The second age of imperialism

As we enter 2015, it is not useless to look backwards in order to try to guess the trends of the future. I would  argue that the age that we are, to some extent exiting now, and which extended from the early 1980s, can be called the “second age of imperialism”--the first one, in the modern history, having been the age of high imperialism 1870-1914. 

            I will focus here on some of its key manifestations in the ideological sphere, in the areas I know, history and economics. But it should be obvious that ideology is but a manifestation of the underlying real forces, which were twofold: (i) the failure of most developing countries by 1980 to become economically successful and self-sustaining after decolonization and the end of Communism as an alternative global ideology, and (ii) the relatively solid economic record of Western countries (masked by the expansion of borrowing for the lower classes), and regained self-confidence of the elites in the wake of the Reagan-Thatcher (counter-) revolutions and the fall of Communism.  The violent manifestations of the second age of imperialism were invasions of Afghanistan and Iraq, brutal war in Libya, and the defensive imperialism of Russia in Ukraine and Georgia. But here we are concerned with the superstructure.

            In history, the paradigmatic example of the ideological change is the explanation for the outbreak of World War I. This is the most significant event since the French revolution, and thus represents an ideological litmus test for how different epochs and historians see it. The standard explanation, started by the left-wing writers and politicians like Hobson, Lenin, Rosa Luxemburg and Hilferding, and reaching its full form in the work of Fritz Fischer in the late 1960s, was  that it was an almost inevitable conflict driven by the struggles of national bourgeoisies as to how the world would be carved up. It was domestic class conflict plus the need for local bourgeoisies to expand production in order to stave off declining rate of profit that produced the clash between the old imperialists (the Western Allies and Russia) and the aspiring ones (Germany and Austria-Hungary). 

            Now consider the new books published recently, and especially in 2014 on the occasion of the centenary of the Great War. I wrote here about one of them, Niall Ferguson’s “Pity of War”, written 10 years ago, but which I think is the best among the “revisionist” literature. The remarkable feature of these books is that they are unable to offer any theory as to why the War happened at all. In lieu of imperialism, they propose a series of useless contingencies: one minister failed to reply to the telegraph, another was travelling in the North Sea, a politician went on vacation. The title of Christopher Clark’s book “The sleepwalkers” says it all: just if a few good men paid more attention. The explanations represent the ultimate in nothingness: they support neither a theory of great men, nor of great ideas, nor of social forces. It is a puerile “theory” of trivial events piled upon each other which is offered as the explanation for the most momentous event in the past two centuries. It represents the bankruptcy of alternative or “revisionist” theories to engage with the fact of the War. 

           
           In social sciences, the celebration of ahistorical “neo-imperialism” took its key shape in Francis Fukuyama’s “End of history”, which of course should not be understood as the end of conflict, but as humanity having reached a terminus in finding the most appropriate form of social organization: liberal capitalism. “The end of history”, in turn, justified (whether its author would have approved  or not) the military adventures in Afghanistan, Iraq and Libya where this final form of human organization were to be imposed on the heathens. When this became too difficult or costly, the “Fukuyamistas” withdraw, perhaps to regroup before trying again.

            In economics, the second age of imperialism was best reflected in many doctrines and concepts that became discredited during the Great Recession (efficient markets, rational expectations, costless transactions, representative agent, “trickle-down” economics), but even more so in the  Washington consensus. While the Washington consensus, the list of ten desirable economic policies to be implemented in the Third World, drawn by John Williamson and reflecting the views of the Washington establishment, had valuable insights, it provided a template for mindless imposition of policies that often, within the context of countries that were forced to implement them, were counterproductive. The Washington consensus was a perfect complement to Fukuyama’s “end of history” because it offered the ultimate economic policies to go together with Fukuyama’s ultimate political organization.

            It is a great virtue, if one could say so, of Daron Acemoglu and James Robinson to have combined these two strands of neo-imperialist thought, into their institutional approach. The so-called inclusive institutions are just what your get when you put Fukuyama and the Washington consensus together. So, in Acemoglu and Robinson, on the one hand, and Niall Ferguson on the other, we have the perfect, and I would venture to say, the final intellectual products of the second age of imperialism. 

