• Left unresolved, income inequality may lead to "losers" from
globalization expressing discontent through the ballot box ○ Economic populism: blame trade for lost jobs (especially in manufacturing), migration for increased competition for low-wage work, MNCs for sending work abroad, conventional politicians for allowing globalization to happen in the first place ○ Populists (Brexiteers, Trump) capitalize on this discontent by promising to roll back globalization's frontiers. (British jobs for british workers, make america great again, build the wall) • Removes complexities of technologies, changing nature of work, demographics, savings, etc. to lay blame on easy targets (foreigners, migrants, etc.)
Inequality between countries
• Higher growth rates in middle income developing countries like China have contributed to significant declines, especially forming the 'elephant's head' • Simultaneous growth in all developing regions has helped improve results at the global level after assorted slowdowns ○ African shocks, Asian financial crisis, transition of Soviet bloc countries, Latin American debt crisis • B: Commodity exporters' fate less certain, especially those in sub-Saharan Africa
Inequality within Countries
• Common especially among larger OECD nations • Generally rising in Asian nations • Milanovic proposes "Kuznets waves" with inverted u-shaped patterns ○ Industrialization's onset increases inequality, backlash causes governments to take action to reduce this inequality • Ravallion believes initial conditions matter (endowment distribution, market competitiveness, etc) patterns ○ Industrialization's onset increases inequality, backlash causes governments to take action to reduce this inequality • Ravallion believes initial conditions matter (endowment distribution, market competitiveness, etc) • Mixed evidence on whether trade openness, financial integration increase inequality
Policies can impact Inequality
• M/B: Reduce endowment differences in human financial capital ○ Education, inheritance taxes, worker equity in firms, financial inclusion • Labor market policies can have mixed results, and outcomes are not uniformly favorable ○ France: lower income inequality from inflexible labor markets but higher unemployment. Reforms may reduce unemployment but increase income inequality, "in-work poverty" ○ Greater international migration would probably reduce global inequality, but there are several restrictions due to political factors • Role of safety nets from downside risks of globalization in wealthy countries can cushion the impact of greater international integration • That said, temporary unemployment benefits and the like have mixed evidence ○ Trade adjustment assistance in the US that provides funding for those who have lost their jobs for retraining in- demand skills • Welfare state is believed to be vulnerable to globalization (reduced tax base due to mobility of skilled workers/capital)
What kind of Inequality matters more?
• Internationalists would say global or between countries ○ Wider perspective than immediate surroundings ("cosmopolitan view") ○ Religions ascribe responsibility to all of "mankind" • Nationalists would say within countries ○ More self aware compare themselves with peers/those they encounter everyday ○ The farther away others are, the less we are aware of their situations (less salient for comparison purposes) • Nationalists would say within countries ○ More self aware compare themselves with peers/those they encounter everyday ○ The farther away others are, the less we are aware of their situations (less salient for comparison purposes) • Inequality is not a welfare judgment but it factors socially into considerations of relative deprivation, social exclusion
Atkinson: What kinds of Inequality are of concern?
• Equality of opportunity can be desired by removing circumstances (matters out of your personal control) from resulting outcome ○ Based solely on individual effort • Yet, inequality of outcome matters as well ○ Bad luck may work against effort on the part of the poor ○ Social construction of competitive activities ○ It affects prospects for the next generation absent intergenerational mobility (lessens incentives to put in effort Economists and Inequality • Until relatively recently, distribution has not ebeen a central concern economists ○ More political scientists ○ Economists: growth before its distribution (otherwise there is nothing to distribute) • Why be concerned? ○ Social cohesion is affected ○ Total production is affected by distribution Inequality needs "unpacking: as a term • Unequal life opportunities tend to be disliked by everyone abstracting from their own position • Material deprivations for the poor are objectionable on similar grounds • However, rising inequality may be tolerated if it brings sufficient benefits to the least advantaged ("trickle down") • Inequality of opportunities may matter less than lack of opportunities
Inequality as a "Gateway" Topic
• Group projects ○ Populism resulting from economic inequality ○ Automation increasing economic inequality opportunities
Inequality as a "Gateway" Topic
• Group projects ○ Populism resulting from economic inequality ○ Automation increasing economic inequality ○ Dominance of US techonology firms employing few workers in shaping the world economy • Previous topics, especially trade liberalization • Forthcoming topics ○ Global supply chains' economic consequences for home, host nations ○ True extent of globalization ○ Controversies over further economic migration