Global Inequality is the title of a book by Branko Milanovic who is one of my favorite writers. Milanovic is a Serbian-American economist who mostly lives and teaches and writes in the US these days, spending most of his time between New York and Washington. Milanovic is one of those public intellectuals who surprises you with important stuff you had no idea was true before you read him.
One of the first ideas that comes up in Global Inequality made me sit up straight and pay attention right off the bat. By the time I was done with this first idea I was looking at the world differently.
This idea is explained in one graph which has come to be called the Elephant Graph. This graph is about globalization and how it changed the world. This one graph explains very simply how globalization changed the lives of the majority in the third world, how the middle class and the working people of the first world got left behind and how the 1% came to be the masters of the universe.
Above is the Elephant Graph. This graph shows who globalization made rich and who it made poor. The time period of the graph is from 1989 and 2009. This was the twenty years between the fall of the Berlin wall and the Great Recession. This was also the peak period of globalization.
The vertical axis shows cumulative growth in real income. The horizontal axis is everyone in the world listed from the poorest percentile on the left to the richest on the right.
This graph reveals several interesting facts:
1) In the 20 years between 1989 and 2009, the income of the poorest people in the world grew very little.
2) At the 50% percentile, the top of the elephant’s head, are the average income people of the world. These are the middle class of the second world. Their income increased tremendously, by almost 80 %. These people are best represented by the middle class in places like China.
3) At the 80th percentile are the lower middle class and the working class of the first world. As you can see there income growth was zero.
4) In the highest income group are the ultra rich of the world. The 1%. Their income growth was massive. As you can see the incomes of the top 3% or so rose almost 70%.
So the real winners of globalism, measured by real income growth, during the 20 years when globalism was at its peak are the middle class of the third world and the very rich of the first world. The real losers, those whose income did not grow at all, were the very poorest people in the world and the middle class in the first world, like the American middle class and the American working people.
These numbers explain a lot. Globalism was very good to people like the Chinese peasants which globalism moved off their tiny, medieval farms into comparatively much better paying jobs in big cities. Their lives are not perfect, but they are far better than they had been. Education and health and prosperity became gradually available to these people. For these people globalism was a very good thing.
On the other hand globalism brought stagnating incomes to the American middle class. Their incomes didn’t budge for the twenty years of peak globalism while the incomes of the upper 10% and especially the incomes of the upper 1% and .1% soared. For the middle class of the first world globalism was a very bad thing. And the results of leaving the middle class behind while vaulting the 1% into the stratosphere has had a catastrophic effect in the Western world, to say the very least.
The social consequences of these shifts in income are becoming more and more apparent. The election of an American president promising to make America great again becomes much more understandable. And the political power of the 1% now looks unassailable.
We can now talk about exactly what the consequences of globalism were much more intelligently. And this is just the first chapter of this book.
More reading on this subject