(static crackling)
- This graph here shows our best estimate
of how global inequality has
moved over the two centuries.
On the horizontal access you have time
from 1820 when we have some
first GDP per capita data,
which are actually necessary
in order to anchor these numbers
for individual countries.
And then on the vertical axis
you have the Gini coefficient,
which is as you know
the measure of inequality
that ranges from zero,
when everybody has the same income,
which is obviously a
theoretical situation,
to 100 where the entire
income of the world
were technically in the
hands of one person.
Now, as you notice there,
first you notice that actually
the level of inequality
measured with the Gini coefficient
was relatively high in the
beginning of the 19th century.
That level is about 55 on the graph.
But more importantly, notice
that the next century,
actually century and a half,
that level just kept on
going up, and up, and up.
When you say, "Why did
it level go up and up?"
You basically find out
that in that period,
and I will first focus on that period
because it really is a period
which is actually telling us a lot
about the subsequent period,
because it was a very special period.
I also call it in that
sense from Karl Marx
to Frantz Fanon and back to Marx
and you will see the
reason why it is the case.
But let me start with that first period.
If you take this Gini of 55,
or actually higher Gini along the road
all the way to 1950s,
and you decompose them
into between country
and within country parts
you notice on this graph here
this is the part which is actually due to
inequalities between nation states.
Now, the interesting thing here
is to notice that that
part is relatively small.
That part is relatively
small because the gaps
between mean incomes, which
enter into this calculation,
were small in the beginning
of the 19th century.
As the industrial revolution progressed
and the western countries
and later Japan became richer
that part of course
goes up, and up, and up.
You notice actually that practically
at every next reading you actually have
higher inequality between nation states.
But what was also important
is that actually in the very
beginning of the 19th century
and all the way to the mid 19th century
and even all the way
practically to the end
of the 19th century into World War I
that within inequality,
which means inequality
within nation states,
was very large.
To give you an idea what
are these two inequalities
in a simple way, I call
the within inequality,
within nation state inequality,
I called it class inequality
because that inequality is an inequality
between suppose peasants and landlords,
workers and capitalists,
generally poor and rich
people within each country.
If that inequality is high,
as it was in the 19th century,
that indicates that actually
the cleavage within nation states
between the poor and the rich people.
The second cleavage,
which I call location,
which is the cleavage
of the differences in
mean income between the countries,
as you can notice on the graph
was relatively small in the 19th century
and then was rising and
becoming more and more important
as we progressed toward the 20th century.
It really then reached very high levels
in the mid 20th century.
That means also that when you
look at the very first period,
and actually this is very important point
and that's why I really wanted
to focus on the first period,
you have what are called
there the age of empires
and of class struggles.
Now you have the age of class struggles
because the main cleavage
is between classes
within each nation state.
That also implies that the poor classes
for example in England,
would be at approximately
similar level of income
as poor classes in Russia or India.
When you actually think
that somebody like Marx
was writing in 1850s and 1860s
what later became "Das Kapital"
obviously he didn't have these numbers.
But his perception of what the world was
fundamentally correct.
The main cleavage was
within nation states.
Moreover, if the incomes
of the poor people
in different countries were similar
you could actually speak of something
like international proletarian solidarity,
or solidarity between really poor people
in different countries
because their material
conditions were similar.
But as you noticed actually
as we progress into the 19th century,
and again that was something
that was interesting
because it was noticed
at the end of Marx's life
and also later with Engels,
they noticed that the
British working class
was actually becoming richer.
So parts of the increase
in income in England
were also trickling down to the poor,
to the working class people.
We actually have now obviously the data
going back to, for example, Bob Allen
who actually shows the same thing
about the rising real
wage in the latter part
of the 19th century.
Then you have the situation
that the material conditions of
poor people in rich countries
start diverging from
the material conditions
of the poor people in poor countries.
Then you have in some sense an undermining
of that sort of idea of
proletarian solidarity,
which would hold across the globe.
