Global inequalities, emerging economies, and the return of Karl Marx?

Inclusive Economy,Poverty & Inequality29 Dec 2012Arjan de Haan

Inequality trends present a paradox. Until we have clarity about the nature of these inequalities and what or who causes them, it is not clear whether inequality could or should become central to a post-2015 agenda.

Inequality trends present a paradox. Until we have clarity about the nature of these inequalities and what or who causes them, it is not clear whether inequality could or should become central to a post-2015 agenda.

On the one hand, inequality trends are very obvious, notably in terms of the enormous concentration of wealth, globally, at the top end of the income distribution. There seems to be little doubt that this trend of concentration has accelerated since the 1980s, as for example Rolph van der Hoeven describes in his contribution to this issue of The Broker online.

At the same time, and during this same period, global economic power is shifting to previously very poor parts of the globe: notably East Asia, but also South Asia, and more recently, but also more tentatively and partly driven by emerging economies’ economic growth, Africa. These shifts have brought new inter-dependencies, created new inequalities, and reinforced old ones.

It is not evident that summarising these trends into one measure would be particularly helpful. For instance, as most descriptions of economic growth, poverty, and inequality show, trends look different if China is included or excluded from the analysis (see for example World Development Report 2006). Or, while Gini trends within China unmistakably show increasing inequalities, these same development may well be responsible for decreasing global inequalities (or tempering rising trends) – even if this would imply a shift in the global wealth accounting from, say, an American middle class to initially much poorer migrants from rural China.

To look at one dominant cause behind these trends may be similarly unhelpful. Globalisation no doubt brought huge benefits to poor Chinese workers, much more so than to manual workers in the older industrial centres in Europe and North America. The way gains were achieved in China, with associated ills, was not a simple story of expansion of capitalism. The provision of basic social services under Mao’s China, and the relatively equal socio-economic structures that were forged, arguably, were key ingredients of China’s success post 1978. This in turn led to rapidly rising inequalities and a collapse of the publicly provided services, which now again is being addressed.

To some, including a recent BBC series, the recent financial crisis has regenerated an interest in the work of Karl Marx. For me, it is crucial to understand the consensus that emerged after the 1930s crisis in North America, and after WWII in Europe. This included a very significant redistribution of both wealth and opportunities, through expanding universal health and education, pensions, and other forms of social security – what we came to know as the welfare state. These forms of redistribution were often the result of severe social struggle, and resulted in institutions that encapsulated a degree of solidarity. That consensus avoided the collapse of capitalism that Marx had predicted.

The resurgence of interest in the work of Marx symbolizes the fact that these post-war institutions have been crumbling, and continue to be under stress, including pension systems and wage negotiations. Despite the movements ‘Occupy Wall Street’ and  ‘We are the 99%’ (described by Peter Vlam in his contribution to the Broker) there seems to be little indication of a newly emerging social compact. Or is there?

Simultaneously, many emerging economies, phased with high and/or increasing inequalities, are putting new policies and institutions in place that can and do impact inequalities at national levels: cash transfers in Latin America, employment guarantee in India, health insurance in China. These new policies are part of political projects that remind us of the early 20th century in the old OECD, with all its political differences, including electoral motivations, fears of social unrest, Keynesian efforts to promote domestic consumption, and perhaps even productivity. These efforts deserve international praise and support, but aid may not be the best carrier for that.

The 2015 MDG agenda has been successful, in its own terms, mainly because it provided the aid industry with clear sense of directions, around aid allocations and effectiveness, based on a simply North-South dichotomy. It seems inequality cannot have the same rallying power as ‘$1 per day’ has had (and still has an important role to play in many places). For me, the question is not whether inequality should be ‘brought on the agenda’, but who would bring it on which agenda. These are primarily social movements, which argue for a fairer share of nations’ and companies’ wealth, not for the kind of transfers the aid industry has specialised in.