Global Inequality: A New Approach for the Age of Globalization

Branko Milanovic

299 pages, Harvard University Press, 2016

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In Global Inequality, international economist Branko Milanovic offers a set of new frameworks for approaching income and wealth differences around the world and critiques of several established ones. In a chapter on economic disparities between countries, for example, he questions the logic of only promoting equality among a country’s citizens without accounting for the effects of inequality between those citizens and residents of other countries—who may seek to immigrate.

In this excerpt, Milanovic suggests that we should stop focusing so exclusively on “existential inequality” (that is, unequal treatment based on gender, race, orientation, and so on) or “horizontal inequality” (differing economic status based on demographic factors alone). Instead, he says, we should devote more attention to addressing the huge wealth differences within societies overall, which he argues are the root cause of these other inequalities.

Why is it wrong to focus exclusively on horizontal inequality?

In his book The Killings Fields of Inequality, Göran Therborn asks a puzzling question: Why have rich societies been so much more successful at reducing legal and to some extent income inequalities between various groups (blacks and whites, men and women, heterosexuals and homosexuals) than in reducing overall income and wealth inequalities?

Therborn wonders if there is a trade-off between existential equality and income equality. Will the achievement, or close achievement, of the former be regarded as such a success that we will forget about pursuing reduction in income or wealth inequalities? Or do we believe that the achievement of existential equality will ultimately translate, as it were automatically, into lower income inequality? Will equalization of the mean wages of women and men, for example, lead to a lower spread among wage-earners as a whole?

There have been substantial advances in the past thirty years in the equal legal treatment of different groups. For example, there is no official apartheid anywhere in the world, and gay rights are being accepted by an increasing number of countries. But until some thirty years ago, apartheid existed in South Africa, and until forty years ago, the World Health Organization listed homosexuality under the rubric of mental disorders. There has also been a strong push for “horizontal” equality, which is the term used in economics to indicate that on average there should be no wage difference between, for example, men and woman, blacks and whites, heterosexuals and homosexuals. Or more exactly, if there are differences, they should be explained by measurable factors like better skills or greater experience. There has been significant progress in that area, too, although not as substantial as in legal equality. For example, in OECD countries, the gender wage gap has narrowed from an average of 20 percent in 2000 to 16 percent in 2010.1

But an almost single-minded focus on existential inequality is not always helpful, and in some cases may be outright harmful to achieving a reduction of income and wealth inequalities. Note that success in reducing income inequality would also reduce income differences due to racial or gender discrimination. In other words, pushing for the reduction of overall income inequality may be preferable even if our primary objective is to reduce specific gender or racial income inequalities. But this is not the approach that has been taken. Rather, the focus has been on horizontal inequalities, while overall, general inequality has been left to its own devices.

The exclusive focus on existential inequality is wrong for at least three reasons.

First, an emphasis on group differences quickly spills into identity politics, splintering the groups that have an interest in fighting for change. The joint front crumbles, with different groups focusing only on their own situations; once their complaint has been addressed, they are indifferent to the plights of other groups.

Second, a focus on existential inequality leaves the basic problem unsolved because the way it poses the question is wrong. Take discussions regarding legalization of prostitution. To many feminists and others, prostitution is a reprehensible activity that they would like to either ban, discourage through education, or curb demand for by punishing clients, who are predominantly male. The issue is framed in gender terms. But this approach just drives the problem underground without solving it. It is also futile, because the root cause of prostitution is not addressed. The root cause today (and perhaps throughout history) is income and wealth inequality. There are many (mostly) men with high incomes and many (mostly young) women with poor job prospects and no money. This drives prostitution nationally and globally, as in sex tourism, where it is at its most obvious. The point is not to address gender inequality itself but rather its economic cause. Consider what would happen if horizontal income equality between men and women were achieved, something that may happen soon, given higher graduation rates among women than men and growing numbers of rich women. Prostitution might be transformed so that instead of 90 percent of customers being men and 90 percent of sex workers being women, there would be a “fair” and “gender-neutral” distribution of customers and workers, with 50 percent men and 50 percent women. Would anti-prostitution activists be content with this achievement? Obviously not: prostitution would merely have become gender-balanced. This hypothetical scenario reveals that the real cause of the problem lies elsewhere, in inequality of incomes and wealth, not solely in the income gap between men’s and women’s earnings.

Third, an emphasis on existential equality is politically relatively easy (and its pay-off is limited) because it does not go to the core of the problem. It faces no real opposition from right-wing politicians and conservatives because it does not affect the underlying structure of economic and political power. Instead of fighting for meaningful change, proponents of existential equality care only up to the point where legal equality is established. They give short shrift to issues on which progress in the past thirty years has often been minimal, especially in the United States, but which would move the wage-profit ratio in favor of labor and would thus face strong opposition from business (e.g., increased vacation time for all, a shorted work-week for all, longer maternity and paternity leave and better working conditions for all parents, a higher minimum wage for all). Strictly speaking, capitalists also know that existential equality is in their interest; discrimination is inefficient for the employers who practice it. On this other hand, general measures that improve the position of all workers do not please those who have economic power. Thus, the proponents of existential equality stop midway. Formal equality is surely a necessary condition for overall betterment. But it is not sufficient. A movement toward more generalized equalization of the human condition requires not only legal equality between the different groups that humans are divided into, but also substantively greater income and wealth equality.

Existential equality is equivalent to what John Rawls calls meritocratic equality—what he views as the lowest level of equality, where all participants are legally free to pursue whatever career they choose but where their starting positions are often vastly different. Those who care exclusively about “identities” aim to place everybody on the same starting line but do not care that some come to the starting line with Ferraris and others with bicycles. Their job is done once everybody is one the same starting line. Case closed: just when the real issues begin.

From Global Inequality: A New Approach for the Age of Globalization by Branko Milanovic. Copyright © 2016 by the President and Fellows of Harvard College. Used by permission. All rights reserved.