Friday, December 30, 2016

Preface to the Russian edition of "Global inequality"

I am delighted that one of the first published translations of my book is in Russian.  There are, I believe, two reasons why Russian readers might find the book interesting and relevant.

First, as the title suggests, the book deals with the changes in world income distribution during the era of “high globalization” that runs from the fall of the Berlin Wall to the outbreak of the Global Financial Crisis in 2008 (and in some instance covers also the period up to 2011). It was an extremely dynamic and turbulent period. The major parameters of the Europe/US vs. Asia relationship have changed, not only because of the remarkable rise of China, that in terms of total GDP calculated at purchasing power, had by now outstripped the United States as the largest economy in the world, but also because many other populous Asian countries have followed an equally successful  growth trajectory.  A couple of numbers suffice to show the scale of change in relative economic power:  between 1988 and 2015, the average per capita income of “non-rich” Asia (that is, Asia that excludes Japan and South Korea, and oil-producing countries of the Middle East) has been multiplied by a factor of 4.5, while the Western per capita income has increased 50%.  After the financial crisis, the  change is even more striking: Western incomes in 2015 are only 2.4% higher than in 2007 while “non-rich” Asia has gained 58%.

The three- or  four-century old relationship between the level of economic development in the western shores of the Eurasian landmass (Europe) and the eastern shores of the Eurasian landmass (China) is thus undergoing a rapid process of change. We are participants and witnesses to a major  economic and political “rebalancing” between Europe (inclusive of the United States) and Asia. This rebalancing, if continued for another generation, will bring the relative income levels of the Western and Eastern shores of Eurasia to the point where they were prior to the Industrial Revolution, that is approximately equal. Such a remarkable development is easily observable in individual incomes, captured by household surveys used in this book to look at the evolution of global income distribution. While people in the middle of the global income distribution (who are from the Western point of view still relatively poor) have experienced more than the doubling or tripling of their real incomes, people in the rich world’s lower parts of income distributions (the “working classes” of the West) have seen very little real growth. This is particularly clear for the three most important Western economies: the United States, Germany and Japan. But the top income groups (the famous top 1%) in the West have done extremely well. This has created the cleavage between the fortunes of the top and the fortunes of their working class or lower middle class compatriots. The fruits of globalization were clearly not equally shared amongst the citizens of the rich countries. And this, combined with migration pressures which are also a reflection of uneven global distribution of income between the countries,  have led to the tumultuous political developments of the last couple of years and the rise of right-wing nationalist and populist parties.

The second reason why the Russian reader might find the book relevant is because Russia was directly or indirectly involved in all key developments discussed here. The end of Communism and the beginning of the “high globalization” in the late 1980s were clearly related. The rough sketch of the geo-economic changes that occurred in the past quarter century indirectly  highlights the position of Russia that straddles  the Europe-Asia divide. It will, if the current developments continue,  find itself geographically between the two richest and most dynamic parts of the world economy, each at one end of the Eurasian continent. This creates obviously challenges for the country and shows a huge importance of fast economic growth, lest the continental landmass of Eurasia (composed mostly of Russia, Ukraine and Central Asian countries) remain at much lower level of income than the maritime edges. Finally, the within-national inequalities that have played such an important role in recent political developments in the West have not passed by Russia. The enormous economic inequality that followed the end of Communist regime in Russia has in the past ten years been to some extent reduced in the income dimension while the concentration of assets remains so high that it puts Russia among perhaps three to five countries with the greatest inequality in wealth. It is quite likely that the wealth concentration in today’s Russia is greater than it was one hundred years ago, before the beginning of World War I.

The concentration of wealth in Russia is also connected with rather hesitant formation of the middle class. It is somewhat of a truism that social stability often  depends on having a sizeable middle class. This is not because one becomes “virtuous” and democratic simply by having a “middling” or comfortable level of income, but because the middle class tends to favor protection of property rights against possible expropriation of those who are poorer, and to favor the rights of political decision-making against those who are richer and can “buy” their way into political power. I believe that, even if the book does not directly mentions this with respect to today’s Russia, the reader can readily see that the two crucial issues are acceleration of economic growth of the country as a whole and strengthening of the middle class internally. The reader will recognize that this is an agenda not dissimilar to that of Sergei Witte some 120 years ago.

These two messages may sound obvious or well-known to the Russian reader but the important point is to realize that here they are not derived alone, that is in isolation from the rest of the world, but rather on the contrary, directly from the empirical study and the analysis of worldwide movements in income and thus in economic power.

In this way, I dare to believe, the book may make a small contribution toward better understanding of our world—the understanding which should hopefully help the next generation live materially richer and more peaceful lives.

 Washington, 30 December 2016.

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