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“Sustaining the transformational force of technology and globalization, . . .

while
mitigating their polarizing effect within countries, is likely to prove one of the
twenty-first century’s great challenges.”

The Inequality Challenge


URI DADUSH AND KEMAL DERVIS

H
igh levels of inequality have become a sub- We believe that inequality in the United States
ject of intense debate, particularly in the and in many other countries has reached levels
United States, where inequality has risen that are excessive on both equity and efficiency
sharply over the past 30 years. The rise in inequal- grounds. High and rising inequality is especially
ity in most advanced countries and in many devel- problematic when growth is slow and the liv-
oping countries should be analyzed in the context ing standards of the typical family are declining.
of other big changes that have affected the global Certainly the temptations of protectionism or
economy over the past retarding technology-induced shifts in employ-
ECON OMY
three decades. These ment must be resisted. But at the same time, as the
Global Trends, 2013 trends include major trends that led to higher inequality appear set to
technological advances, persist or even intensify, it is important for policy
mostly related to information technology; global- makers to take corrective measures.
ization, which has accelerated growth in many de- There is no secret to the recipes that govern-
veloping nations; and the changing role of the state. ments can use to mitigate inequality; beginning
Some degree of inequality is a natural part of in the 1920s and throughout the immediate post–
a market economy—a reflection of the economic World War II period, all advanced countries, in-
incentives that fuel it. For example, as the Harvard cluding the United States, invested heavily in edu-
economist Simon Kuznets argued, rising inequal- cation, adopted more progressive taxation regimes,
ity accompanies the initial stages of development, tightened labor and financial market regulations,
when workers attracted by higher wages in cities and widened and deepened the social safety net.
move from the countryside. The view that the ef- Most recently, governments in Latin America have
ficient working of the market economy necessarily shown how developing countries can use invest-
requires very high inequality, however, finds little ments in education and small cash transfers to sig-
empirical basis. There are well-functioning market nificantly reduce inequality, alleviate poverty, and
economies, such as the Scandinavian countries, improve health and education outcomes, even in
where income is quite equally distributed. More- an environment of very limited resources. With
over, recent empirical work at the International globalization, increased coordination across coun-
Monetary Fund has shown that, on the contrary, tries is needed to ensure that nations retain the ca-
growth appears to be more sustained when in- pacity to tax corporations, mobile capital, and the
equality is moderate than when it is extreme. Very highest earners.
high inequality, as well as raising troubling moral
questions, can result in social divisions that re- DIMENSIONS OF THE PROBLEM
duce the efficiency of both government and the Inequality is a complex phenomenon, the re-
economic system. sult of multiple and diverse economic forces, and
is difficult to define, measure, and compare across
URI DADUSH is a senior associate and director of the Inter- countries. The most commonly used and broadest
national Economics Program at the Carnegie Endowment measure of inequality, the Gini coefficient, indi-
for International Peace. KEMAL DERVIS is vice president and cates the extent to which a society’s income distri-
director of the Global Economy and Development Program at
the Brookings Institution. This essay is the fourth in a Cur- bution deviates from one that is perfectly equal—
rent History series on inequality around the world. zero being the hypothetical scenario in which each
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person has the same income, and one being the advances over this long period and have actually
scenario where all the nation’s income accrues to declined since the turn of the century.
one individual. Small differences in the Gini can While in-country inequality has increased
translate into substantial differences in inequal- across most of the world, global inequality—de-
ity as measured, for example, by the incomes of fined in terms of the income distribution across
the richest 10 percent of the population compared the entire world population, without distinguish-
with those of the poorest 10 percent. Unfortunate- ing borders—has started to decline slightly. A re-
ly the Gini scores, which are based on household duction in the gap between average incomes in
surveys, are prone to considerable errors, includ- many large developing countries and average in-
ing selection bias, where the richest households comes in the advanced countries is compensating
do not participate or have incentives not to dis- for the increase in inequality within most coun-
close their income. tries. The net outcome, if one looks at the world’s
Despite weaknesses in the data, based on these entire population, has been reduced inequality, as
surveys as well as analysis of tax data pioneered even the bottom third of the population has sig-
by the French economists Thomas Piketty and nificantly increased its real income. As the World
Emmanuel Saez and others, experts are in broad Bank’s Branko Milanovic has recently shown, the
agreement about the big picture: In most countries top 10 percent of the world population has gained
inequality rose following the industrial revolution a lot from globalization, but so has a very broad
in the nineteenth century up to around 1920, then group, ranging from the lowest 5 percent in in-
it declined until about 1980, and has been on the comes to the 75th percentile, mainly residents of
rise thereafter. Since 1990, various studies, par- the largest and most successful emerging econo-
ticularly ones conducted at the World Bank, have mies. Those who have not gained are the very
shown that inequality has risen in the advanced poorest in the bottom 5 percent, many living in
countries with only few exceptions and in many failed states, and large parts of the middle class in
developing countries. The rise in inequality is a the advanced countries, accounting for much of
global phenomenon with the exception of Latin the group between the 75th and 90th percentile.
