Monash CDE Bourguignon Globalization of Inequality Public Lecture


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Monash CDE presents The Globalization of Inequality, Public Lecture by Francois Bourguignon, The Age Building, Melbourne, May 2013.

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Monash CDE Bourguignon Globalization of Inequality Public Lecture

  1. 1. The globalization of inequalityFrançois BourguignonParis School of EconomicsPublic lecture, Melbourne, May 20131presentsCentre for Development Economics
  2. 2. "In a human society in the process of unification inequality betweennations acquires the same meaning as inequality among classes inthe past. Standards of living differ today between continents orbetween countries more than they ever did.At the same time, the perception of inequality increases whereasresignation to poverty and to destiny is disappearing. "Raymond Aron2"Studying income inequality is like watching grass grow"Henry Aaron
  3. 3. Facts and Questions The double reversal in the evolution of world inequality- Global inequality declines- National inequality increases in many countries Is the present wave of globalization the common cause ofthose reversals? Does the rise in inequality within nations threaten thegeneral economic gains from globalization? How to promote more global equality while preventinginequality to grow at national level?3
  4. 4. 1. The historical double reversal ingobal inequalityA) Measuring global inequality Inequality among world citizens Combines inequality between countries (e.g. GDP percapita) and inequality within countries (as observed inhousehold surveys) Historical series based on Maddison data and proxies ofincome distribution in main countries (or groups ofcountries) Recent series data based on OECD + World Bank data4
  5. 5. 5The historical rise in globalinequalitySource: Bourguignon and Morrisson, 2002
  6. 6. 6The reversal in globalinequality trend20. 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010Percents(Gini)Figure 1. Evolution of global inequality : 1910-2010 (various measures)Historical series Recent periodIncomeratioGiniCoefficientTop 10% to bottom 10% income19891997200619891997200620102010P90/P10 quantileratio
  7. 7. B. Within country inequality :the recent increase in developed countries7-3 -2 -1 0 1 2 3 4 5 6SpainIrelandFranceGreeceAustraliaKorea,Rep.DenmarkJapanLuxembourgBelgiumCanadaAustriaSwedenNetherlandsUnited StatesGermanyItalyNorwayUnited KingdomNew ZealandPortugalFinlandChange in the Gini coefficient : mid 1980s to mid 2000s, developed countriesPercentagepointsSource: OECD Source: Oecd, disposable income per CU
  8. 8. Top (market) incomes in developedcountries: a trend reversal8Source: Top incomes05101520253035401910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010PercentsYearShare of top 5% income in total income: 1920-2009, selected developedcountriesUSAUKFranceSwedenJapanSource: Top incomes
  9. 9. The drop in the labor share90.50.550.60.650.70.750.81985 1990 1995 2000 2005 2010PercentYearLabor share in GDP, selected OECD countries, 1985-2011FranceGermanyItalyUKUSAJapanSource: Oecd
  10. 10. Inequality change in developingcountries (excluding LAC)10-10 -8 -6 -4 -2 0 2 4 6 8 10KenyaMalaysiaIran, Islamic Rep.AlgeriaLesothoPakistanPanamaYemen, Rep.South AfricaMoldovaMongoliaHungaryMadagascarSlovak RepublicIndia ruralTunisiaMoroccoIndia urbanTajikistanVietnamMozambiqueSloveniaIndonesiaPhilippinesAlbaniaChina ruralBotswanaGhanaKyrgyzRepublicPolandChina urbanChange in the Gini coefficient : mid 1980s to mid 2000s,Other emerging and developing countriesSource: World Bank, Povcal
  11. 11. 2. Globalization as the common causeof inequality trend reversals … Between countries Catching up of emerging countries partly based on opening up:expanded trade and foreign investments Favorable spillover on other developing countries of record growthin China and Asia• The acceleration of growth Latin America and Africa since themid 1990s11
  12. 12. Globalization as the common cause… Within countries Unskilled labor hurt in de-industrializing developed countries; gainsof skilled workers and capital owners. Offshoring of services to emerging countries (accounting, callcenters, computer code writing,..) affects more skilled workers Heterogeneity of exporting firms in terms of productivity and wages Restructuring of the international value chain benefits capitalowners and managers The spread of technical progress (skilled labor bias, economies ofscale, winner takes all) Somewhat parallel effects in emerging countries12
  13. 13. Globalization as the common cause… Other unequalizing factors within and across countries Generalized increase in competition and deregulation• Privatisations• Deregulation: financial sector, labor market Less progressive tax systems; cuts in the Wefare State "Financiarisation"13
  14. 14. 3. Policies to correct global inequality:a) global level Catching-up by emerging countries likely to continue But .. concern about growing gap between poor andemerging countries International redistribution to the poorest countriesfrom rich and emerging countries through: Official Development Assistance Cutting trade restrictions Capital flows (FDI) Migration Technological transfer14
  15. 15. b) Controlling national inequality Forces towards more globalization and more inequalityunlikely to disappear Is protectionnism a solution? Justified to a limited extent in poor countries, but less andless so in emerging countries Increased protection by developed (and emergingcountries) likely to stop the global equalizing trend withoutcorrecting national inequalities Positive distributional impact of solid growth at somestage in developing countries (China, Kuznets curve?) Reversing some aspects of deregulation (finance, labor,…)15
  16. 16. The key role of redistribution policies More progressive tax policies in developed countries (butproblem of coordination) Development of taxing capacity and efficient socialprotection in emerging countries The spread of cash transfer programs as the proof that cashredistribution is possible in developing countries Financial development makes it easier to monitor individualincomes and to tax them Equalizing opportunities: Human capital policies (Education, health care,..) Taxing bequests Fighting discrimination16
  17. 17. Conclusion Globalization is a positive sum game, with potentially adversedistributional effects at national level Growing national inequalities may have a huge economic costat both the national and the global level No reason to be passive: Correcting market failures through regulation is efficiencyenhancing and often egalitarian A more equal distribution of opportunities is efficiency enhancing:• It may increase the competitiveness of countries• It improves the distribution of economic outcomes (includingincomes)• This is true even if it has to be financed through distorting taxes.17
  18. 18. 185205405605806006206401975 1980 1985 1990 1995 2000 2005 2010Ginicoefficient*100YearThe trend reversal of inequality in Brazil: 1975-2009Trend 1977-2002InequalityA good example!
  19. 19. A good example!195205405605806006206401975 1980 1985 1990 1995 2000 2005 2010Ginicoefficient*100YearThe trend reversal of inequality in Brazil: 1975-2009Trend 1977-2002Inequality-20-15-10-5051015205205405605806006206401975 1980 1985 1990 1995 2000 2005 2010Ginicoefficient*100YearThe trend reversal of inequality in Brazil: 1975-2009Trend 1977-2002InequalityGDPpc growth rate
  20. 20. 20Thank you
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