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.