America, which already has the highest level of in- The multiple dimensions of economic inequali-
equality of any region. ty—in-country, global, and at the extremes—make
Inequality is generally higher in developing it important to define the context of the discus-
countries than in advanced countries, though the sion. Any portrayal of inequality in the world and
United States has levels of inequality comparable how it is changing must account for the dynamics
to those of many developing countries. Low in- of growth in developing and advanced nations, as
comes make it more difficult for developing na- well as account for the factors driving inequality
tions to build a social safety floor, and they do not within countries.
have the capacity to levy significant and progres-
sive income taxes. For example, in 2007, public so- THE VALUE OF SKILLS
cial spending in developing countries was roughly Contemporary trends in the distribution of in-
half of that in advanced countries as a percent of come inside countries are related to three other
GDP (11.6 percent versus 20.6 percent), and they big changes in the global economy over the last 30
tend to collect about half as much tax revenue as a years. First, skill-biased advances in technology,
share of the economy. most notably the information technology revolu-
The most dramatic increases in inequality have tion, are continuing. Skill-biased technological
occurred at the extremes. This trend is global, but change has increased the demand for skills, capi-
has been especially well documented in the United tal, and especially the combination of both, rela-
States. The US Congressional Budget Office found tive to the demand for unskilled labor. A recent
that, between 1970 and 2012, the share of market report by the Organization for Economic Coop-
income (income before taxes and transfers) going eration and Development estimated that techno-
to the top 1 percent doubled from about 10 per- logical progress over the past 25 years accounts for
cent to about 20 percent. Over roughly the same roughly a third of the widening of the gap between
period, between 1979 and 2010, real household the 90th percentile earner and the 10th percentile
income for the bottom 10 percent grew by a neg- earner across OECD members.
ligible 3.6 percent. Inflation-adjusted incomes of Over the past three decades, developments in
typical American families have seen only modest information and communications technology—
The Inequality Challenge U 15

from the personal computer and the internet to percent of world GDP in 2011. This is just the tip
mobile applications—have become central to the of the iceberg; the number of minutes used for
process of value creation. They have also facili- international phone calls from the United States
tated the application of every other labor-saving soared from 2 billion in 1980 to 75 billion in 2008;
technology, from machine tools in the factory to and the internet now reaches 2.4 billion users, of
combine harvesters in the farm to typewriters in whom nearly two-thirds are in developing coun-
the office. In many occupations, which range the tries. Although many impediments still exist, glo-
pay scale from positions in management, research, balization has been especially effective at unifying
and banking to retail and secretarial jobs, techno- the global market for capital, enabling it to seek
logical advancement has redefined what consti- higher returns and strengthening its bargaining
tutes a basic and advanced skill set. For many of power while reducing that of labor unions. Not
these positions, a job candidate who is not familiar surprisingly, the share of capital in GDP across the
with basic word processing and spreadsheet soft- 26 OECD members for which data are available
ware, and who cannot navigate the internet with rose by over 4 percentage points between 1993
relative ease and deploy these tools to carry out and 2010, from 32.2 percent to 36.5 percent. This
complex tasks, is not qualified. contributes to inequality because high-income in-
Information technology also eliminated many dividuals derive a much larger share of their in-
kinds of jobs through automation or upgraded the come from capital than lower-income citizens.
skill level required to attain or keep those jobs. Moreover, many companies are now global,
Welders and farm hands as well as bank tellers, se- growing bigger in size and complexity, and raising
curity guards, librarians, shopkeepers, and postal the rewards for the relatively small number of in-
service clerks, for example, face direct competi- dividuals who manage them. In this “winner takes
tion from machines or software that perform com- all” environment, the same applies to managers of
parable tasks. large hedge funds and other
The much higher demand investment vehicles. In the
for skilled labor than for un- Growth appears to be more arts and sports, “superstars”
skilled labor translates into such as Roger Federer, Lio-
sustained when inequality is
higher wages for the former nel Messi, Beyoncé, Tom
unless offset by an increase moderate than when it is extreme. Cruise, or James Patterson
in its relative supply. How- command a global audience,
ever, even when education- expanding their reach in a
al and vocational institutions respond swiftly to way that was unthinkable only a few decades ago.
