Globalized Inequality

Francois Bourguignon’s The Globalization of Inequality is an interesting companion to Tony Atkinson’s Inequality, which I reviewed here recently. It’s a different kind of book, a relatively short argument about why and how to make the globalization process fairer, as contrasted with Atkinson’s longer and detailed description and analysis of inequality in the UK with a substantial list of policy recommendations. It’s useful to have the global picture alongside the national one, however, because the story globally is of much increased incomes in the middle of the distribution in a few countries – largely China – as well as gains among the richest groups.

In the first chapter and its data annexe Bourguignon sets out the figures in careful detail, distinguishing between increases in inequality within countries and changes between countries. “Inequality in the standard of living between countries has started to decline … On the other hand, inequality within many countries has increased.” The book’s central question is then whether these two phenomena are related, linked by the process of globalization, of trade and investment flows between high and low (average) income countries. This is addressed in the second and third chapters of the book. He answers broadly yes, through the far greater intensity of competitive forces operating on industries in the rich economies that couldn’t cope – although he also attributes a significant part of the explanation to the politics of deregulation and tax cuts, and the expanding role of finance.

The final part of the book turns to whether anything ought to be done about inequality in this global context, and if so what can be done. Bourguignon argues that it is worth trying to get the best of both worlds and combine the trend towards less inequality between countries while tackling greater inequality within countries. He rejects the idea of a sharp trade-off between equity and economic efficiency on the grounds that inequality of the degree seen now in the US and UK is politically and institutionally destabilising. Indeed, he says, many aspects of inequality inhibit the efficient operation of markets.

The final chapter turns to policies, and it is the least satisfactory. This is in large part because in a short book like this, there is little room for the persuasive detail. However, I don’t think the policies he favours – more development aid for the poorer economies, taxes and transfers within the rich economies – would be particularly effective. I’m far more in sympathy with Atkinson’s emphasis on market incomes, and the need to address the structures of markets that are the root causes of the increase in inequality.

Having grumbled about that, it is certainly important to keep the biggest of big pictures in mind when thinking about inequality, even at the national level. The fact that the economy is globalized is an important factor in any assessment of the causes of inequality and therefore what it might be practical to do about it.


Inequality – What is to be done?

I finished Inequality: What Can Be Done? by Tony Atkinson, and think it’s great. If you’re only going to read one book on the subject, this is more useful than Piketty – although I have Francois Bourguignon’s forthcoming (May) The Globalization of Inequality in my in-pile and have high hopes for that one too, as a companion work.


As noted in my previous posts, Atkinson’s Inequality starts out very carefully and clearly with the data, highlighting the fundamental point that although there are some common underlying trends tending to drive greater inequality in market incomes, different countries have had different outcomes in terms of post-tax, post-transfer incomes (and in access to public goods and services too, but this is too hard to measure). Even when it comes to the skill bias of technological change, on which many economists (me included) have placed a lot of emphasis as an explanatory factor, Atkinson argues that this is not a given of the universe. The direction of investment spending and substitution is shaped by the menu of opportunities firms face, and that is not exogenous.

His main focus is how firms make these choices and exercise their market power. What constraints do they face? This depends on the state, and on corporate governance, and on finance. All of these offer paths to influencing income distribution.

The second part of the book offers s series (15) of policy interventions to reverse the increased income inequality – there is a UK focus in the recommendations. I don’t agree with all of them, or at least not without further thought. For instance, he recommends implementing competition policy with explicit distributional considerations. However, I love the fact that there are 15 suggestions – enough of books that pretend there are simple solutions! When it comes to inequality, there’s a generation’s worth of institutional and political change behind the current situation so narrowing the income distribution will take work.

One of Atkinson’s key proposals is a vehicle for assessing and co-ordinating what will be needed is a new Social and Economic Council, with members drawn from the old tripartite of unions, business and government but adding also non-governmental organisations and consumer groups. He includes also property taxation – a proportional tax on regularly uprated property values. Every economist I know in the UK (many) recommends reforming property taxation – I was much struck by John Muellbauer’s FT column today calling for an updated and progressive council tax, with an equity transfer instead of cash payment option. Kate Barker’s excellent Housing: Where’s the plan? included a look at capital gains tax on the main dwelling.