We know that from the work of
many people including Piketty
that after World War I
we have really beginning
of the shrinking of the
differences within nation states.
The first period, I'm going back to it,
was the period where you
essentially had the age of empire,
which was driven by this
large gap in real incomes
between the rich part of the world,
which was basically Western Europe,
the United States, and Japan,
and everybody else.
The same time you at the
age of class struggles
within those countries.
But then after World War I
and in the entire practically 20th century
we moved to a very different world.
This is, for example, the
world that I was born in
and I stupidly assumed that's the world
which always existed,
but in reality it didn't exist.
It was the world which was created
by the industrial revolution.
That world was the world
of the three words.
The first world, the second world,
which was the world of socialism,
but it had a logic
because it was the
world with income levels
that are in between the
first and the third world,
and the third world was essentially
the three large continents,
Africa, Asia, and Latin America.
What was also interesting,
then you see the change in ideology
because it was very commonly said,
and you also had it in
a world systems theory
when you actually have core
countries and periphery,
but it was generally
perceived or appreciated
that the gaps now which
existed between classes
have now become global gaps between
what Mao Tse Tung called
global bourgeoisie,
which was the first world,
and the global proletariat,
which was the third world.
The trilateral, I mean
trilateral of the countries,
not trilateral of the rich people,
but trilateral of these three continents
of the third world was really also
a very special reflection
of the underlying global inequality.
That was the second period,
which basically we can date
from the end of World War I
all the way to the end
of the 20th century.
That was what, to some extent parallels
what was called the short 20th century
because, again, it goes
from the end of World War I
to maybe 1980s.
It is related to the fall of communism,
but it is actually essentially
then the third period
or the end of the second period
are driven by the rise of Asia.
What happens in the most recent period
is something yet different
compared to the other two.
We have the age of
convergence in mean incomes
and we have the age of convergence
simply because countries
with lots of people
are becoming richer.
That's why I talked
about the rise of Asia.
And they are actually
becoming more similar
to the rich world.
But at the same time we have much more
of a cleavage now within nation states.
This is obvious not only
in the US and the UK
or other European countries,
it's obvious with China,
with India, with Russia.
We are now in a third age
where we have convergence at
the level of nation states
but we have cleavage and
divergence within nation states.
This third age, if you were
to extent it into the future
as opposed to the end of the 21st century
might eventually look very
much like the first age
before the industrial revolution.
To some extent there is
a certain logic to that.
You have the industrial
revolution like a big bang.
It launched some countries
on the path to growth,
others really remained like they were.
And some of them like
China went even backwards.
But once they started catching
up they're in some sense
undoing the relative income effects
of the industrial revolution
and they're bringing the world back
to the situation which existed before 1820
where it could be that the major cleavage
becomes again the class
cleavage within nation states.
Now, I have to say this
is a kind of guess work
in that sense because
we don't know, first,
if that growth of Asia would continue.
We also don't know,
which is of course more
important in this case,
we don't know what will happen
with many African countries
where you have large
increase in population
and if Africa does not catch
up with the rich world,
the rest of the world,
then of course that divergence itself
might actually no longer be operative.
Obviously we have many question marks,
but having said all of that
I think it's very clear that
if we look 200 years back
we have really lived, or
are currently living in
the third type of world
from the point of view
of global income inequality,
but more importantly
from the point of view
of global politics.
That could be, of course,
shown in many different ways.
This is actually I've used previously
another measure of inequality,
which is scale index with the Gini index
you get more or less the same results.
The important part here
is that you notice here
this is actually the
difference in inequality
measured by the Gini coefficient
between nation states
and you notice there at the very end,
which is the current period,
we have a fairly dramatic
decline of that inequality
because of the rise of Asia.
If you really then look
at these two revolutions,
the industrial revolution and today
the technologic ITC revolution
you actually notice
very many similarities.
