Addressing Inequality from Global and Asian Perspectives
Lucas Chancel: Global inequality is rising. But the different trajectories between countries show there is room to manoeuver.
(4’50”) Instead of basing its findings only on survey data as the Oxfam report Reward Work, Not Wealth and the Credit Suisse Global Wealth Report do, the World Inequality Report combines survey data with tax data. The latter better captures the income of the top 1% of the population. For Chancel, “this is where the action takes place.”
(12’50”) A graph of the distribution of income growth powerfully presents global trends in the last 30 years. Nicknamed the “elephant curve,” this graph shows the rise of middle classes in emerging countries, a simultaneous compression of income growth for middle classes in the developed world, and a very high growth rate at the top of the distribution. Different visualizations help relay the importance of the share of income growth captured by the very top.
(18’) This data lead Chancel to question the promises of the “trickle-down” effect, and suggest that such an “enormous” growth in wealth for the top end of the population is not needed to attain growth for the bottom 50%. This argument relies notably on the contrast between the US and Western Europe. Both regions have been exposed to globalization and new technologies, but Western Europe has seen less inequality than the US.
(22’) The data also show that private capital has increased in proportion to public wealth in almost all countries over the last 30 years. This is important as public wealth is mostly made up of infrastructure that contributes to the reduction of inequality, such as schools and hospitals. In the US and the UK, the ratio of public wealth to national income is below zero, which means that selling all those assets would not even enable the two countries to repay their debts entirely.
(29’30”) In conclusion, Chancel shows potential trajectories for the future, depending on whether countries follow a pattern similar to Western Europe, the US, or their own paths in the last 30 years. Only the European scenario appears to lead to a reduction in inequality, although societies following this model would still remain unequal overall.
Li Yang: Inequality in China, compared to the US, France, and Russia
Over the past 30 years, China has witnessed exceptional growth, and its share of global GDP has increased. Li Yang addresses the question of who benefited the most, between the private and the public, and between various income groups.
(3’20”) The national-wealth-to-income ratio has increased considerably in China, from about 350% in 1978 to more than 700% in 2014. This was mostly driven by housing and other domestic capital. Two waves of privatization have contributed to this phenomenon. Housing was privatized from 1992. State-owned enterprises (SOEs) were privatized gradually between 1998 and 2006.
(7’10”) Both China and Russia have seen private capital grow over the period. But in the case of Russia this happened at the cost of public wealth, while in China public wealth was “used as a base” to let private wealth grow, which helps explain the impact on inequality levels.
(14’) A comparison of China and the US is striking. In China, the income share of the top 1% and the share of the bottom 50% have converged, with the share of the bottom 50% decreasing over time. But this stabilized around 2006. In the US, the two curves crossed paths around 1995, with the bottom 50% now holding a smaller share of the national income than the top 1%, and the curves continue to diverge, showing that inequality is rising even faster in the US than in China today. France, by comparison, remains a much more equal country.
(15’20”) In all countries, the top 1% and 10% of the distribution have experienced the highest growth rate. But there are important national differences. In China, the poorest half of the population has seen a growth rate of about 4.5%, significantly lower than the top 1%’s growth rate of 9.1%. In the US, the bottom 50 % has almost seen no growth at all. In Russia, the bottom half has even seen a decline while the top 1% saw an income growth of 9.9%. Again, France presents a more equal pattern, although the overall growth rate has been moderate.
Panel discussion with Lucas Chancel, Li Yang, Zhiwu Chen, and K C Kwok
The panel starts with a commentary by Zhiwu Chen.
(1’30”) Inequality has various dimensions, including wealth, income, and consumption, with wealth having the greatest distribution, followed by income, while consumption is the most essential with regard to the basic needs of individuals.
(05’10”) The increase of the wealth-to-income ratio in China is the result of the expanded availability of financial instruments, which has enabled companies to reflect their anticipated future earnings.
(7’05”) Policy actions are implicitly responsible for inequality in certain cases, like government intervention to pay creditors when financial bubbles burst, or a failure to regulate monopolies.
(13’50”) Despite the shock therapy in Russia, in many SOEs, as much as 40% of the shares still belonged to the state after the end of the voucher scheme, but financial difficulties led to the sale of shares, which massively went to oligarchs.
As the moderator of the subsequent discussion, K C Kwok highlights that while inequality is damaging in the short term, it is even more so in the long term, as it undermines the fundamental values of capitalism, our open societies, and meritocracy. He invites the speakers to develop their views about a series of key points.
(18’20”) It is widely believed that billions of people have found their way out of poverty thanks to globalization, especially in developing countries. How do we find a balance between state intervention and free market, in a way forward that avoids undermining productivity?
(22’40”) Chancel stresses that “the US is the extreme counter-argument to the trickle-down effect,” as it has seen much more deregulation, more reduction of tax progressivity, and more disengagement of public actors from university, health, and infrastructure investment than Europe.
(25’35”) Chancel underlines that most of the available data from the IMF and the World Bank focus on consumption. He believes that the distinction between income and consumption may be blurry at the top of the distribution. “What do very rich people do with their savings? What do you do when you buy a foundation or a newspaper? Is it consumption of media space, or political space?”
(31’40”) Kwok highlights that the concomitant trends of aging and increased levels of education inevitably lead to a wider distribution of income.
(36’35”) To Chancel, this makes it important for governments to invest in education at the bottom. With respect to the top of the distribution, other factors are at play, as illustrated by the fact that Germany has lower wages for CEOs than the US despite equivalent levels in education and technology. In fact, in the US, the strong correlation between parental income and access to higher education means that social mobility is low.
The floor is open to questions, which address the following topics.
(43’55”) How the informal economy is taken into account in the data.
(46’40”) How to find the balance between innovation and equality—but also, how to make sure that innovation benefits those at the bottom.
(54’30”) How is inequality tolerated across the world and what is its link to political behavior?
Chancel’s slides can be found here.
Chetty, Raj, Nathaniel Hendren, Patrick Kline, Emmanuel Saez, and Nicholas Turner. “Is the United States Still a Land of Opportunity? Recent Trends in Intergenerational Mobility.” American Economic Review: Papers & Proceedings 104, no. 5 (2014): 141-47.
Deaton, Howard. “The US Can No Longer Hide from Its Deep Poverty Problem.” The New York Times, January 24, 2018.
Zucman, Gabriel. The Hidden Wealth of Nations: The Scourge of Tax Havens. Translated by Teresa Lavender Fagan. Chicago: The University of Chicago Press, 2015.