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):
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):
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.
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):
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.