Tag Archives: Branko Milanovic

Chart of the Day: 25 Jan 2015: Capitalism and the Asian Middle Classes

As you may have guessed, I have strong sympathies with those advocating a green agenda. Further, the existing domination of neo-liberal thought within the policy elites (almost everywhere) means that capitalism has gone global. While the planet has been a loser in this process because of the pathetic response to global warming, we must not forget that there are winners.

I’ve blogged on Branko Milanovic’s work on inequality before, but here is one of his charts again (source here; click for larger image):

Percentile of Global Income Distribution jpeg

The United States skilled working and middle class, who were the target of President Obama’s latest State of the Union Address, sit around the 80% percentile of the global income distribution. For them, life has not got better; indeed, since the end point of the data in this chart, 2008, things have got worse.

But below them lie a mass of Chinese and Indians who have done very well out of global capitalism. We may want to highlight downtrodden textile workers in Bangladesh or displaced farmers in Ethiopia, but they are a minority. In Milanovic’s words (here):

Nine out of ten people around the global median, the “winners” of globalization, are from “resurgent Asia.” They are people from rural China, including some 150 million who have seen their real incomes increase by a factor of 2.5; rural and urban Indonesia, 40 million people whose real incomes doubled; or urban India, 35 million people with increases in excess of 50 percent. There are also workers from Vietnam, Philippines and Thailand. These “winners” belong to the middle or upper parts of their own countries’ income distributions.

This process has shifted economic power eastwards. The boxes in the charts below represent the size of the economies. Note how 50 years ago China, India and Indonesia were bit players in the global economy. How the world has changed (taken from the McKinsey report “Can global growth be saved” I referenced last week; click for larger image):

Per Capital GDP jpeg

Critiques of the world economic order–with respect to sustainability or any other issue–have to recognise the fact that many, many people have done very well.

Links for the Week Ending 6 April 2014

  • The second instalment of The Intergovernmental Panel on Climate Change’s (IPCC) Fifth Assessment Report (AR5), titled “Impacts, Adaption and Vulnerability”, was released in Tokyo on the 31st March and can be found here. The “Summary for Policymakers” can be downloaded here. On page 19 of the Summary, the IPCC states that “the incomplete estimates of global annual economic losses for additional temperature increases of around 2 degrees Celsius are between 0.2 and 2.0% of income (± one standard deviation around the mean)” with the risk for higher rather than lower losses. The report then goes on to say “Losses accelerate with greater warming, but few quantitative estimates have been completed for additional warming around 3 degrees Celsius or above”. Given that it looks almost impossible that we will constrain warming to 2 degrees Celsius based on the current CO2 emission path and the installed fossil fuel energy infrastructure base, the world really is going into an unknown world of risk with climate change.
  • A key area of economic loss from climate change relates to drought. To date, most models have focussed on precipitation as the principal driver of drought. A new paper by Cook et al in the journal Climate Dynamics titled “Global Warming and Drought in the 21st Century” gives greater emphasis to the role of evaporation (more technically, potential evapotranspiration or PET) in drought. Through better modelling of PET, the paper sees 43% of the global land area experiencing significant dryness by end of 21st century, up from 23% for models that principally looked at precipitation alone. A non-technical summary of the paper can be found here.
  • Meanwhile, the general public has lapsed back into apathy around the whole climate change question, partially due to the hiatus period in temperature rise we are currently experiencing. However, evidence is slowly mounting that we could be about to pop out of the hiatus on the back of a strong El Nino event (periods of high global temperature are linked to El Ninos). Weather Underground has been doing a good job of tracking this developing story, with another guest post from Dr. Michael Ventrice (here) explaining the major changes in the Pacific Ocean that have taken place over the last two months and which are setting us up for an El Nino event later in the spring or summer.
  • Changing subject, The Economist magazine ran a special report last week on robotics titled “Immigrants from the Future“. In some ways, I came away less impressed by the capabilities of the existing generation of robots than more.
  • I often blog on happiness issues (most recently here). This may seem strange for a blog whose stated focus is on such global risks as resource depletion and climate change, but I don’t see the contradiction. For me, much of our striving to extract and burn as much fossil fuel as possible comes through the pursuit of goals that don’t necessarily make us more happy. A new book by Zachary Karabell titled “The Leading Indicators” adds a new dimension to this argument. Karabell argues that over the last century or so we have created a series of statistics that are more than pure measurements of economic success. In short, they are ideology laden more than ideology free. Political parties set out their manifestos based on a mishmash of economic achievements and goals based on GDP, unemployment, inflation, the trade balance, interest rates, the strength of their national currency and so on and so forth. But these number encapsulate only part of well-being. Yet such statistics totally dominate political discourse because that is how we have been taught to keep score in a modern capitalist economy. As we career towards extremely dangerous climate change, I think it is time that we recognise these economic indicators for what they frequently have become: false gods. Karabell has an article in The Atlantic setting out the book’s main ideas here and there is a good review in The Week here.
  • Rising inequality has been one of the major economic development over the past 40 years. I am a great fan of the Word Bank economist Branko Milanovic, who wrote a wonderful book called “The Haves and Have-Nots: A Brief and Idiosyncratic History of Global Inequality“, in which he pulls together many strands of the inequality literature within a global context. I blogged on this once here. A nice complement to this book is the new web site titled Chartbook of Economic Inequality, which has been put together by two academic economists Anthony Atkinson and Salvatore Morelli. If you like infographics, you will love this site.

