12 Global Growth, Inequality, and Poverty: Power and Evidence in Global ‘Best Practice’ Economic Policy Robert Hunter Wade Chapter contents + lnwedueton 315 + Treneouiberal ascendancy andthe Washington Consensus 317 + Leng term economic growth an the riddeincome rap’ 321 + Ghopaeation waves nthe hierarchical wort economy 324 += World income snd poplson distribution 320 + Growth and geographical dsimbuton 334 + Income inequality between counties 335 + Fencéonal income inequaty between capalandibour 40 + Povery 341 + Howto expinthe Jobatzton consensus 245 + Condusions 349 Reader's guide “Thehead of a Chinese farly said to a BBC interviewer, ‘You, in the West, all have washing machines, and refrigerators, and TVs. Why shouldn't we Chinese have the same?” A farmer in the Indian state of Madhya Pradesh told a Financial Tenes journals, ‘Everyone is watching TV—and they see the standard in the US and big Indian cities. They see the screen and feel, “why can't we live ke that?” Migrants flooding into Europe and North America voice the same aspiration. ‘Snce the 1960s the Western economic potey ‘establishment’ has espoused a doctrine of ‘best economic poliey'for the world wich says, put too simply, that ‘more market and ess state’ should be the direction of travel for developed and developing countries. This everarching “neo-hbera” Ideology embraces ‘globalization’ as a major component, relating to the nature of intogration into the international economy, It says that an international economic order in which mations ara ae314 Robert Hunter Wade Closely integrated to exch other as the states of the United States (US) oF at east the members of the European Union (EU) —making it very e2sy for goods, services. capital. finance. and peeple to move quickly scrote border: with litle or no government ‘ntervertion’—Is the best type of ‘world order to ensure that peeple everywhore enjoy substantial improvements in capabiies for human flourishing—inchuding washirg rachines. The same liberal economic order also tends to drive Political systems towards democracy s capitalism and democracy fortiy each other, “The argument concludes that steady movement towards freer markets—if encased in an exra- ‘market national and international legal system protecting property rights and the global mobility (of capita—broady aligns the interests of rich countries and poor countries, dominant classes and subordinate classes, thanks to the way that competition opens opportunites and ensures that proft- ‘maviriing fem allocate resources to their mos eficent uses (not to cronyism or an easy ie). The present income gaps between North and South, core and periphery, and rich and poor people are regrettable ags in the catch-up of the poor world to the prosperity of the rich world, nota resuk of «global Hierarchy in which Wester prosperity rests partly on unequal exchange with populations in ‘poorer, “developing! counties. The income gaps will sappear as technology diffuses from North 10 ‘South, resulting in softening migration pressures from South to North, fling rates of confict nthe South ae easie South-North interstate cooperation. ‘This, in broad terms, isthe ‘neoliberal glalzation-convergence’argumentabout best economic practice for the world, which has occupied the commandingheights since te 1980s, Whatis good for the Westis generally good forthe South whati good for business generally good for everyone. In the context of economic development. itis knovn ss the "Washington Consensus’ espoused bythe US Treasury. the Worl Bank tho Incerratonal Menstary Fund (IMF), the Organization for Economic ‘Co-operation and Development (OECD), the European Commission, and related crgorizatiors. (lt would mere zecuratly be cle the Washington-London- Brussels Consensus!) Western eltes, including economists, ako applied versions of this same doctrine to their own rations—notably privatization of sate-owned asset (privatization mutt be ‘at the centre of an/ programme of reclaiming territory for freedom, sid Prime Mrister Thatcher) financial deregulation. rmeacures to boost the power of capital ever labour, and wage suppression combined with eater borrowing Justiedby this word view, the tax system and broader economy of Western economies have been steadly reconfigured to sce @risng share of natioralincome and wealth upto the top of the distribution, commonly matched by elt indifference tothe fate of large parts of the population ‘eft behind’. Local governments cancel futures by afflaacing sports fells, community