these shifting currents, which rarely happens, the The effect of globalization on inequality is
adjustment takes a long time. Moreover, a feature broader and deeper still. Even though, with the
of investments in information technology (as dis- exception of superstars, the global market for la-
tinct from adding machines or people in a factory bor is much less integrated than that for capital,
or farm) is that they appear to be less affected by trade and foreign investment enable work to move
diminishing marginal returns. They are capable in to the worker even if workers themselves cannot
many instances of boosting productivity without move. The observed effect of trade and foreign in-
an obvious limit over a very long period. vestment on wages in advanced countries may ap-
At the same time, the information technology pear small, as is often found in econometric stud-
revolution has radically reduced the cost of com- ies, but a crucial effect of globalization is to force
munication and, to a lesser extent, of transporta- firms to adopt labor-saving technology in order to
tion. Together with economic policies that have compete and survive. This makes it very difficult
reduced impediments to trade and investment, in practice to separate the effects of trade and of
technological advances have demolished many of technology on rising inequality.
the barriers that separated national markets. A large number of developing countries, begin-
ning with populous China and India, have become
THE GLOBALIZATION EFFECT much more integrated with the world economy,
Since 1980, the share of trade in world GDP has attract foreign investment and advanced tech-
increased from just under 30 percent to 56 percent nology, and are major suppliers to global value
in 2010; the share of foreign direct investment chains. Combined with the fall of the Berlin Wall
has more than quadrupled from 0.6 percent to 2.8 and the opening of the ex-Soviet system, this led
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to what the Harvard economist Richard Freeman utive role in developing countries. There are very
has called “the great doubling” of the global labor large variations, however, in the impact of public
force from around 1.5 billion to 3 billion workers policy over time as well as across advanced and
over the past three decades. developing countries.
The effect of these massive changes on inequali- The redistributive effect of government began
ty has been threefold. Inequality across the world’s long ago and was much smaller. In the United
citizens has declined as hundreds of millions of States in 1930, at the outset of the Great Depres-
people have been pulled out of poverty. Second, as sion and well before the New Deal, total govern-
urban agglomerations have developed and facto- ment spending in the country was under 10 per-
ries become established, workers in many devel- cent of GDP. By 1980 it had risen to 25 percent and
oping countries have seen their productivity and by 2011 to about 40 percent of GDP. In Western
wages rise relative to those in the countryside. Europe, the share of government spending mir-
Third, the world’s supply of unskilled workers has rored the United States’ in the early part of the
surged, lowering their wages relative to skilled twentieth century, but now ranges from about 33
workers and relative to the returns to mobile capi- percent (Switzerland) to about 57 percent of GDP
tal. (Denmark), with most countries closer to Den-
Over time, in the emerging economies, educa- mark’s high share.
tion levels increase, and skills accumulate. Even- The share of government spending in develop-
tually, this may mitigate the rise of inequality and ing countries is much smaller, though it has also
cause an increase in the relative supply of skilled risen over the past decade, from 27 percent to 31
workers in the world. This process, which is still percent. Despite much younger populations in
quite young in the largest and poorest developing developing countries, their share of government
economies, implies that the pressures on unskilled education spending in GDP is lower than in ad-
workers may begin to abate—witness sharply ris- vanced countries, and the gap in government
ing wages in Chinese factories and a declining skill health spending is even wider, representing less
premium in Latin America. But it also means that than half that of advanced countries.
the pressure on some categories of skilled workers In advanced countries, the increased role of
in both developing and advanced countries will government has taken the form of a more com-
increase, even as the opportunities for advanced prehensive welfare state, including provision of
countries to export to the middle class in develop- health and education services, pensions, and un-
ing countries expand. employment insurance, paid for by a more or less
The development of a middle class in successful progressive tax system. In developing countries,
developing economies is happening much faster all aspects of the state redistribution process of
than is generally understood. Take, for example, advanced countries have been adopted but on a
cars—the quintessential symbol of the middle smaller scale and limited to the formal sector, re-
class in developing countries. Cars in circula- flecting resource constraints, weak administrative
tion in developing nations have been growing at capacity, and relatively low tax intake.