            But how will things move henceforth?  The second age of imperialism was a  splendid construct that has however stumbled on several obstacles. In the economics, it was severely shaken by the Great Recession, and almost a decade of no growth in Europe and Japan. Multi-decennial zero growth of median wages, that is, of the middle-class which is so crucial for these theories to hold, was a further refutation of its neo-imperialist “inclusiveness”. The unexpected success of China was another. No matter how strongly Fukuyamistas and Acemoglu-Robinson (FAR) either deny that China represents an example showing that different institutions can deliver an even superior growth, or vociferously call for the inevitable end to the Chinese miracle, the success of China stands singly as a great refutation of the FAR view of economics and politics. 

            Domestically, more than 30 years of the second age of imperialism have brought  first, segmentation of the populations into the very rich, and the middle class, most of whom have zero net wealth and stagnant wages, and second, discrediting of the traditional center-left, center-right politics.  Both outcomes are sharply at odds with what FAR expected: under liberal capitalism neither has the middle class grown, nor have institutions of the liberal political order been affirmed in daily actions, as John Rawls required of any self-sustaining political system. This has led to the rise of “heterodox” parties of the left and the right, and the real threats to democracy by populism, xenophobia and plutocracy.   

            Neo-imperialist international balance-sheet is even worse. It has produced unnecessary and, apparently, endless wars, tribalization of nation-states, the rise of violent and most retrograde forms of religious intolerance, all of that having been, at the origin, justified by “the end of history“ and the nebulous doctrine of “the right to protect” which togerher played the same role as the ideology of the European “civilization” of other continents did in the late 19^th century. The latter gave us King Leopold and the Congo; the former, George W. Bush and ISIS. The second age of imperialism leaves the world in the year 2014, in a state, in many ways reminiscent of the one in 1914, and in a turmoil that may produce either another religious One Hundred Year war or World War III…or both.

National vices, global virtue: Is the world becoming more equal?

I just completed my latest round of global inequality calculations several days ago. The data refer to the benchmark year 2011. This is the seventh benchmark year since I started working on global inequality.  My first paper on the topic included only two years: 1988 and 1993. These were (as the title of the paper says) the first calculations of global inequality based on household survey data alone. Afterwards, in my book "Worlds Apart", I added the year 1998. And then it went on with years 2002 and 2005 (discussed here), and finally with a panel of country/deciles created specifically for the paper I wrote with Christoph Lakner.  The quality of the data improved significantly. While in 1988, I had micro data for  less than half of all surveys, in 2008 and 2011, all surveys (with the unfortunate exceptions of China in 2011 and Japan in both years) are based on micro data.

Data coverage

            But on the other hand, the coverage of the world population has not improved much in the past twenty five years. I still have data for about 92-95 percent of world population and generally slightly more of world income. My own rule was that unless I have more than 90% of world population and dollar GDP covered, and at least 110 countries included, I  cannot claim to have a global distribution. It is that yardstick  that I reached last week, and that’s why my 2011 numbers are now ready. For 2011, the population coverage is 92 percent, income coverage (measured in current dollar terms) 90 percent, and the number of countries included is 112. 

            The missing populations are generally people in poor countries. These countries  do not conduct regular household surveys and thus our global income inequality numbers are almost certainly underestimates. There are two additional reasons why they are underestimates but I will mention them below.

Is global inequality on the decline?

            In a paper that discussed changes in global inequality between 1988 and 2008, Christoph Lakner and I find a slight, but unmistakable, decrease in global Gini, from 72 points in 1988 and 1993 to 70.5 Gini points in 2008. These were panel data.  On a more detailed sample for the benchmark year 2008, I find an even lower Gini of 69.  So, the decline in global inequality of about 2 to 3 Gini points was already present during the first decade of the 21 century.

            The 2011 data show that the decline has continued. The 2011 global Gini is 67, some 2 Gini points lower than three years before. This is a remarkable change, driven, as before, by the fast growth rates of China and India, and between 2008 and 2011 also by the absence of growth in rich countries. The average real per capita income, calculated from Chinese household surveys, has increased by 45 percent between 2008 and 2011; in India, the increase was  11 percent. But now global inequality is decreasing also because the rich world is not growing.  The US mean income in 2011 is lower than in 2008. That makes global convergence of people’s incomes easier.

What are the caveats?

