On global inequality, China's rise, the war in Ukraine: My conversation with "Atlantico"
Branko Milanovic discusses inequality, the great convergence, Ukraine and China.
What is your take on the riots that are going on in France at the moment?
To be completely honest, I don't have a full understanding of the situation. However, upon superficially examining the available French data, it doesn't appear that income inequality is increasing in France. This observation holds true not only for the past five years but also for the last three decades. Therefore, I don't believe that there is a straightforward explanation, such as a rise in the Gini coefficient, or the top 1%, that is sufficient to account for the occurrence of riots. It seems that the French perspective on this matter emphasizes local issues. It's worth noting that these riots are not an isolated incident but rather a recurring phenomenon that has persisted for a considerable period, spanning several years ago. There were also other recent protests sparked by events such as the pension reform. Consequently, it is plausible that there exist underlying and deeply rooted problems that extend beyond the scope of simple inequality measurements.
Doesn’t that raise the question the feeling of inequality in a society, and especially when it is mixed with identity issues and anxieties?
Yes, I believe so. I have a French friend who, for a period, pursued a political career in a suburb near Paris. He described to me a world that is vastly different from the urban environment of Paris that tourists like myself and others tend to experience. Therefore, it is plausible, as you mentioned, that the perception of exclusion plays a significant role. I have come across discussions on Twitter that suggest a certain "Americanization" of the issues, which, to some extent, I believe holds true. Both situations (the American in 2020 and the current French) involve problems related to identity and exclusion. However, I must emphasize that these insights are purely observational, of an outsider. To be honest, I was genuinely taken aback by the abruptness and the considerable level of violence exhibited during the riots.
You've republished on Twitter some data you have on the Gini coefficient and inequality measurement in former Yugoslav republics. What do you think it can teach us about the past and the present situation ?
You know, let me take a moment to explain my background. Many years ago, I worked on my dissertation, which focused on inequality in Yugoslavia. However, that was back in 1987. In hindsight, I made a mistake during that research. The household survey data I used dated back to the 1960s and followed two different principles of organization. They provided data at the republican level, with four social groups within each republic: urban population, rural population, mixed, and pensioners. Being a materialistic historian with Marxist leanings, I completely disregarded the republican levels and focused solely on the Yugoslav overall level for my entire dissertation. But the republican level turned out to be politically much more salient, and even then I did observe some issues. If you looked at a wealthy republic like Slovenia, everyone tended to fall into the top five income brackets (out of 10 given). Conversely, in a very poor province, such as Kosovo, the population was predominantly in the bottom five brackets. These observations stuck with me, and I thought that I should have organized my research differently.
Recently, I stumbled upon a Twitter discussion about the convergence of Soviet republics, which piqued my interest. I decided to examine GDP data and compare it to the numbers I had from the household surveys. I was surprised to discover significant differences within the Soviet Union, approximately 2 to 1 between the top and bottom republics.
Can it tell us something about the past trajectories of the countries or the future?
More about the past rather than the future—a reflection of the challenges involved in sustaining countries with large income differences that stem from geographical differences in income: specific regions being richer and also exhibiting limited geographical mobility. Additionally, historical, cultural, and religious factors also contribute to these disparities. In contrast, when examining Spain, I found the differences between the top and bottom provinces to be around 1.5 to 1. Clearly, sustaining as unified country the one with 5-1 difference as in Yugoslavia in the 1980s is much harder than if the maximum gap is 1.5-1 as in Spain.
However, I don't believe these observations can provide us with a comprehensive understanding of the present because these former republics have now become independent countries. As a result, they are more homogeneous in terms of ethnicity, religion, and income. This is a crucial distinction—the countries have evolved to become more internally cohesive.
Do you think that at some extent, the war in Ukraine and Russia has something to do with Inequalities and the evolution of inequalities?