10 percent to 15 percent a year. This reflects the The increased role of the state has also varied
fact that many developing countries are clustered greatly over time. After a big rise in the redistribu-
near a level of per capita income (around $3,500, tive role of government following the Great De-
adjusted for purchasing power) that represents pression and World War II, a shift toward a less
both the threshold for car ownership and the most progressive system of taxes and expenditures ac-
commonly used lower bound of income to denote companied by deregulation and privatization took
entry into the middle class. place during the tenures of British Prime Minister
Margaret Thatcher and US President Ronald Rea-
THE REDISTRIBUTORS’ ROLE gan. The trend began in the United Kingdom and
The effect of taxes and transfers in a democracy the United States but spread quickly to many ad-
is typically to significantly reduce inequality. An vanced and developing countries, and it was rein-
OECD report on inequality last year noted that, in forced by the fall of the Berlin Wall and economic
the late 2000s, the Gini coefficient after taxes and reforms in China (remember Deng Xiaoping’s dic-
transfers across OECD countries was about 25 per- tum: “to get rich is glorious”).
cent lower than the pre–tax/transfer Gini. Govern- In the United States, the state’s redistributive
ment plays a smaller but still significant redistrib- role has diminished in recent years with the tax
The Inequality Challenge U 17

cuts enacted under President George W. Bush. similar story. Between 1979 and 2007, Americans’
Moreover, high earners enjoy big tax benefits, average household disposable income increased
such as a “carried interest” provision that treats by over 60 percent. Median household disposable
the income of private equity firms as long-term income, however, increased by just a little more
capital gains, and deductions for mortgage interest than half as much, a reflection of income growth
for large homes, including second homes. that has been weighted toward the upper end of
At the same time, in some countries and re- the income distribution. The ratio of the top quin-
gions, state interventions have reduced inequality tile of the income distribution to the bottom quin-
from high levels over the past decade. As Tulane tile, as well as that of the top decile to the bottom
University’s Nora Lustig and others have recently decile, moreover, is higher in the United States
noted, such interventions in Latin America have than in any other advanced OECD country.
included conditional cash transfers in Argentina, In the United States, high and rising inequality
Brazil, and Mexico and in-kind transfers in Peru. has been accompanied by low social mobility, a re-
Although such programs are relatively small—the cent finding that is strikingly at odds with conven-
budget for Mexico’s Progresa/Oportunidades, for tional wisdom. A study by the Center for Ameri-
example, is about 0.5 percent of GDP—with design can Progress found that children born to parents
improvements they have more effectively targeted in the bottom quintile of the income distribution
the poor and ultimately have had a significant im- have just a 1 percent chance of entering the top 5
pact on poverty reduction. Furthermore, in Argen- percent, but children born to parents in the top 5
tina, Mexico, and Peru, streamlined and increased percent have a 22 percent chance of staying in that
transfers have been accompanied by more progres- very high income bracket. Social mobility is now
sive spending on health, education, and nutrition. much lower in the United States than in European
Latin America, however, remains an exception to countries.
the in-country trend toward As discussed previously,
greater inequality. the factors driving inequal-
Inequality in many countries has ity in the United States are
THE AMERICAN CASE reached levels that are excessive on
rooted in shifts that have
The United States is of unfolded over the past 30
special interest because it both equity and efficiency grounds. years, including reduced
is the largest economy, and progressivity of the tax sys-
leads technological advance- tem, and slower growth
ments. A forward-looking comparison of trends in of investment in education. Despite heightened
the United States with those of the largest develop- awareness, there is no political consensus on
ing economies, China, India, and Russia, where in- how to respond, and high fiscal deficits will likely
equality has also increased, and with Brazil, where force cuts in social spending anyway. Since, at the
it has declined, provides a lens for investigating same time, there is little evidence that the under-
the multifaceted aspects of this phenomenon. lying drivers of inequality are losing momentum,
Inequality has risen most rapidly in the United it appears unlikely that the trend toward higher
States, making it the most unequal among ad- inequality among Americans will be broken any
vanced countries. Not only have market incomes time soon.