I've already mentioned it's
undoing some of the effects
of the first industrial revolution.
But if you look at, for
example, de-industrialization
there are also similarities there.
As we know, the first
industrial revolution
was really linked with
de-industrialization in India.
India was a top producer of clothing,
of cotton, and other things.
Then, of course, that
production really went down
to 5% of its original peak.
But we have now similar
de-industrialization
in the rich countries
because of outsourcing,
because of ability of poorer countries
to produce the same
goods much more cheaply.
Very often when you look
at these two episodes,
two eras, you actually see them
almost like in a mirror image,
they are mirror images of each other.
The second graph here
shows you the decline
in the importance of the within component
and it would increase then towards the top
as you actually notice it was
the most recent increase of inequality,
which of course large
for individual countries,
but of course they are
small when you look at them
at a global level overall.
This was the political
meaning of globalization.
As I was saying before,
really with the
composition you really have
always to tease out, to figure out,
and actually to be driven
by the interest in what is the social
or political meaning
of that globalization.
When I mentioned also
that the main cleavage
in the latter part of the 20th century
and still remains today,
the cleavage between nation states,
because what have to clarify this.
The cleavage between nation
states is on the decline
because of the rise of Asia,
but it's still a dominant cleavage.
In other words, distinguish
between two things.
The level of that cleavage,
which is very large,
and the rate of change.
The rate of change is such that
that gap between nation
states is becoming less,
but it's still the dominant one.
Now, the important part to realize there
is that with that cleavage
still being the dominant
this is not the reason,
but it's the background
to economic migration.
When I speak of migration today
I always like to define migration
as being a movement of people
under conditions of globalization
being conducted with differences
in mean country incomes
between nation states.
I will explain this long
sentence in a minute.
In order to think of today's migration
which is driven by economic factors
you have to acknowledge first
the fact that there is globalization,
because without globalization
if you had closed nation states
people would not be able to move.
For some states maybe they
would not be allowed to get out,
other states would not accept them,
and thirdly, they would not even know
how big the differences are.
Globalization does the following,
it actually conveys the knowledge
of these large differences in income
which exist between people in
different parts of the world
and also, because of facility of travel,
gives them the means to
actually bridge that gap
and go to different country
and multiply their income
by five or 10 times.
But, if you had all of that globalization
but did not have the
differences in mean income
which are substantial
between the countries
you would not have systemic
movements of migrants.
Imagine the situation like existed
when the European Union
countries were only
the rich countries of Western Europe,
like 15 at that time.
The differences in income
between them were very small
so you didn't have systemic migration
from France to Germany.
You probably have people from Germany,
obviously you had people going to Spain
because they like weather in Spain,
many retirees bought
houses there and so on,
but you didn't have systemic migration
because the gaps in income
were relatively small.
As soon as you open the
European Union to EU 28
you already have systemic migration
because the income levels in the East,
and actually to some
extent now in the South,
are actually much lower than
the incomes in the North.
Now, then imagine the world as a whole
where these gaps are many times greater.
In that sense you require
not only globalization
for large movements of migration,
you require also large differences
in mean country incomes.
Now, the implication of that politically
is that you are not going to have
quick fixes for migration
because if you look at this,
either you really have
to overturn globalization
and close national borders,
which we see of course
some movements toward that
coming from the recipient countries,
or you actually have to
equalize mean incomes.
Now, I mentioned before that the process
of convergence is to some extent
equalizing these mean incomes.
But that process really would take
for the equalization to really
kick in in a serious way,
would take more than 50 or
probably 100, 150 years.
We are not really going
to actually have a change
in the underlying forces of migration
for a long time to come.
I often give this,
because of course Europe
is very sensitive to migration,
I would say even more than United States.
When I talk about that in Europe
there is of course little
bit of an air of despair
in the room because people really have to
realize that this is
not a short term issue,
that actually this is
something that cannot be dealt
every summer as the migrants come
you just change the rules
and try to push them out.
