A Self-Contradictory Argument on Global Inequality
The other day, Tyler Cowen attempted to inject some nuance into the debate over inequality with a piece in the New York Times. In his piece, Cowen argues that even as inequality within most particular nations has increased in recent years because of capitalism and free trade, it has in fact decreased massively on a global scale. Although the conclusion that inequality is increasing in most nations even as it is decreasing globally seems counterintuitive, it is actually a very simple concept to grasp – for instance, immigrants to the United States improve their quality of life substantially (and thus marginally decrease global inequality) but in the process create greater inequality within the US. Similarly, unequal economic growth in countries like China may exacerbate the difference between rich and poor within China, but still create enough growth at the bottom that the gap between those at the bottom in China and those at the top in the world’s wealthiest countries decreases. Cowen argues that this does not mean inequality is an issue unworthy of discussion for purposes of national policy, but it does mean that discussions of inequality should be prefaced with an acknowledgement that inequality has actually been decreasing on a global scale.
Daniel Little attempts to push back against Cowen’s argument. (H/T: Andrew Sullivan). Little argues that focusing, as Cowen does, on the reduction in inequality across the global population misses the point of arguments about inequality. Instead, Little argues that what matters in discussions about inequality is inequality within and across nations, which Cowen concedes has been increasing. In other words, says Little, concerns about rising inequality have to do with concerns about the effects inequality has within societies, which function as discrete political and social units – no one cares that global inequality is decreasing as long as it is increasing in their own society, and the effects of inequality are experienced only within a society.
Those effects, says Little, include “allowing the bottom 40% [within a country] to stagnate.” This in turn, says Little, means that the quality of life for that bottom 40% is less than it could or should be given their country’s economic position, that the bottom 40% in the future will not be as productive as they could or should be due to relative lack of education or healthcare, and that it “undermines the perceived legitimacy of our economic system,” all of which collectively present a “political problem of the first magnitude.” He further suggests that it undermines social wellbeing as a whole.
While acknowledging that rising inequality within a country can be a problem in and of itself (rather than just a symptom of other problems), I find Little’s argument that it is universally a “political problem of the first magnitude” in any society where it is present – to the point that decreases in global inequality are irrelevant – to be highly unpersuasive, and indeed self-contradictory.
To be sure, in many nations or situations, it may very well be the case that rising inequality means that the bottom 40% stagnates, and all or almost all of the growth is concentrated at the top. But that is not automatically the case, and that is the entire point of Cowen’s argument. If it were the case that inequality amongst the world’s population was irrelevant, and inequality “across countries” were all that mattered, as Little seems to claim, then we would not have had even the “moderate” success in reducing extreme global poverty that Little acknowledges.* Moreover, in an era where there has on the whole been massive acknowledged economic growth globally, it is paradoxical to claim that inequality across the world’s population substantially decreased while economic growth and opportunity for the poorest people in the poorest countries stagnated.
For instance, Little places his greatest emphasis on the growth of inequality within China, where inequality has grown massively since 1984, when it had a Gini coefficient of only .28 (on a par with the relatively equal, but prosperous countries of Scandinavia), reaching .55 by 2010. Yet it was China’s relative equality that was associated with economic stagnation – prior to the increase in inequality, it was an economic backwater in which quality of life improved not at all in most of the country for 40 years. In other words, China was relatively equal in no small part because virtually no one was doing well. In retrospect, it seems hard to imagine how China could have achieved massive growth without at least some significant increase in inequality given the extremely low baseline from which it began.
That doesn’t mean that China’s economic growth has been ideal, and it is certainly possible that the relatively unique manner in which that economic growth has occurred has caused more inequality than necessary, benefiting the poor less than it hypothetically could have. But it’s extremely difficult to argue that it hasn’t benefited the poor in that country substantially. While Little argues that inequality is nonetheless a problem because it is associated with “social disadvantages,” that doesn’t seem to be the case across-the-board, and certainly in the case of China, the preexisting social state was hardly something many people would like to return to.
Moreover, if the reduction of global inequality were irrelevant compared to the increase in intra-country inequality, as Little seems to insist, then global social unrest would be reaching unprecedented levels. This, however, is not the case, despite recent headlines about Ukraine and Israel. To the contrary, political and social violence has been decreasing rapidly on a global scale since the 1980s.
None of which, again, is to say that rising inequality is never a significant or important political problem. Certainly, as Little cites in both posts linked above, there is reason to believe that in many instances, rising inequality causes social problems and acts as a destabilizing force. But it cannot pass without note that all of the data Little cites for support of this position is data from OECD nations – in other words, it is data from nations that have already achieved a comparatively high baseline standard of life and social and political stability.
These are nations at the pinnacle of the global economy, who presumably have much to lose and little to gain from enabling increased inequality. They are, more importantly, nations whose elite drive globalization which, while it may significantly reduce global poverty, likely reduces opportunities for economic and social growth amongst the lower and middle classes of their own nations. Simply put, it seems likely that, in OECD nations, rising inequality will be associated with something akin to economic stagnation for the lower and middle classes even as the rising inequality in OECD countries “pays for” economic growth in developing countries, thereby reducing global inequality and extreme global poverty. For OECD countries already at the pinnacle of the global economy, it is not difficult to imagine how internal rising inequality, resulting in relative stagnation amongst the poor and middle classes of those countries, could threaten to at least partially undermine the political and social order that has historically allowed them to thrive.
These potentially negative effects of rising or high inequality need not be limited to OECD countries, either – certainly Latin America has had its share of inequality-induced troubles over the years. But those are cases where the inequality involved was particularly extreme, where political and economic power was so concentrated in the hands of a small number of people that “stagnation” amongst the lower classes was effectively official policy.
But that brings me back to the point of all of this: rising inequality is a “first order” political problem only insofar as it is, in fact, paired with intra-society lower and middle class stagnation. Looking at the net decrease in global inequality, as Cowen does, shows that for much of the world what is happening for the lower classes is not stagnation but rather unprecedented economic growth. Focusing on intra-country rising inequality as a “first order problem” in and of itself in all situations thus diminishes the reasons it is an important problem in specific situations while also potentially threatening to undermine tools that have greatly succeeded in reducing global poverty.
*Calling the reduction of extreme global poverty by 50% and the removal of over 1 billion people from that state in 20 years a mere “moderate” reduction strikes me as a pretty massive understatement, but I’ll take Little’s characterization at face value here nonetheless.