The Haves and the Have Nots

Since I have recently been struggling to find the time for longer posts, I thought it worthwhile to occasionally do a short post on a chart that caught my eye. And here is one taken from an article in The Financial Times by John Gapper (click for larger image):

Winners and losers jpeg

As an aside, the chart is taken from the work of Branko Milanovic, an economist with the World Bank. Branko is one of the world’s leading authorities on global inequality and recently wrote the wonderful book “The Haves and Have Nots“, which I highly recommend.

The chart captures the winners and losers from globalisation and the spread of neoliberal economic thought. For those living in the advanced Western democracies, globalisation over the last two decades or so—which rather simplistically can be reduced to the entry of China and India into the free market capitalist system—has been a mixed bag of benefits. A small minority have seen their income and wealth explode, but the majority have experienced stagnating incomes and far more job insecurity (and for that matter health, pension and education insecurity as well).

Yet the neoliberal claim that globalisation in aggregate is a good thing is undoubtedly true—up to now. Even through the Great Recession started in 2008, global GDP kept motoring along at around 3% on the back of super-charged growth in developing countries led by China. This had continued a trend that stretches back to the rise of the Asian Tigers and the waking of China with Deng Xiaoping’s reforms in the late 70s. And the wealth has not just stuck to a small elite, but has also trickled down to produce an emergent middle class. It is this middle class that occupies the middle hump of the chart above: a hump that has seen its real income rise by 80% between 1988 and 2008.

I often feel the need to add the caveat that GDP and real income growth are not directly translatable into happiness. Nonetheless, they are strong determinants of happiness according to survey data, especially when growth is coming off low levels. Moreover, levels of income and wealth in China and India in the 1960s and the greater part of the 1970s frequently coincided with famine, TV images of which I can still remember from my childhood. Basically, the starving and impoverished aren’t happy. So globalisation has undoubtedly, in aggregate, increased the stock of human happiness.

That is the good news. The bad news is that the technology revolution that allowed globalisation to take place—through, for example, the management of long and complex supply chains and outsourcing abroad—is progressing apace. The same technology trend that destroyed well-paid manufacturing jobs in advanced economies is now replacing workers carrying out similar jobs in developing economies.

Imagine a large technology-driven jackboot crushing the hump in the chart above. That is my forecast for the coming decades unless we move beyond the global neoliberal consensus.