You actually have to
deal with their problem
as a secular issue.
Moreover, simply a note on Europe,
the gap between the European incomes
and Middle Eastern incomes
and African incomes
has never been as large in history.
If you look at the two
shores of the Mediterranean
and just compare the incomes ratios
there has never been a gap
which is as large as now.
It is obviously irrational to expect
that people would not actually
try to bridge that gap
and increase their income level.
It would be the same
thing if you had really
systematic differences in
rates of return to capital.
It's very strange, people
are actually realizing
the differences in income to capital
much more easily if you tell them,
"Look, you are making here 2% per year,
"and then there is another country
"where you can make 20 or 30."
Where are you going to invest your money?
You're obviously going to
go to the other country.
But the same thing is true for labor.
If you make somewhere $200 per month
and there is another place
you can make $2000 per month
you obviously will have an incentive
to go to that other place
which pays you much more.
This is actually simply
another implication
of these large differences
in global inequality
which is still driven by the differences
in mean country incomes despite the fact
that these differences are diminishing
because of the role of Asian growth.
As I mentioned before,
we can actually when
you look in the future,
we can expect of course that the world
will become more convergent,
that income differences
would become smaller,
but we have to say that with a caveat
because we really don't
know what will happen,
or actually we cannot even
have some reasonable guesses
about what will happen to Africa
especially because of high rates of growth
of population in Africa,
which then would require
on a per capita basis
rates of growth of about
seven or 8% per year
for the overall growth rate,
which actually would
not be easy to achieve
and actually would mean probably tripling
or quadrupling of the growth
rates which exist currently.
I mentioned in the beginning
that really we have
great advantage nowadays
to have much more data
and that we can really look at things
in the world is a very heterogenous way.
It's actually we don't look at the world
simply as the averages.
Let me illustrate the difference between
looking at the averages,
which is of course
useful in many respects,
but that's not the only
story in town anymore,
and heterogeneity.
If you look at the resurgent Asia
and increase in Asian incomes
with respect to the rich countries
we are looking really at the averages,
because we are comparing
the GDP per capita
of those countries disregarding
the distribution obviously.
This is based on the data
from the Maddison Project.
These are the same data
that also underline now
Penn World Tables, except
that Penn World Tables
don't go back in the history.
Actually, in this case we go back to 1820,
but we could actually in some cases
go back even to 1750.
What this graph shows is
the ratio in GDP per capita
of China and India with respect to the UK
and of Indonesia with
respect to the Netherlands.
As you know, the Netherlands
was the colonial power
in the case of Indonesia.
What you notice here in all three cases,
you notice first the
incomes of those countries
were of course already
by 1820 lower than the
West European incomes, but
the ratio was not as high
as it became later.
We are talking about Western incomes
being about two and a
half times on average
higher than Asian incomes.
But then you have this period
I was talking about before
between 1850s all the way
to the 1950s, one century.
In Chinese sort of way of thinking of that
that was the century of humiliation.
In the Indian way of thinking of that,
it's really century of
the British Colonialism.
And likewise in the case of Indonesia,
which also had pretty rough time
as some people know actually
Indonesia was one of the first countries
where actually the system very similar
to the Stalin system of quotas was imposed
on local population and
very severe punishments
were exacted if people would not deliver,
like in the Congo, if
they would not deliver
the quota of the goods
that they were assigned.
Then you see actually all of them really
declining tremendously, so much so
that basically the ratio becomes 20 to one
between the incomes of
the Western countries
and Asian countries.
And then exactly at the
period of Indian independence
and then Indonesia independence
and the Chinese revolution,
you have the trough, actually
the worst point basically
of the relative incomes
between these countries and the West.
And then that low point remains
as you can see here for a while.
Then from the 1970s, or actually 1980s,
you have a rebound.