diverged over the past 30 years, but the govern-
ment’s role in smoothing the distribution has also THE FUTURE OF INEQUALITY
diminished. At the broadest level, the Congressio- China has also seen a big increase in income
nal Budget Office found that, between 1979 and inequality, though from extremely low levels and
2007, the Gini coefficient for household market against a background of very rapid economic
income in the United States rose from 0.48 to 0.59. growth. According to an International Labor Or-
The Gini coefficient for household disposable in- ganization study, between 1985 and 2007, China’s
come—which accounts for taxes and transfers— Gini coefficient for household disposable income
also rose from 0.37 to 0.49, an even higher per- rose from less than 0.25 to over 0.40—in large
centage rise. part due to a widening rural-urban gap. The state
An examination of trends in average and me- has responded by progressively shoring up the
dian household incomes, as well as incomes at livelihoods of the rural poor and urban migrants.
the very top and bottom of the distribution, tells a Recent steps include a 17 percent increase in the
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minimum wage for urban workers over the past the country’s Gini declined from 0.59 to 0.54 be-
year, calls for a 10 percent annual increase through tween 1998 and 2009. Between 2002 and 2009,
2015, and near-completion of a national pension moreover, the per capita income of the poorest de-
scheme including all rural provinces. China has cile grew over six times as fast as that of the richest
more budget capacity than most countries, and decile. The decline of inequality in Brazil is in large
with its leadership paying more attention to social part the result of the government’s recent efforts to
tensions, and a dwindling supply of cheap labor, increase access to education and provide greater
there is reason to believe that inequality there will direct cash transfers to the poorest. Together these
stabilize, if not decline. policies account for an estimated two-thirds of the
Like China’s, India’s economy was booming un- reduction in the Gini coefficient from 1995 on-
til recently, but a large part of the Indian popula- wards. However, Brazil’s inequality remains high,
tion has yet to realize gains from growth. Major in- and there are signs that the current approaches to
equalities persist in income, access to health care, reducing it may be running out of steam.
and education. The gap between the top and bot- Inequality in post-apartheid South Africa has
tom deciles has doubled, with the income in the increased. Between 1993 and 2008, the Gini coef-
top decile now 12 times that of the bottom decile, ficient for household disposable income rose from
compared to a 6-to-1 ratio in the 1990s. India’s in- 0.66, an already extraordinarily high level, to 0.7.
equality is not helped by the government’s low in- The racial dimension of inequality that character-
vestment in social protection schemes (less than 5 ized apartheid South Africa persists, with Africans’
percent of GDP), the country’s limited fiscal capac- per capita income at 13 percent that of whites.
ity, and the timidity of government reforms. India’s However, there are signs that intra-racial inequal-
large informal sector, where standard worker pro- ity gaps are playing an increasingly significant role
tection is nonexistent, also presents a huge chal- in driving aggregate income inequality.
lenge; the formal workforce These vignettes suggest that
has barely grown since 1991. the inequality trend is unlikely
The trend in inequality will Social mobility is now much to be broken soon. Govern-
depend on the government’s ments will come under pres-
lower in the United States
ability to provide expanded sure to address inequality, but
and targeted public services, as than in European countries. globalization and technical ad-
well as on increased employ- vances are likely to continue.
ment opportunities in the for- China may prove an exception,
mal sector, neither of which is looking very prom- mainly because market forces there already are
ising at present. shifting in favor of unskilled workers, and fiscal
Russia is another country that has seen a sharp capacity and savings are much greater than else-
rise in inequality. After the collapse of the Sovi- where. Given the country’s size and presence in
et Union, Russia’s Gini coefficient for household global markets, China may also have a modest
disposable income rose by over 50 percent due to equalizing effect on the income distribution in
wage decompression, reflecting productivity dif- other countries.
ferences across sectors. It began to moderate more
recently. Over the past decade of solid economic MEETING THE CHALLENGE
growth, the coefficient seems to have declined to Extreme inequality has been found to be as-
about 0.35. Inequality in Russia is unusual insofar sociated with numerous problems: political rifts;
as it has tended to be extremely fluid; annual sur- outright corruption, or at least the pervasive in-
veys reporting Russian household incomes found fluence of money on politics and policy; poverty;
that only 10 percent of respondents had never conspicuous consumption; high crime rates; bad
been in poverty between 1994 and 2008, but only health and education outcomes; discrimination
1 percent remained in poverty for this entire pe- and inequality of opportunity; and stagnant living
riod of time. There surely is also substantial under- standards for the middle class and lower income
reporting at the top incomes. It is particularly hard groups. Even many of those who are not disturbed
to predict trends in Russia. by high inequality on moral grounds would likely
Brazil still stands out as one of the world’s most agree that a constantly increasing Gini, a Gini at
unequal countries, but one where inequality has the level of Brazil and Mexico, or an income con-
fallen over the past decade. According to Lustig, centration reaching more than 20 percent for the
The Inequality Challenge U 19

top 1 percent, as in the United States, is undesir- driver of productivity is the amount of capital, in-
able, since so many of the above problems then cluding infrastructure, that a worker can access.