There are many other suggestions in the book – capital endowments for all young people; a job guarantee for those out of work for more then 12 months; and more. The length of the list could be depressing (you mean we can’t just tax plutocrats?) but I found it ended up cheering me because there are so many good policy ideas here that perhaps a government could make a start with just a few and take it from there.

Anyway, UK folks, read this book and then for comparison read your favourite party manifesto. Now, onto the global picture.

After neoliberalism?

My journey back yesterday from the Royal Economic Society annual conference in Manchester was delayed for ages because some poor soul had thrown themselves under a train along the line. At least I managed to finish The Rise and Fall of Neoliberal Capitalism by David Kotz.

I’m a bit allergic to the word ‘neoliberal’, probably because it’s so often used as generic and blanket abuse of (among other things) all of economics. I’ve been accused of neoliberalism myself (to which the only sensible response is that the accuser needs to get out more if they think I’m an ideologue…..)

Certainly Kotz signals his own ideological views by using the term as his descriptor of American capitalism, but he does have a far more precise and meaningful definition than is the norm. He defines it as a specific “social structure of accumulation”, a “particular configuration of economic and political institutions, as well as dominant economic theories and ideas.” This is interesting, and I buy the general approach – it’s similar to (for example) Michael Best’s use of the concept of “production systems” in The New Competitive Advantage, but ranging wider beyond the economic institutions of production.

Kotz sees the 1950s and 60s as a golden age of ‘regulated capitalism’ with strong unions and well-paid jobs for (male) breadwinners. He accepts that it had its own crisis, with sustained declines in profitability through the 1970s. Hence the scope for the arrival of ‘neoliberal capitalism’ from 1979/81 with Thatcher and Reagan.

Much of the book describes the development of the ‘neoliberal’ system after that turning point in terms of the broad outlines of the US economy – profit rates and shares, declining union membership, stagnant median real wages, the rise in household indebtedness etc. It does not cover globalisation to any great extent, which seems an important omission, nor does it mention technology or environmental sustainability at all, so the prism is quite narrow. Deindustrialisation is described more in terms of an attack on organised labour than the consequence of several deeper economic trends. However, the book’s analysis of the 2008 crisis in terms of the preceding financial bubble, and the way consumption was supported by debt, is surely not controversial.

Kotz does mention the role of ideas in economic theory and – more important in the long term – political received wisdom (the theory has moved on, but the policy world view far less so). He describes neoliberal ideology as “very strong” – clear, simple, apparently logical. Daniel Stedman-Jones’s Masters of the Universe gives a much fuller account of the effort it took to cement the ideology over a number of decades prior to 1979, and highlights how much organisation it will take to change the prevailing world view. For I think this is a question of political and social organisation more than one of economic or political theorising.

Kotz argues here that the US and by extension the western economic system is in a state of crisis that will give way to a new “social structure of accumulation” whose shape is yet to be determined – it could be a revived neoliberal system. It will not be his preferred socialist system without a broad social movement, as at moments of crisis in the past such as 1945.

I would agree with Kotz that the prevailing production system or social structure is in crisis, but would emphasise more the fundamental role of technology and globalization. Not that a class-based perspective isn’t important. He concludes: “The path that will be followed in the years ahead cannot be predicted …. The economic changes – or lack of changes – that lie ahead will be the outcome of struggles among various groups and classes in the coming years, which will occur in the realm of ideas, politics and culture.” And surely the realm of the work place, public space and policy corridors too?

So all in all, I agreed with quite a lot of the analysis here while thinking it an incomplete picture. Still, the book irked me, no doubt because of my allergy to ‘neoliberalism’, along with its slightly plodding style. Reading it did feel a bit like being in a political meeting where you are washed over by a wave of abstract nouns. I know economists are on average pretty clunky writers so one should be used to it, but I did nod off over the book as my train trundled veeeery slowly through the countryside.

I wonder what Professor Kotz would have thought of the arrangement at dinner at the Royal Economic Society conference. There were two options for each course, and staff served each one to alternating places at the table. If you preferred the other, you had to exchange. Perfectly efficient and logical – surely only an economist could have thought of it? I’m tempted to do this every time I invite people round for a meal in future, unless that would be a bit neoliberal.