Now, if you extend that,
and you know these things
change fairly quickly
because if the rich
countries grow very little
and if the Asian countries
grow by five or 6%
you know these gaps really
within 10 or 20 years
they become much smaller,
so we will continue probably
probably with this rebound.
When it comes to China
it's interesting actually
to look at the fact that chain
now has an average income
or GDP per capita, which is at the level
of the poorest European Union country.
Actually Chinese income is
at the level of Bulgaria.
But with the projection of like 6% growth
versus EU projection
of like 1% and a half,
by 2042 I believe the
average income of China
would be at the median
income of the European Union.
This is this really big change
that I was talking about before.
But we can now go beyond the averages,
use the same historical data
and actually get actually
much more informed
about what happened in
individual countries.
Let me start here with
the two rich countries,
which are actually also change their
not only income position oervall,
but also position of different classes.
Now, this is the ratio
between the US income
at different percentiles
of income distribution
compared to the income of the
equivalent percentiles in the UK.
Look at the line which is at 100.
100 would mean that people
who are let's suppose
at the bottom in the US,
or the middle in the US,
or the rich people in the US
would have exactly the same
income as the people in the UK.
The first line is from a year 1870.
First, notice on the
left the number is 140.
What does it mean?
It means that slavery just ended,
but poor people in the
US had 40% higher income
than people that were the same position
in the UK income distribution.
In other words, it really
works well with our prior
that the US was a country where actually
an immigrant or somebody
would come at very low level
of his or her position in
the US income distribution
and be much better off than in an
equivalent position in Europe.
As I said, notice that you would
actually have higher income
among the poor people in the US
than the poor people in the UK.
Then you notice of course there was
around the 40th percentile
the two incomes are the same.
But then the important part
is that as you go further
into income distribution
American incomes again
dominate British incomes.
This is the American middle class
that also became richer compared to
the English middle class in 1870.
The final point is very important,
people at the top, after
the 90th percentile
in the US were actually
poorer than obviously
the top aristocracy or large
capitalists in England.
When we look at this graph in 1870
between the UK and the US you say
what are the advantages
of the United States?
Poor people in the US are better off
than poor people in Europe.
Middle class in the US is
actually also better off
than the middle class in Europe.
And the US top is actually poorer
than aristocratic or
capitalist top in the UK.
It's essentially the story
that is very intuitive
and it makes sense, and
actually these numbers
bring forth that story
because obviously the
numbers came independently.
It's not that they were fit
to fit the story the story
that I just told you.
It's actually we get the
story from the numbers.
40 years later, before the World War I,
you notice that the shape of
the curve is still the same.
But because the US has actually
advanced compared to the UK,
so now everybody in the US
is better of than in the UK,
but the shape of the curve is the same.
It is now true that actually
even the rich people
in the United States are now richer
than the rich people in England,
but poor people remain
much better off in the US
than in England.
The American middle class is
now significantly better off
than the middle class in Europe.
Then we go fast forward a century.
Of course, I could have
taken years in between,
but it's actually more
dramatic when you take
more recent numbers and
you have this really major
reversal in the relative positions.
Now, US still of course
is richer than the UK,
so most people are better
off in the United States.
But notice two very important changes.
The first change is that
the poor people in the US
now are actually worse
off than the poor people
in Europe or in the UK.
That's the result of course
of what we have known actually for a while
that we now generally find,
for example with Luxembourg income data,
we find that when you
go to the lower deciles
in rich West European countries
people at these lower deciles
are better off that the Americans.
This is what you notice here.
But realize that it was
not the case in the past.
It was really the reverse,
that actually the poor
people in this country,
in the United States
were actually better off
than poor people in Europe.
Then what you notice that
now the relative position
of Americans compared to the English,
or generally the West Europeans,
improves as they become richer.
You are actually, if you
are very poor in the US,
your relative position is bad
with respect to Western Europe.
But as you become better off,
not only do you actually earn more
but your relative position compared to
the equivalent person
in Europe is improving.
Who is actually at the best position
are very rich Americans.
