc.) that lived together. This is not true anymore. Nowadays, capitalism rules alone —China being mostly capitalist in practical effects.

Global inequality has been rising since the early 1800s, stopped after WW1, rose again and stopped to grow once more after WW2. Around year 2000, due to the rise of Asia, global inequality begins to drop drastically. These are three periods: (1) fast growth of inequalities due to the Industrial Revolution, (2) the plateau of high but stable global inequality during the XXth century, (3) the decrease of global inequality due to the raise of Asia.

Europe (includes the US and the “Western” world) is shrinking at the global level: population, share of the global GDP, etc. This, among other things, means that other countries are catching up with European countries and some of their citizens are surpassing Western citizens in purchasing power. This does not mean that Europeans are moving down in absolute terms, but they do in relative terms: high income people from low income countries begin to be richer than low income people from high income countries.

There is an emergence of the global “middle/median class” and a shrinkage of national middle classes.

Migration is not something that will be a season matter. Migration will be with us for some decades. That is why it is so important. It will become structural at least for a very long time, as the tensions.

Another way to look at the tree ages according to inequality:

  • Age of empires and class struggles, there is a divergence between countries and between classes.
  • Age of the Three Worlds and diminished class conflict, with divergence at the peak.
  • Age of convergence and internal cleavages.

We have 10% of the people of the World living the same way they were living 1,000 years ago, in absolute poverty. Yes, we have improved a lot, but we are still leaving a lot of people behind.

It seems that most equalising policy instruments —labor unions, education, taxation to the richest ones— seem to have reached their limit. And not withstanding, capital concentration is growing, especially at capturing its rents, and this is newly creating inequalities.

Can we de-concentrate capital? By what means? Taxing capital, stimulating new enterprises that create de-centralized (new) capital, etc.

The past 25 years in the rich world.

Political/philosophical issues brought up by looking at global, as opposed to only national, inequalities.

What kind of policies, and what can they do?

Discussion

Pere Almeda: is there a way that a global governance can control global finance / global capitalism? Branko Milanovic: On tax evasion that could actually work, also on tax dumping. But maybe not for other matters.

Mireia Borrell: why is it inequality bad? Is it “only” for moral reasons? Economic ones? Branko Milanovic: all of them apply. There is high impact by inequality on growth. See it, for instance, for gender discrimination and how inefficient it is to leave aside women’s talent.

Ismael Peña-López: we are not witnessing a growing de-materialization of capital, especially in the form of digital capital and knowledge. And some think that this democratizes the chance to access capital, as it is less costly an it is not finite (not a good with rivalry issues). There might be a tension between economies of networks and a digital-commons based production. Can the latter be a way to de-centralize capital? Milanovic: on the one hand, if capital ownership does not change, things might not change despite the fact that production technologies may. Besides, the definition of labor is changing a lot, so it really depends on how we define labor and capital and how we tax them. So the answer is not clear and it may vary a lot depending on definitions, ownership, taxation models, etc.

Natàlia Mas: what about fostering cooperatives? Branko Milanovic: a first interesting approach is how to make capital returns remain within the system, and be reinvested, put in innovation, etc. Another thing is how to work on ownership, like giving shares to their workers. This usually works, but it maybe would work better if not only top-workers got them, but all the workforce.

Jordi Angusto: how do we measure inequality better? will the gap between capital returns and labor returns keep on increasing? Branko Milanovic: technological change usually benefits owners of capital; as technological change will remain in the future (or increase), is is likely that capital owners will see their share in the global GDP grow. If we saw a democratisation of capital, that would certainly be the opposite case.

Marta Curto: given the mobility of capital, how do we tax capital? Branko Milanovic: it is very difficult indeed. Globalisation is like a huge tsunami and it is very difficult to tame. Pere Almeda: Maybe the creation of a global financial registry, but it would only be possible to do by a legitimised global organisation, which we have not.

Branko Milanovic: “homoploutia”: high capital and labor income received by the same people. Some people in the top are both capitalists and workers, which is a new thing compared to past times where one would be either one or the other, but never both. Homogamy has increased from 13% to 30% in 50 years. That is, what is the probability of someone at the top to marry someone also at the top. These two aspects make it more difficult to design policies that are effective in redistributing income or reduce inequality.

If you need to cite this article in a formal way (i.e. for bibliographical purposes) I dare suggest:

Peña-López, I. (2019) “Branko Milanovic. World inequalities and the European social contract” In ICTlogy, #188, May 2019. Barcelona: ICTlogy.
Retrieved month dd, yyyy from https://ictlogy.net/review/?p=4677

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