Not quite. I actually had a blog where I explored four different theories regarding the conflict. The theory that I personally find most plausible, though it doesn't provide a direct explanation for the timing of the war, relates to the long-term effects of the socialist system and its single-party structure. Each republic had its own branch within the single party that governed the republic. Over time, in order to secure legitimacy, the leaders of these republican branches embraced and supported nationalist agendas. This would have been more challenging under a multi-party system, as different parties would represent various political ideologies. However, in this case, the leaders within the single party increasingly adopted nationalist stances. Consequently, even during the breakup of the Soviet Union, you had nationalist parties effectively governing each of the different republics, Ukraine included and even Russia that, under Yeltsin, actively pressed for the break up of the Union. Therefore, I believe that nationalism was inherently embedded in the system, contrary to the expectations of its creators. Putin has later exacerbated this nationalist or perhaps imperialist tendency. While the theory offers insight into the long-term dynamics, it doesn't directly explain the specific outbreak of war on February 24, 2022.
Is there any link to be made between an emerging nationalism or feeling of anger, and the inequality level in a country?
I must admit that it is a challenging question to answer. The available data alone cannot provide a clear understanding, and while researchers have explored the perception of inequality, it remains difficult for me to make a definitive statement. However, if we consider specific examples, we can observe varying trends. For instance, Russia has experienced a decline in inequality over the past decade. On the other hand, Ukraine presents an intriguing case. Despite the perception of high inequality, the household survey data, although possibly imperfect, indicate relatively low levels of inequality in the country. This outcome wouldn't be entirely surprising if the concentration of inequality was primarily at the very top, beyond the 1% threshold, say within the 0.1% or 0.01%. Such disparities may not be adequately captured by synthetic measures. While this response may not directly address your question, it highlights the complexity involved. In essence, it remains a challenging question to answer definitively, and I don't have a conclusive response.
Your work shows that global inequalities are tending to fall, and that even within countries, the trend is not necessarily upwards. Yet the subject of inequality has become particularly central in developed countries, almost obsessive. How can we explain this paradox? To what extent has this subject been instrumentalized?
I think one has to realize that there is a significant time lag between first, the changes in inequality, second, the knowledge of these changes among the researchers, and third, the spreading of that information among the general public. For example, in most Western countries inequalities increased from the 1980s or 1990s until the first decade of the 21st century, but the full realization of this happened only with the financial crisis and middle class income difficulties. Now I think we may be undergoing a reverse evolution. In the United States, Germany, Japan and France, the level of income inequality has been stable (with small annual fluctuations) for at least a decade. In the UK, inequality has declined from its early 2000s peaks. But once people's attention has been turned to inequality, it is, I think, difficult to forget about it even when it is stable. In fact, it could be stable but still found by many to be too high. Or, it could be, as I mentioned before, that significant time has to elapse until people's perceptions change.
To what extent has it also become an issue between different countries or geopolitical blocs? Is inequality a power issue?
I am not sure that it is a power issue because I do not see that there are marked differences in inequality between the currently politically competing models. China is actually more unequal (in terms of income distribution) than the United States. It is not credible to claim that political capitalism tends to produce more equal outcome. Or if one takes Russia which now, at least officially, claims to defend different values than the West, lower inequality is certainly not among them since the country is exceedingly unequal in terms of power, income ad wealth distrbutions. The war, as reflected in the origin and background of people who have been conscripted to fight it, must have only deepened income and existential inequalties.
You recently published a piece in Foreign Affairs about the great convergence. What do you mean by this great convergence?
Okay, well, that's a more straightforward question since it is based on empirical data! In the past few decades, primarily due to China's economic growth but also due to the progress of other countries, global income levels have risen significantly. China, for instance, achieved an annual per capita growth rate of around 8.5% over a span of 40 years. This growth, coupled with the economic progress in Asia and other countries with large populations, had two noteworthy effects.
Firstly, it resulted in a substantial decline in global inequality, marking a significant departure from the trends of the past two centuries. This outcome is rather evident if we consider a hypothetical example, using a country like France. In such a scenario, if relatively poorer individuals experienced a 10% income growth while relatively wealthier individuals saw a 2% growth, it would naturally lead to a reduction in inequality. The same is true globally. However, it's worth noting that despite this decline, China itself witnessed a rise in internal inequality, which was also observed in countries like the US, India, Russia, and the UK. Hence, the national increases served as a counterbalance, albeit not strong enough to outweigh the overall global inequality decrease due to high growth rates in Asia.
