If times of plenty call forth declarations of the end of history and deepen our faith in secular growth, times of crisis are bound to raise the specter of an inherently cyclical economic system. Branko Milanovic's new book is thus a timely contribution to a growing literature on inequality, which he sees as fundamentally a cyclical phenomenon. He thus joins forces with a recent revision of Simon Kuznets's hypothesis, which predicted that the inequalities generated by capitalism will decline as the system matures. Instead, Milanovic proposes that inequality comes in waves, propelled by technological innovation. Even more groundbreaking is the book's adoption of a global perspective in which these cycles play out, replacing a narrower nation-state focus to reflect the way actual people experience inequality around the world. As inequality rises and falls, its expansion in one place underscores greater convergence in another. The book thus offers a comprehensive history of global haves and have-nots, and, with an eye to the future, asks whether a peaceful way exists today to reduce global inequality, or whether we must await another round of global violence.
The books’ centerpiece is an immense original database eschewing national categories for a complete remapping of world inequality based on individual household income surveys between 1988 and 2011 (available for download on Milanovic's CUNY web page). It presents a truly global picture of inequality: Its percentiles, ventiles, and deciles of the world's population by income (adjusted to local cost of living) is compiled of people of all nations. The book offers plain English discussions of the data and explains the technical and substantive considerations that went into their compilation, making their story both accessible and compelling to a wide audience.
This data-driven global perspective does more than point to the realities of globalization—the free-flow of goods, capital, and regulations across borders—and the technical difficulties they pose for scientists and governments alike. It presents inequality as a two-dimensional problem, which we have so far dealt with primarily through one dimension: wealth distribution within the nation-state. Milanovic focuses on the way inequalities within countries interact with inequalities between them, at times compounding their effects, but at other times mitigating them. Which is more significant, he asks, in determining individuals’ fate: their class affiliation or geographical position? The book offers a metric for calculating individuals’ citizenship and class “rents.” For example, a person born in the United States will, on average, earn 9,200 percent more than the average person born in Congo, the poorest country in Milanovic's set. Using Congo as the unit of comparison the data can be used to compare any place and class on the globe (p. 133).
One of the book's most illuminating findings shows how globalization, and especially the recent financial crisis, has contributed to the increased (relative) gains of the global “middle class,” at the expense of those at the top 20 percent of the world's population. The financial crisis was not a global crisis at all, but rather the opposite. This becomes clear once we shift our perspective from the lower-middle classes of rich countries, who were badly hurt, to this new, emergent class, located primarily in India, China, and other fast-developing Asian countries (but still earning only $1,000–$2,000 a year) (p. 31). Geographical convergence, however, does not take away from the spectacular absolute gains at the very top of the distribution, whose share of global income has doubled. The two phenomena, claims Milanovic, “one that may be considered hopeful, and the other perhaps ominous” are “the most significant development of the high globalization era” (p. 45).
To understand where inequality is headed, Milanovic draws on multiple historical studies to describe its cycles and some of their causes. He distinguishes between malign forces like war, famine, and disease, and benign forces, like social programs, education, and low-skill-biased technology. The latter, he argues, exists only in growing economies, and both are best seen as economic factors rather than external shocks and frictions (pp. 53–56). War, in particular, is the result of unsustainable inequality and the search for new markets. In the same vein, welfare-promoting policy measures, like those that followed World War II, can be seen as internal adjustments, made by the economic system (p. 96). The idea of a Kuznets wave means that we cannot rely on “economic” equalizers to necessarily be peaceful, constructive, or under our control, and that global unrest is a direct result of extreme inequality.
Milanovic presses us to accept a large degree of technological determinism and its compounded social effects—wealth concentration, increased “skill-rents,” rising capital returns, and colonialism and globalization—moving history from intolerably high peaks of inequality to periods of greater convergence, often at the cost of great destruction. This analysis will inform his concluding discussions on the prospects of continued convergence. His predictions at the book's closing chapters suggest that both geographical convergence and internal divergence will likely continue in the next decades. Pushed by continued growth in Asia (especially outside of China) and the decline in the “countervailing power of the middle class” in rich countries, these trends threaten to destabilize national governments and breed populism, nativism, and plutocracy around the world (p. 197).
Milanovic's book is thus extremely helpful in understanding how inequalities interact on a global scale and what kind of moral and political dilemmas they raise, especially regarding the rights of migrants and the viability of “capitalist democracy.” In light of these concerns, more could be said about environmental sustainability and unequal exposure to the earth's degradation, particularly because growth is named as the main driver of global convergence (p. 232). Similarly, though it is featured prominently in the story of global income convergence, the causes and impact of the financial crisis and the substantial role of financial intermediation in shaping the global income distribution remain underexplored. Nonetheless, the book is eye opening on the possible merits of greater cosmopolitanism and international cooperation in addressing what is in essence a global emergency. It will be particularly valuable to anyone interested in the practical lessons of historical analysis and the application of economic history to the forecasting of geopolitical trends.
