Two important books on global inequality appeared in the last year, one by Francois Bourguignon, The Globalization of Inequality, and the other by Branko Milanovic, Global Inequality: A New Approach for the Age of Globalization. Here is my extended review of both, with a discussion of what they have to say and whether we should believe them: Review essay on Bourguignon and Milanovic.

Some key points from my review:

• As conventionally measured, global inequality (the inequality among all people of the world, no matter where they live) has been falling during the current period of “globalization.” However, that claim depends a lot on how you measure inequality; I point to some defensible measures that suggest a very different picture.
• Two forces are working in opposite directions on global inequality: declining inequality between countries versus often (but not always) rising inequality within countries. Over the last 20 years or more, the between country force has dominated standard measures of global inequality.
• Both books attribute both forces to globalization, but there are a number of reasons to doubt that this is the whole story or even a major part. A lot of other things have been happening with bearing on inequality. Technology, interacting with inequalities in human development, and domestic policies in schooling, health care and social protection have mattered, and continue to do so.
• Milanovic’s now famous “elephant graph” is plausible, though I have some specific concerns about its measurement. More importantly though, I have doubts about how he (and the popular media) has interpreted it.
• Standard concepts of “global inequality” are not well suited to the way people think about inequality, including the role of the nation state, and are even somewhat disconnected from the ongoing debates on globalization.
• We need to up-pack the concept of “inequality” to get anywhere with the policy implications. And when we do, reducing poverty (in various dimensions, including lack of economic opportunities) clearly emerges as the more important concern.

Global inequality when unequal countries create unequal people

Current global inequality measures, such as used by Bourguignon and Milanovic (and many others), assume that national-mean income does not matter to economic welfare at given household income, as measured in surveys. My paper, “Global inequality when unequal countries create unequal people,” questions that assumption on theoretical and empirical grounds and finds that prominent stylized facts about global inequality are not robust. The paper offers a new approach to measuring global inequality that maintains the essence of global cosmopolitanism but recognizes that one’s view of global inequality, and the implications one draws for assessing global economic developments and policies, depends on how one values national income in assessing individual economic welfare.

At one extreme, theories of relative deprivation yield a nationalistic measure whereby global inequality is average within-country inequality, which is rising. Other theories and evidence point instead to an intrinsic value to living in a richer country. However, there can also be positive external effects of living in a wealthier country. The contextual factors are transmitted via better institutions, better public services, greater security and greater opportunities for economic gain, leisure and social protection, all of which can be expected to depend positively on mean income in the country of residence. And these positive effects could well dominate the negative effects associated with relative deprivation. To the extent that those living in richer countries are intrinsically better off there is even greater inequality in the world than suggested by current measures using survey-based own-incomes.

While further research is clearly needed, the paper finds that parameter values consistent with past studies of global subjective wellbeing suggest far higher global inequality than prevailing measures, though falling since 1990.

Global Inequality: Challenges for both Measurement and Policy

This presentation on inequality I made in December 2018 at a conference of the Agence Française de Développement provides an overview of the issues (as I see them) for both measuring income inequality and for thinking about policy going forward.

A further thought on my post about how we might build a stronger consensus on reducing inequality. Preferences for redistribution are likely to depend on prospects for mobility in society.  We found evidence of this in data for Russia; see “Who wants to redistibute.” The results are suggestive of Albert Hirschman’s idea of the “tunnel effect,” in how mobility prospects influence preferences for redistribution.