The second effect of this decline in global inequality was the reshuffling of positions among individuals. In other words, people from countries such as China or India suddenly found themselves becoming part of the top 10% globally, while middle or lower-middle classes from rich countries were pushed lower in the global pecking order. This shift in relative positions can lead to various political and socio-economic implications, particularly for those in the middle class in wealthier countries. Some individuals in Western affluent nations may experience a decline in their relative global standing, even if their real incomes continue to increase by 1% or 2% annually. These are two distinct but interconnected aspects stemming from the same underlying reasons.
To conclude, it's important to recognize that when people hear about a decline in global inequality, they often express support for such a trend. However, it becomes more challenging when they realize that it also implies a decline in the global rankings of the middle class in the United States, France, or the UK. Even if their actual incomes continue to rise, this aspect can be politically sensitive. Nonetheless, it's crucial to understand that these two facets cannot be separated from each other.
How do we manage to deal politically with such a paradox?
I believe that politically, this is a complex issue. It's crucial to be cautious with language and emphasize that when we talk about a decline, it's a relative decline. In other words, it means that one's position is decreasing compared to others, even if one's real purchasing power is still improving, But of course at a slower rate than that of others. And eventually they will be overtaken. However, some argue that it doesn't matter because people measure themselves against their immediate surroundings, their friends, and acquaintances. While this may be true, there are certain globally priced goods that middle-class individuals in Western countries may find increasingly challenging to afford and acquire. For example, attending events like the World Cup in Qatar or vacations in Asia, which can be incredibly expensive. These changes can impact the middle class and its ability to access certain experiences.
I understand your political question, and it is indeed not easy to explain or disregard the concerns of Western middle classes. Striking a balance between, on the one hand, advocating for the reduction of global income inequality and lesser global inequality of opportunity, and on the other, the reshuffling of global income positions that I just explained is indeed politically very challenging.
Reflecting on your question, Adam Smith's perspective in "The Wealth of Nations" sheds some light on the matter. He compared England and France, noting that France had a larger population than England or Scotland. From a purely humanistic standpoint, one might argue that improving incomes in France is more important because it affects more people. However, Smith observed that an Englishman or Scotsman who prioritizes the well-being of another nation rather than his own would be considered a poor patriot. This presents a fundamental dilemma, and we don't have a definitive answer to it. We find ourselves caught between a cosmopolitan view that desires prosperity for all and a concern for our own income positions. Resolving this dilemma is far from easy.
Yet greater equality global equality is not inevitable. Does that mean that some perhaps may not want that greater global equality?
That's a valid perspective to take: a national position that prioritize the well-being and position of one's own country and people in the global income distribution. It's important for individuals to clearly express and stand by their beliefs clearly, rather than claiming to be globalist or cosmopolitan while holding a nationalistic stance. It is politically legitimate stance regardless of whether we agree with it or not.
Regarding the future, we can observe that as China has achieved significant economic growth and development, it no longer serves as the primary engine driving global inequality reduction. In fact, China's growth may contribute to global inequality as it outpaces countries like India, Nigeria, and Sudan. However, this doesn't address the second problem we identified, which is that China will continue to move towards income levels historically associated with European and American populations.
In terms of global inequality decline, the situation will depend in the future on the trajectory of other regions, particularly Africa. Africa is expected to experience a population increase throughout this century, making it the only continent with a growing population. If Africa does not achieve high growth rates, the decline in global inequality may be hindered. In my extensive article, which is similar to the Foreign Affairs piece, I highlight the necessity of very high growth rates in Africa. A per capita growth of 5% per year, along with an additional 2-3% due to population growth, would be required to achieve substantial progress. Achieving 8% real growth for several decades is not easy, to say the least, and if we look at the past 50 years of African growth, we cannot be optimistic.
Do you believe that the fact that China grew that wealthy in such a short amount of years explains at some point its current behaviour and its aggressivity?
