‘The global economy is disequalizing’

Inclusive Economy,Poverty & Inequality09 Feb 2013Sara Murawski

Interview with Ted Schrecker: ‘There is widespread recognition that the dynamics of the global economy work in the direction of increased inequality. And there is very little reason to expect that to change over the short term.’

Interview with Ted Schrecker, clinical scientist at the Bruyère Research Institute and member scientist of the Population Health Improvement Research Network (Ontario, Canada)

Interview by Sara Murawski

In The Broker’s inequality debate, there is much disagreement whether inequality should be one the central themes of the post-2015 development agenda. For some (for example Rolph van der Hoeven and Claudio Schuftan), there is no question about it, while others (Stephan Klasen and Wieck Wildeboer) are more reluctant and argue for more consistency with the current MDGs and a focus on eradicating absolute poverty. What is your stance on this matter?

Poverty, to me, must be understood in the context of an economic system where people are, increasingly, more or less able to earn a living based on the terms on which they are connected to various global scale economic flows. The proportions of people living in extreme poverty have been reduced throughout the world. But this is not a particularly impressive accomplishment during a period over which the value of the world’s economic product quadrupled. Additionally, the World Bank’s own figures show that the so-called success in poverty reduction over the period in which the MDGs have been part of the agenda is in fact almost entirely a Chinese story. In other words: outside China, wherever someone escaped extreme poverty someone else in a low income country fell into it.

The poverty agenda should not be separated from the inequality agenda, especially since the tendency is for poverty and inequality to increase even outside the places we normally associate with them. Andy Sumner has been pointing out for a few years now that more than seven out of ten people who meet that World Bank definition of extreme poverty actually no longer in live in low-income countries, but in countries where their compatriots are markedly more fortunate. I would argue that the nature of the global economy as it now exists makes it very unlikely that they will be able to use domestic political processes to increase their incomes in a way that the working class was able to do in the 19th and 20th century in the high income world, because there are too many options to relocate production to China, Vietnam, Bangladesh or even some countries in Sub-Saharan Africa. In this sense, inequality should be a central element of the development agenda post-2015.

And what kind of definition of inequality should that be?

The inequality definition should definitely be extended beyond income inequality. For example, civic and gender inequality should also be included. That being said, I think economic inequality, i.e. income inequality and inequality of wealth – because wealth is even more unevenly distributed than income – still has to be central. My suspicion is that a lot of people who say that it should not be just about income really mean: it should be about other stuff that is not necessarily going to involve policies of redistribution.

Do you mean ‘predistribution’?

‘Predistribution’ is probably more feasible in many low and middle income countries, simply because there, so many people are operating outside the formal economy that has historically been a main channel for redistribution. It is very hard to tax or offer cash transfers through the tax system in an economy where the majority of people are functioning outside the waged sector. It is in many circumstances easier to provide services in kind. In fact, much of the equalizing function of the European welfare states has to do not with progressivity of taxation, but with the extent to which those societies provide resources in kind, whether they involve housing, education, subsidized transportation etc.

Should the World Bank and other big international organizations include inequality of wealth and other forms of inequality in their measuring tools?

I am not sure that asking the World Bank or any other financial institution to focus on inequality of anything is especially productive, simply because they have very mixed records when it comes to issues of inequality, although the World Bank is to its credit not a monolithic institution. And its position on inequality has been changing. But important to stress is that the post-2015 agenda is essentially a European agenda, at least in the high income world. It is not on the political radar in Canada or the United States. Canadian and US political leaders are only interested in their own problems, not in the MDGs.

One thing that could be focused on is tax evasion and capital flight. Encouragingly, there are signs that capital flight from low and middle income countries is now moving as a political issue beyond a very small coterie that has been concerned with it for the past 25 years. I think this development fits in with an emerging concern about the domestic fiscal situation in at least some of the high income countries.

The entire thrust of the global economy as it is now organized is disequalizing. I think there is widespread recognition that most of the dynamics of the global economy as they are reflected in the changing structure of national economies work in the direction of increased inequality. And there is very little reason to expect that to change over the short term because the political mechanisms that were the basis for class compromise in the high income world are often just not there. And the mechanisms by which wealth is accumulating do not involve production; they involve finance, or various forms of dispossession, such as land grabbing. Or outright corruption – the appropriation of what used to be state resources for private purposes.

If there is broad consensus on the fact that our economic system is disequalizing, why is it so difficult to change the way it is organized?

On a structural level it is difficult because capital, or the ultra-wealthy, or corporate managers have options for exit. Relocation is an important exit option. Take the dramatic example of fires in garment factories. Just over a century ago, the Triangle Shirtwaist factory fire in New York City, in which over a hundred garment makers died, was the trigger for a lot of labour organizing and public outrage that led eventually to better protection for labour in that industry. But now, the ‘US’ garment industry extends halfway around the world. People are still buying garments made by people locked into factories who occasionally burn to death or die of smoke inhalation due to factory fires, but the factories are now located in, for example, Bangladesh. And even very progressive development workers like Naila Kabeer can see that work in the garment factories is, for many young women in particular, the best option available. It beats staying in the village. We live in a system in which the owners of various kinds of assets have the option of exit in the sense that the society where they have located their assets does something they don’t like, they can pick up and move. This applies to liquid financial assets as well.

You speak about global inequalities in terms of class but Branko Milanovic, for example, emphasizes a shift from class as a main determinant of inequality to location. Is class still an important determinant of inequality?

That is one of the disagreements I have with Milanovic. I do not think that place of birth and class are an either–or issue. In fact, on a global scale, the two are correlated. Class remains an essential analytical category. In fact, it may be more relevant than ever, precisely because of the expansion of what William Robinson calls ‘new social cartographies’ that cross national borders routinely. These cartographies are driven by political choices, by public policy, by alliances of state actors with capital. Much of the increase in economic inequality and outright deprivation in the US is a function of the deregulation of wages and labour markets, coupled with the retreat from social provision. The point is that it is now less meaningful to talk about national economies and more meaningful to talk about the social location or the class position that people occupy with reference to a variety of global economic flows. For example, you have undocumented immigrants in the US living and working in stereotypically Third World conditions, sometimes literally in the shadow of the towers of world financial centres. Conversely, you have the “high net worth individuals” living in Mumbai or Moscow, who are, in terms of portfolio choices, much the same as their counterparts in Montréal or Mayfair. And those are just a few examples.

For more of Ted Schrecker’s views on health, inequality, and economic policy:

Interrogating scarcity: How to think about ‘resource-scarce settings’, Health Policy & Planning (2012)

Multiple crises and global health: New and necessary frontiers of health politics, Global Public Health 7 (2012): 557-573

Health as if Everybody Counted (blog)