            There are three. In addition to our imperfect coverage of  poor countries, global inequality is underestimated also by surveys’ non-inclusion of the very rich and, when they are included at all, by  the underestimation of their incomes, especially of those derived from the ownership of capital. This has been a well-known issue for years but has become more serious because of globalization that allows people to move their assets more easily (we are speaking here of legally-owned assets, income from which owners tend to “forget” when they fill survey questionnaires). When Christoph Lakner and I made some rough adjustments for the underestimate of top 1% incomes, it turned out that almost all but ½ of a Gini point of global inequality decline dissipated.  So, this is the second caveat: it could be that the global inequality decline is significantly less if we were to account better for the incomes of the very rich.

            The third caveat is similar to the second. There are (we are now much more aware of this after the pioneering work by Gabriel Zucman) large financial assets that are not included either in fiscal nor in household survey data. This is money held in tax havens. Zucman  estimates it at  8% of global financial assets. Information on income from these assets is extremely unlikely to be reported since even the legality of these assets (unlike those of the previous group) is questionable.  Using some back-of-the envelope calculation, income from the assets “parked” in tax havens could amount to 0.7-1 percent of global GDP. Since it is very likely to be received by the global top 1%, we are thereby further underestimating global inequality.

The issue of the new 2011 PPPs

            The Gini values I have provided  so far are based on the Purchasing Power Parity (PPP) dollar exchange rates derived from the 2005 International Comparison Project (ICP). One of the reasons  I chose to update my global inequality data for the year 2011 is that the new ICP was conducted in that year. When household surveys are conducted in the same year as ICP, domestic currency incomes are divided by PPP exchange rates which have also been calculated for that same year. One source of error, projection of PPPs to the year when the global ICP is not conducted, is thus avoided. The 2011 PPPs,  as is by now well-known, have resulted in some significant reassessment of price levels in Asian countries (Indonesia, India, China). As their price levels were found to be lower than previously thought, PPP exchange rates were reduced, and real incomes accordingly increased. (If country's price level is lower then obviously with the same nominal income, you can buy more goods.) In global inequality calculations, higher real incomes of China, India and Indonesia (among the large countries) translate into reduced global inequality.

            The effect of 2011 PPPs was essentially a level effect, meaning that the changes and the trend were left more or less unaffected while the level of global inequality was reduced throughout (that is, for all years) by about 3 Gini points. Thus, 2011 global inequality, measured in 2011 PPPs, is “only” 64 Gini points. 

Global middle class

            In 2011, the emergence  of the global “middle class” continues. If we take one of the definitions of the middle class, made popular by the World Bank’s work on Latin America, as people with incomes above $PPP10 per day and less than $PPP50 per day,  29% of world's population belongs to that  group and they control 43% of global income. In 1998, equally defined "middle class" included only 17% of world population. Unlike in 1988 and 1993, when global income distribution showed two peaks with high percentages of people among either the extremely poor or the very rich, today’s global income distribution is single-peaked with the “thickening” of the distribution around the middle. (Note however that the global median income of $PPP5.7 per day is still vastly below the minimum income that we use to define our “global middle class”). 
 

The global top 1%

            The  global top 1% is still heavily dominated by the “old rich” OECD countries. There are just above 60 million people in the global top 1%. One-half of them are Americans: the richest 11%  of Americans are the members of this “club.”  (If we look at the global 2%, the entire top quintile of the US income distribution belongs there.) From other rich and relatively populous countries (Germany, France, Japan, Great Britain) 4-5% of the richest people belong to the global top 1%. Outside the “old OECD”, only Chile and Taiwan have more than 1 percent of their populations in the global top 1%.  Brazil, South Africa and Russia each have their own top 1% also in the global top 1%, but not more than that.  

National vices, global virtue? 

            There are two take-away messages. The first is that while many national income and wealth inequalities are increasing, or are thought to be unacceptably high, global income inequality is charting  a modest decline. This is not surprising because the bulk of global inequality depends on differences in mean incomes between rich and poor countries, and these are now less than at any time since the end of  World War II. But for this trend to continue, fast growth rates of China and India are crucial. Second take-away message is this: while many national middle classes in rich countries are being “hollowed out”, a global “middle class” is emerging. The shape of the world distribution has moved from being bi-polar, with one peak of the distribution among the very poor and another among the rich, to being single-peaked with a more sizable concentration of people into something that may be called “the global middle class.”