centres, brates, youth cubs, siermirg pools 1 cover cuts in central goverrmentfurding Strangely. these actions and non-actons are rarely called ‘class war’. In mainstream media that phrases reserved foF measures that might reduce the income and power of elites. Implementation of the neo-iberal agenda paved the way forthe North Atlantic nancial crise of 2007-12 and the long dirupuve recession, accompanied by 2 post crash fll of trust in puDIC insuutions and the rise of poltcal polarization. A “democratic recession’ has been underway 0” world scale since the early 2000s, as publics protestat some effects of globalization and automation, and as poltical leaders forty themselves by taking up nationalism and shrinking civil and polka! rights The Brish referendum in 20 6in favour of leaving the EU. and the election of outsider Donald ‘Trump as US president in 2017, were the two biggest protest votes in modern democratic history. ‘Yet the mainstream economics profession has resisted engaging with theories which expla the crisis andlong recession as effects ofthe policies ong recommended bythe profession. Its contri commitment to neo-liberal policy design post-Crash after a short Rooseveltian Keynesian interioe) helps 2 exphin why the poltcal backlash against recession, soaring inequality, and insecu® «employment has been so severe —includng the collapse of pubic trust in economists to aiost very low level of wustin politicians This chapter argues tht the evidence for We lobatzaton arguments nos as robust asthe peY establishment has long chimed. After a short introduction toutins the neo-liberal world ve #12 Global Growth, Inequalty, and Poverty its apptaion i the form of the development recipe known a6 the Washington Consensus. Next {onesa eaten ontrondsinlargrngronth,lowedbyanncountofgootecoon ces onthe ‘victorian era til today. Then a section on problems inthe simple pha that ‘more globalization tes Dete economic performance’. Nest. an een union of eds wo eer istribution and poverty bearing in mind the optimistic claims ofthe glabalization argument. One of the themes is the large margin of uncertainty or -ambjuity around the numbers. The chapter moves ca to exphin why-—if the evidence is not exactly compeing—the Western policy establishment has shown such high confidence in the globalzation recipe (as seen in the epigraphs and inthe later quote from Martin Wot, for example). The concuson examines the combiniton of ring economic resentments and geo politcal tensions whieh has generated the curren antisera lta movements (suchas President Trump's America First agenca). This combination of resentments rom “pelow’ and geo poles tensions from above’ makes unlikely thatthe current crt to authontaran, Rag wing poltcs wil bea short-term aberravonbefore a return to norma centrist pols. tthe new situation may offer scope for developing country governments tobe more pro-activein steering evelopment than the Washington Consensus encouraged them tbe. Much of the discussion is framed with the converient—but too simple—dchotomy between per capita income increases to USs30,300 and B's to USs1,010, the relative sap remains constant and so ‘inequality’ as normally defined remains constant, growth is ‘inclusive’; but the absolute gap widens from USsz9,000to US529290. JE B jumped to 6 per cent growth while A continued at per cent the absolute gap would widen until year thirty-five and B would not catch up until year sev- enty If B grew at gper cent and A grew at2 per cent, the absolute gap would widen for 140 years and catch: tap would take the best part of two centuries. Most such gap measures show the income caravan to be lengthening. For example, with countries grouped into deciles by their PPP GDP per capita, the ratio between topand bottom deciles almost doubled during, the 1960-2000 period, from 19 to 10 37to t (Milanovic 2005: 52). Or take the average income of a region rela: tive to the global average between tos0 and 2016, In 1950, average real income per adultin Latin America Was Lit percent of the world average, and only 9» per cent by 2016. The equivalents for Africa are 63 per cent in 1950 and at percentiin 2016 (World Inequality Lab 2018). Figure 123 “Trends in three measures of ternational inequality, 1950-2007 15 asc 2009) Reyntd wth the perminion of the © Wore Bark 1980 Concept 3 oT 1970 1990 20002010 Yew 337336 Robert Hunter Wade Distribution between weighted countries Inercounszy income inequality, using PPP dollars, population weights, and the Gini coefficient, was {arly stable from 1960 tothe early topos, and then fll ‘ight upto 015. This is good news: it suggests thatthe centuries-old trend to income divergence between countries has finaly gone into reverse. But here the global relative Gini conceals as much ast reveals, If we take out one case, China, the pop ‘ulation-weighted intercouncry Gini is constant from 1060 to 1980, rises fom 1980 t0 2000, when it, 100, begins to turn down; it goes mostiy in the eppesice direction to the trend with China included. So even with the combination of measures most favourable to the ncoriberal case, filling income inequality between countrcs is 4 function mostly of China's fast growth since the cally 1960s, not « widespread convergence in the world economy as the result of widespread globalization Moreover, different methods of calculating an average international price structure for revalving countries’ GDPs make for significant differences in trends in global inequality. One favourite method makes the average international price structure reflect the price structures of rich countries, and so values services (e.g. domestic services, haircuts, accommodation) much more highly in poor coun. ‘Wis, inflating the purchasing power of poor coun. ies’ currencies That switching from one method of calculating PPPs to another makes» significant diference to the tuend of global inequality should discourage us from takingthe PPP numbers atfice value, And the fct hat the participating countiesinthe ICP project tend tobe the catsteally more advanced, able tohandlethe com plexites, which also tend to be the richer countries, addsa further bias towards rich country prices hence toward exaggerating poor countres'conergence with sich countres In any case, this measure—average country incomes weighted by popuiation—is interesting ‘mainly as an approximation to income distnburion among all the works people or household regan les of which oun they rein We would bees interested in measuring income inequality iy the ‘weighted by its population if we had households ch state lata for all US Income inequality between people: Within-country vertical or class distribution “The period of neo-tberal globalization since the 1980s hasseen a pronounced increase in income and wealth inequality. especially concentration the top, inmost countries. Several measures show this broad trend. For example, industrial wage inequality. Wage daca has the advantage over income or tax data that pay is much les ambiguous variable, Also, ithas been col lected systematically by the UN since the early 19505, and gives many more observation points for each country than any income dataset. Ir useful way 10 sgetat the impacts of changes in trade policy or mana- facturing innovation, and the like. The disadvantage of pay data is that it treats only a small part of the economy of many developing countries and provides only a proxy for incomes and expenditure. This snot as limiting as it may seem, because what is happen- ing to pay rates in formal-sector actvity reflects larger trends, including income differences between coun: twics and income differences within countries (since the pay of unskilled, entry-pors jobs in the formal sec toris closely related to the opportunity costof timein the informal or agricultural sector) Pay inequality within a large sample of rch anelpoor ‘countries was stable from the early 1960s to the early 1970s, then declined about 1989, then increased from 19800 the early 20005, after which i fll to 2008, gene ally not by much (post-2008 data is spotty and mainly from high-income countries). The countries within continents tend to show closely correlated maverents ‘in pay dispersions, suggesting supranational forss at work (which receive little recognition in studies of causes of inequality trends), James K. Galbraith and ‘associates (2019) present analyses of pay dispersions. Countries tend to form high-income and low: ‘Income inequality casters. Most developed countries ari the low inequality cluster (Gini coeficients for Gisposile income in the range from 0.24 £0039, of 2086, and most developing countries ae in ke Ree Inequality chaste (49 10 065), atthe low eh ‘andinavia’s Gini for disposable income was around (026-0 a8 in 2016 down from around o.44 before 3 and transfers, indicating the redistribative PONE! the state). The UK's anal US's Gini before tases and transfers were around 51 in 2016, and 035 and039 ft disposable income. Japan's Gi me, Japan’ Ginis (pee- and post) We Around 05 and 0.34 -