You have an entirely different shape
of the income distribution curve now
if you compare the relationship now
with the relationship 100 years ago
and 150 years ago.
This is where this heterogeneity in data
allows us to do is actually
to go much beyond simply the averages
and to look actually how
the relative positions
of people have changes.
You can do the same thing
with China and the UK.
This is, again, to some
extent following up
on that original graph where I showed you
how the Chinese relative incomes declined
very severely with respect to the UK,
and then had a recent rebound.
Look at 1870.
1870, going back to
what I was saying before
about similarity in conditions
between the poor people,
you'll see the relative
income of the poor people
in China compared to income of the
equivalently poor people
in UK was not that bad.
It was much lower, it was
actually 40% of the UK income,
but within the income
distribution of China
they were the least poor
compared to their equivalent in the UK.
Everybody else was actually poorer,
and as you can see here,
the average ratio was about 20%,
which means that on
average most of the people
in the UK were actually five times richer,
better off than people in China.
Then you go to 1950,
which I said was really the lowest point
in terms of China's relative position,
and then you notice that actually now
everybody was equally poor.
Essentially you have Chinese people
who are between 5% and 10%
of real income of the UK,
which means the ratio is 10
to one or even 20 to one.
You noticed in the first
period that was this
relative similarity in the conditions
between the poor people in
rich country like the UK
and poor people in poor
country like in China.
Now that has disappeared.
By 1950 all the Chinese were equally poor
compared to the English.
I'm emphasizing the point here
that this is a relative measurement.
I'm not saying that all the
Chinese were equally poor,
because people obviously in the top
of the Chinese income distribution
had higher income than
people at the bottom.
But their relative position
to their equivalent
individuals in England,
or Western Europe, or the
United States was extremely low.
Of course, now you have,
because of the rise of China,
at every income position
you have the situation
that has improved,
but it has improved especially strongly
at the very top of the
Chinese income distribution
because underlying the
rise of incomes of China
was increase in income
inequality in China.
In other words, the rise of China
benefited disproportionately
people who are at the top.
Now the people at the top
are actually most similar
to the equivalent people in the UK.
Then if you compare,
like for example 1870 and today,
you have an interesting situation.
That in the past,
if you look at the
relative Chinese incomes,
it was really poor
people in China that were
most similar to poor people in the UK.
If you look at the situation today,
it is really the rich people in China
who are the most similar to
the rich people in the UK.
You see really very
dramatic changes obviously
over the long periods of time
not only in the means but
in the relative positions
of different income groups.
A different way to do that
is to compare the US and
Chinese income distribution.
If you were to do this,
this income distribution in the 1980s
you would practically have
two distributions with no overlap.
In other words, for all
intents and purposes
the Chinese income distribution would end
before entering into the
American income distribution.
Practically meaning that
in a statistical sense
every American would be
richer than every Chinese.
In 2002 you already see of course
the two distributions overlapping,
not very significantly.
About 23% of the Chinese population
is within the US income range.
But as the time goes on
and it's actually relatively
short period of 11 years
you see actually about 70%
of the Chinese population
within US income range.
That does not mean that
they have the same incomes.
They actually have much lower incomes,
but it simply says that
the two distributions
are now overlapping,
so more and more of the
distribution would overlap.
If I were to draw this graph, for example,
for two European countries
like France and Germany
you would have the two distributions
almost entirely overlapping.
In other words, if you
were to randomly pull out
the people from a distribution
it would be very difficult for you to say,
obviously the chances would be 50/50,
that somebody is French
or somebody is German.
But when you have two very
different distributions,
like what I said China
in 1980 and US in 1980,
if you were to go to the top
of the income distribution
and we were to pull out people there
you could actually be almost 90
or 99% sure that what you would actually
person who you would pull out from the top
would be American and
person who we pull out
from the bottom will be Chinese.
But nowadays that situation
is no longer the case,
and actually that situation has changed.
