Dani Rodrik, Harvard professor of international political economy, has suggested something one might scarcely believe to be possible: The rich world can emphasize domestic equity without being harmful to the global poor.
How? Isn’t that what the so-called people’s politics was about?
Weren’t Donald Trump, the Brexit brigade, Marine Le Pen, and suchlike, supposed to be about a kind of “Firstism” that leaves little room to care about unfortunates in other parts of the world?
Yes, but it needn’t be that way, argues the Professor.
First things first. He says that it’s important to understand that “a poor person in a rich country is more than twice as well off as a rich person in a poor country.”
Once this is clear, so is “the importance of income differences across countries, relative to inequalities within countries.”
The Professor notes that before the Industrial Revolution, global inequality derived almost exclusively from inequality within countries. But as the West developed, the world economy underwent a “great divergence” between the industrial core and the primary-goods-producing periphery and global inequality started to be measured more by income gaps between rich and poor countries.
Then, from the late 1980s, China and other poor countries began to grow faster than the rich world. “For the first time in history, the typical developing-country resident was getting richer at a faster pace than his or her counterparts in Europe and North America.”
Add to that the fact that inequalities began to increase in many advanced economies.
In the US, where labour markets are well regulated and social protections are weak, inequality has risen so sharply that, the Professor writes, “it is no longer clear that the standard of living of the American ‘poor’ is higher than that of the ‘rich’ in the poorest countries.”
He cites an unpublished paper by Lucas Chancel of the Paris School of Economics, which is based on data from the World Inequality Database. The paper estimates that as much as three-quarters of current global inequality may be due to within-country inequality. This may be the highest level since the late nineteenth century.
If correct, says Professor Rodrik, the world needs to rethink its focus. It’s no longer possible to ignore low incomes in rich countries and simply continue to argue for globalisation. That said, he insists, “Economic policies that lift incomes at the bottom of the labour market and diminish economic insecurity are good both for domestic equity and for the maintenance of a healthy world economy that provides poor economies a chance to develop.”