François Bourguignon is former Chief Economist and Vice President of the World Bank, and is currently Professor of Economics and the Paris School of Economics. He has published extensively on poverty and income distribution, including the influential ‘Handbook of Income Distribution’ and in journals such as the American Economic Review, Econometrica, and The Economic Journal. This talk draws on his new book, ‘The Globalization of Inequality’.
The ‘Globalization of Inequality’ represents three things: the changes in global inequality across the world; the role globalization is playing in inequality; and the fact that inequality is becoming a global issue requiring global solutions.
Across all people in the world, inequality has risen over the last 200 years. Here, Prof. Bourguignon provides new evidence from the last 20 years showing declining inequality, to the extent that we have reversed the rise of the last 100 years. This trend splits into a decline in between country inequality, but an increase in within country inequality. The latter was historically in decline given the welfare state and political events, but its recent rise is consistent particularly almost all developed countries. This is a significant concern.
Prof. Bourguignon argues that much of the between country trend seems explainable by globalization, based on the expansion of trade and foreign investment allowing geographical re-allocation of manufacturing, and the effects of technological spillover in accelerating growth in developing countries. Equally the trend within countries also seems explicable, particularly due to: the impact on low and medium skilled labour in developed countries by trade expansion and offshoring; heterogeneity of exporting firms in terms of productivity and wages; higher returns to capital (and therefore capital owners) from value chain globalization; the role of technological progress in increasing returns to skilled labour. Policy has also played a role, as progressive taxing and welfare has been pared-down in many states.
Policy responses are presented. While between country inequality will continue to fall, mechanisms to correct it need to come from development assistance, reduced trade restrictions and migration. Equally options to combat within country inequality, by combatting the role of globalization, might include greater protectionism or reversals of deregulation, but these may have other costs. Prof. Bourguignon argues redistribution policies and market failure corrections represent better strategies to address this global concern.