The international political economy of global inequality

Abstract

While national inequality has made headlines in recent years, income is far more unequally distributed globally than it is within any state. It is striking that global economic inequality has garnered so little attention in International Political Economy (IPE), given the field’s longstanding interest in the distribution of resources and the structure of the global economy. This paper argues that IPE should regard the unequal global distribution of wealth and income as a central research concern and outlines a research agenda for doing so. Drawing on recent work by economists, it argues that global inequality is distinctively political in cause and consequence and sufficiently different from both global poverty and national inequality to constitute a unique object of inquiry. IPE has the theoretical and conceptual tools to study global inequality, but doing so will require bridging divisions between those who consider distributional consequences, though primarily in a national perspective, and those concerned with global hierarchies, but with less regard to national agency and economic policymaking. The effort is worth it, however, given the rich substantive agenda that foregrounding global inequality opens up on a series of topics that have not all (to date) been recognized as the core of the field.

Keywords:

• inequality
• globalization
• capital
• finance
• structural theory
• open economy politics
• immigration

Acknowledgements

The author wishes to acknowledge the participants and audience of an excellent 2018 ISA panel on the topic of inequality for their thoughtful feedback and suggestions, as well as Etel Solingen, Spike Peterson, and Craig Murphy, and two anonymous reviewers for their constructive comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For example, in 2015 World Bank President Jim Yong Kim called the announcement that the proportion of the world’s population living in poverty had fallen below 10% “the best news story in the world.” (The Economist, 2015). In Enlightenment Now, Pinker (2018) surveys various data sources to make the case for continued optimism regarding (one vision of) human progress with respect to poverty reduction, education, health, and life expectancy.

2 Pinker devotes an entire chapter to this argument in Enlightenment Now (Pinker, 2018, pp. 97–120). Frankfurt makes a similar argument from a philosophical perspective, advocating a “doctrine of sufficiency” – the claim that what matters morally is whether people have enough, not whether resources are equally distributed (Frankfurt, 2015, p. 7).

3 This is what Milanovic (2005) refers to as “concept three” inequality or “global inequality,” as distinguished from measures of between-country inequality based on population-unweighted (“concept one”) or population-weighted per capita national GDP. My justification for focusing on global inequality as opposed to between-country or within-country inequality can be found in the subsequent section. Throughout the article, “global inequality” should be read as referring to global interpersonal economic inequality, except where otherwise specified.

4 On the social sciences’ general bias towards methodological nationalism, see Wimmer and Schiller (2003).

5 The conclusion that global inequality has begun to decrease over the past 20 years is critiqued by Martin Ravaillon (2018, p. 625). Niño-Zarazúa et al. (2017, p. 662) find that global interpersonal inequality has decreased over the past three decades when measured in relative terms using the Gini coefficient or coefficient of variation. In contrast, when absolute measures of inequality are used, inequality is found to have “increased dramatically and unabated throughout the period analyzed.”

6 According to the Hellebrandt and Mauro (2015, p. 13), the global Gini coefficient for income in 2013 was 64.9. Calculations of national Gini coefficients vary by source, but according to World Bank data, the most unequal country that year was Colombia with a Gini index of 52.9.

7 Conventional measures of economic inequality are relative: that is, given an equiproportional increase in income among the top and bottom halves of the distribution, relative measures of inequality would remain unchanged. Absolute measures of inequality take into account the size of the gap between parts of the distribution. To borrow Tarp’s (2016) back-of-the-envelope example, if we compare the incomes of a representative individual making $1/day and a representative individual making $10/day in 1986 in Vietnam to their earnings after three decades of economic growth, we find the that the first person is now making $8/day and the second person $80/day. In relative terms, inequality between the two individuals has stayed the same: both incomes increased by eight-fold. But in absolute terms, income inequality between the two has widened substantially from $9/day to $72/day.

8 Milanovic finds that, in contrast to the mid-19^th century when real income of the working class across countries was relatively similar (and low), more than 80% of global income variation today is explained by variation in per capita income at the national level. Unskilled workers’ wages in poor and rich countries today often vary by a factor of 10.