These are indeed complex and challenging questions. Personally, I don't view China as an aggressive power. However, I do recognize that China's growing economic and military strength has given it a sense of increased confidence and influence. Technologically, China has made significant advancements and has a more prominent global presence. It is unrealistic to expect China to retreat to its previous position from the 19th century when it was subjected to colonization by various European powers and Japan. Economic growth tends to enhance a country's self-assurance and may lead to behaviours that others perceive as aggressive or arrogant. This pattern is not unique to China; many countries throughout history, such as the United Kingdom, France, Spain, the United States, and the Soviet Union, have demonstrated different behaviours when they felt strong and influential. However, I must emphasize that my knowledge in this area is limited, and the subject is primarily political in nature.
Why are you so prudent on how global inequalities could evolve?
Indeed, caution and prudence are warranted in assessing the current global situation. Several factors contribute to the uncertainty we face. Firstly, the impact of the COVID-19 pandemic has left a lasting imprint that will take time to fully comprehend. While it may eventually subside, its consequences will linger for a while.
Additionally, two major crises further complicate the picture. The first is the complex and unpredictable relationship between the United States, the Western world, and China. In the worst-case scenario, this could potentially escalate into a war, while in a less severe scenario, it may lead to a trade war with profound implications for technological development of both sides, China's global relations, and its economic growth. Furthermore, China's investments in Africa could be affected, influencing that region's economic trajectory too.
The second crisis involves the situation between Russia and Ukraine, which adds another layer of uncertainty. Although the populations of Russia and Ukraine alone may not significantly impact global inequality when considered on a global scale, if the conflict were to spread to Europe and potentially escalate into a nuclear war, the consequences would be catastrophic. In such a scenario, discussions about global inequality becomes irrelevant.
There is also intensifying climate change whose effects too are complex and difficult to predict.
Given these intricate and unpredictable circumstances, it is challenging for anyone to accurately forecast the world's state in the next five years. Those who claim to possess such foresight are likely deceiving themselves. The multitude of factors at play and their potential evolution make it impossible to definitively predict the future.
How do we navigate economically?
The challenges faced by individual countries are indeed specific to their economic policies and circumstances. Each country must adapt and adjust to various shocks and disruptions. For instance, the war in Ukraine and the impact of reduction in imports of Russian gas and oil had significant repercussions for Europe. However, Europe managed to navigate through these challenges and make necessary adjustments, as evidenced by the relatively uneventful winter last year.
Nevertheless, my concern lies in the growing number of shocks that countries are now confronted with. Returning to our earlier discussion, Western Europe, and Europe as a whole, is experiencing multiple shocks simultaneously. These include the consequences of the war, energy-related issues, climate change impact, and the increasing unpredictability of weather patterns. Additionally, social unrest and protests have become more frequent. The cumulative effect of these shocks can place immense strain on a system's ability to effectively manage and address them.
What did you think of the initiative for a global financing pact?
If that favors increasing cashflows, I’ll consider it a positive thing. But I have some concerns regarding the increasing role of private individuals, funds, and foundations in shaping agendas and decision-making processes. It is indeed notable that actions that were traditionally undertaken by states and international organizations are now being influenced by wealthy individuals and their foundations. This situation reflects the plutocratic nature of our world, where a concentration of wealth can lead to significant influence and decision-making power.
For instance, as someone who has worked at the World Bank, I witnessed firsthand how the Gates Foundation, due to its substantial funding, had a considerable say in determining the research priorities and activities of the institution. While this may be seen as a means to increase the flow of resources, it also raises questions about the concentration of power and the potential impact on impartiality and broader societal interests.
In summary, while it is desirable to increase the flow of resources for impactful initiatives, we should be cautious about the influence of the wealthy on research agendas and decision-making, and strive for a more balanced and equitable distribution of power and influence in our societies.
It would make more sense to me if countries were to tax the rich, take that money and decide how to give it to Africa, rather than letting the rich tell the states how it should be done. I don't dispute their good intentions, but they're certainly not the ones who should have the power to decide whether one should, build stadiums, do vaccination or bring drinkable water. I simply don't think they are the ones who should be making those decisions.
Link to the French version of the interview is here.
This first appeared in the Atlantico and on Branko's blog.
Photo by Anh Nguyen