become prevalent. Additionally, prudential regulation of the financial
Of course, norms and attitudes differ, and as system is essential to create efficient, stable, and
Francois Bourguignon, a former chief economist inclusive capital markets so that access to credit
of the World Bank, has recently argued, these col- on reasonable terms is possible for smaller firms
or the perspective of inequality levels for individu- and is more insulated from big shocks.
als in a given country. For example, surveys have The distribution of disposable income can
shown that in some countries (the United States be changed through progressive taxation and by
among them) people have generally felt, until re- government expenditures that have a progressive
cently at least, that there is plenty of opportunity impact. While debates about trade-offs between
and inequality is not too bad, even though statis- efficiency and equity continue, it is clear that fun-
tics say otherwise. In other countries (for instance, damental tax reforms and a better targeting of the
France), people say inequality is extensive even net benefits of public expenditures in most ad-
though statistics say the opposite. vanced countries would not likely affect efficiency.
Perceptions vary in part because high inequality In the United States, problems ripe for attention
is easier to tolerate when, as in most developing are the regressive nature of the Social Security tax,
countries, median incomes are rising rapidly and mortgage interest tax credits even on homes worth
the middle class is benefiting even as the rich are over a million dollars, and a policy of not requir-
benefiting even more. Inequality is harder to toler- ing even the wealthiest beneficiaries of Medicare
ate when large segments of a population see their to pay a greater share of its cost.
income stagnate, as in the United States and in the Given the mobility of capital and highly skilled
European nations afflicted by the sovereign debt professionals, some degree of international coop-
crisis. eration will also be needed. Absent such coopera-
Policies aimed at achieving greater balance tion, the world could witness a more pronounced
can be grouped under three main headings. First, race to the bottom in terms of taxes, as countries
some policies affect market incomes (pre-tax and compete to attract investment, and as corpora-
pre-transfers) by shifting the underlying economic tions take advantage of diverse and complicated
drivers of inequality. Second, other policies affect loopholes to shift their accounting profits so as to
disposable incomes through taxes and transfers. minimize tax liabilities. This represents, of course,
Third, international cooperation designed to close a huge challenge, but it will have to be met if the
tax loopholes and reduce competition for lower redistributive aspect that nation-states’ public pol-
taxes can increase nation-states’ capacity to pur- icies acquired in the second half of the twentieth
sue redistributive policies. Each of these kinds of century is to remain effective in a much more glo-
measures has a different but important effect on balized environment.
the inequality picture. Inequality in the world defies simple character-
Market incomes are strongly affected by produc- ization. Over the past 30 years, hundreds of mil-
tivity. Productivity is determined by skill and the lions of the world’s poorest people have seen their
amount and quality of capital available for labor to lot improve as the forces of technology, global-
work with, as well as by a stable and predictable ization, and better macroeconomic policies have
macroeconomic and financial environment. There transformed the globe. A large middle class has
is a lot of evidence, however, that bargaining power emerged in some of the world’s largest and rela-
and social norms also affect market incomes. Sky- tively poor countries. At the same time, in most
high executive pay is considered more “normal” in countries, the relatively affluent have seen their
certain countries, and unions were better able to incomes soar, and in some instances their share of
affect wages when they were more powerful. national income has increased so rapidly that the
With respect to productivity, the most effective bulk of the population has seen little gain.
thing that can be done in all countries is to have Sustaining the transformational force of tech-
a high-quality, inclusive, and equal opportunity– nology and globalization, and the impetus they
oriented system of education and skill formation. are providing to the growth of the global econo-
The provision of inclusive and effective health care my, while mitigating their polarizing effect within
is probably a close second, as only healthy citizens countries, is likely to prove one of the twenty-
can generally be productive. Another important first century’s great challenges. It is unlikely, and
U 20

indeed undesirable, that either globalization or


technological advances will be stopped. Still, a
failure of public policy to promote greater balance
in the distribution of the gains accruing to society
as a whole could result in fissures so deep that our
ability to derive the benefits of the new age could
be severely impaired. ■