9 Using unweighted per capita GDP shows the global Gini coefficient increasing over the past 50 years; weighting observations according to population shows the global Gini decreasing. That most of this effect is explained by the inclusion of China in the sample can be seen by removing China; without this observation both the population-weighted and population-unweighted trend lines look very similar.

10 Purchasing power parity calculations rely on using a common basket of goods as a point of comparison, but the composition of this basket of goods is far from obvious. A basket that contained the same set of goods used to measure domestic prices in all countries would fail to account for variation in staple goods across countries. A basket containing representative staple goods would suffer from a lack of comparability (Deaton & Heston, 2010).

11 Milanovic’s analysis of the effects of economic globalization on the global income distribution complements similar analyses of the effects of globalization on national income distributions (e.g., Lang & Mendes Tavares's [2018] paper which finds diminishing marginal returns to increased economic liberalization for countries as they liberalize cross-border economic flows and a concentration of gains at the top of national income distributions).

12 Others have questioned the relationship between a rising wealth-to-income ratio and rates of profit; the salience of inter-generational patterns of wealth accumulation; the ad hoc invocation of institutions and policies in accounting for the relationship between returns to capital and growth; and the exclusion of human capital as a potential mitigating force in the dynamic. For an overview of critical engagements with Piketty’s work, see Boushey et al. (2017).

13 See, for example, Xue (2016, pp. 69–88). The valorization of GDP as a meaningful metric for human welfare has been a particularly contentious in this respect.

14 Historically, significant decreases in inequality have been produced by war and catastrophe, neither of which represents an appealing proposal for redressing inequality (Scheidel, 2017). Short of political violence and slow incremental shifts in the structure of the global political economy, redistribution is likely the best available tool for mitigating inequality.

15 The G20 has taken the lead in recent years in pushing for transparency in shell companies, trusts, and corporate entities in states with lax regulatory standards, priorities that J.C. Sharman (2017, pp. 34, 35) concludes have “produced major changes in even the most secretive jurisdictions,” though he notes the effects of these anti-laundering campaigns have been much less extensive in OECD states like Australia.

16 Milanovic (2016, p. 151) notes that he does not “personally approve” of how Gulf states treat migrant workers but that this harsh treatment has nonetheless “improved economic conditions for the majority of such foreign workers and their families at home […] reducing global poverty.”

17 As long as all growth occurs below the median, it will always reduce the absolute Gini measure of inequality. Consistent with a maximin approach, eventually everyone up to the median individual will have the same income.

18 For excellent work on the shielding and laundering of financial assets, see Sharman (2011).

19 More recently, Grigoli and Robles (2017) found that the relationship between national inequality and economic growth is nonlinear; inequality only hurts growth at a relatively high level (Gini > 27%).

20 They develop a simple welfare model to demonstrate that as people weight their position in the national income distribution more highly than their absolute income, global welfare inequality declines even as global income inequality increases. This is a theoretical model, however, not an empirical finding.

21 Brandolini and Carta (2016) have developed a global social welfare function that would account for different valuations of global and national inequality, but their model is a theoretical one, not an empirical study of how people, in practice, weight equity at different levels of analysis.

22 These remittances may themselves have an effect on the global income distribution. For example, see Adams and Page (2005).

23 Milanovic (2016, p. 153), for instance, writes, ‘we can be quite sure that migrants would consider mild discrimination or unevenness in treatment in recipient countries to be preferable to remaining in their countries of origin by looking at their revealed preference … their very willingness to migrate reveals their belief that migration would increase their welfare.’

24 For some possibilities from political theory, see Young (2004) and Ackerly (2018).

25 Here Moyn (2018) offers a valuable model for this kind of critical reflection and accounting from the human rights movement’s neglect of economic and social justice.

Additional information

Notes on contributors

Erin Lockwood

Erin Lockwood is an Assistant Professor of Political Science at the University of California, Irvine where she studies and teaches global financial politics.