Instructions at the bottom - side payments not ruled out.

Instructions at the bottom – side payments not ruled out.

Economists? Hubris? Surely not?

The title of Meghnad Desai’s new book, Hubris, had led me to expect a jeremiad about the failings of economics, with a faint feeling of resignation. Not that the charges are (all) undeserved, just that it’s become rather familiar. However, my expectations were confounded. The book is a very accessible and clear history of macroeconomic thought, seen from the perspective of what economists have done over the decades – what ideas, what models they have used. It makes an excellent follow-on companion to Tim Harford’s The Undercover Economist Strikes Back, being a bit less general, and introducing more economic terminology and verbal (largely) descriptions of models.

A lot of the material covers territory that will be familiar to professional economists, but it is set in the context of how macroeconomics got itself into the position of being not only unsuccessful at predicting the financial crisis but literally unable to do so. Macro models excluded the logical possibility of sustained and serious disequilibrium. Desai also includes some economists who are not part of the usual story, for reasons that become apparent in the final section of the book. Marx and Hayek of course, but also Kondratiev, Wicksell, Richard Goodwin. (I’d never heard of Goodwin – he provided a mathematical, ecology-inspired model of the wage share.)The book explains how alternative views came to be not even attacked, simply ignored, in modern macro. It includes a section on Keynes and the reinterpretation and reinvention and finally co-opting of ‘Keynes’ over the years

The final section sets out briefly Lord Desai’s own framework for macroeconomics. He sees the evolution of the economy in the aggregate as the outcome of a disequilibrium process, with Kondratiev cycles driven by demography and technology and shorter “class struggle” cycles of changing labour and profit shares superimposed, in the context of a globalised economy. This is clearly more realistic than some of the DSGE macro models that are clinging on to life, albeit less useful for forecasting.

The long wave perspective is quite interesting and plausible. One other point that I wholly agree with is the narrowness of traditional macro models in their nation by nation focus: “National income data began to be estimated and published in a small way in the 1930s. After the war and thanks to the Keynesian revolution, national income measurement became a pivotal tool of policy making … This has shaped the themes and strategies of research in macroeconomics. New classical macroeconomics has been very much concerned with analyzing US time series. … The older tradition had less accurate data but it’s vision was systematically global rather than inter-country.”

The book also, rather gloomily, sees the world as being at the start of a long wave downturn, in for a structural version of secular stagnation, with decades of falling prices ahead. “Could the global economy  repeat the 19th century’s experience of the Great Depression of 1873-96.”

I’m not so gloomy but this might be possible. It would anyway make enormous sense for macroeconomists to link their work with growth theory and thinking about innovation, including work on long cycles such as Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages by Carlotta Perez. Mind you there are lots of things it would be sensible for macroeconomists to do, but the hubris lingers on.

Shipping containers redux

Regular readers will know of my interest in shipping containers. It pre-dated Marc Levinson’s excellent The Box.In fact it must date back a long way – one of my favourite TV series when young was The Onedin Line.

Recently I’ve been following these Postcards from a Supply Chain, and also read Rose George’s Deep Sea and Foreign Going (which I reviewed here). The latest in this genre is The Container Principle: How a Box Changes the Way We Think by Alexander Klose.

A collection of essays, this touches on the history of the industry and the economics of transportation and trade. But it is more concerned with the wider question of the cultural impact of containerisation. “Containers play as decisive a role in the organization of people, programs, and information as they do in that of goods,” writes Klose. “They not only physically appear in every imaginable place in the city (such as subway stops and airports) and in rural areas, they also appear in such cultural domains as architecture and urban planning, psychology, philosophy, pedagogy, business administration, communications and information, film, television, theatre and art.”

And cliches. Thinking outside the box, anyone?

There are chapters that riff on various aspects of containers, of which my favourite was the one about logistics, which is largely historical. Klose argues that modernity has a logistical logical structure, making the shipping container its “most successful material object to date…. Containerization is a prevailing cultural technology of the 20th and early 21st century.” I think I buy that argument. The book has lots of fantastic illustrations. It suffers a little from critical/media studies-speak but only a little, and more than makes up for it by bringing a different lens to this very familiar object.