Global Economic History Lecture 5: Industrialization, Poverty and Inequality PDF

Global Economic History Lecture 5) Industrialization, poverty and inequality 17 October 2024 Inequality today? Name & Rank Net Worth (in $ Billions) Source of Wealth Country $253.2 #1 Elon Musk...

Global Economic History Lecture 5) Industrialization, poverty and inequality 17 October 2024 Inequality today? Name & Rank Net Worth (in $ Billions) Source of Wealth Country $253.2 #1 Elon Musk Tesla, SpaceX United States #2 Bernard Arnault & family $173.0 LVMH France #3 Jeff Bezos $152.6 Amazon United States #4 Larry Ellison $137.6 Oracle United States #5 Larry Page $115.4 Google United States #6 Warren Buffett $115.1 Berkshire Hathaway United States #7 Mark Zuckerberg $111.6 Facebook United States #8 Sergey Brin Google $110.7 United States #9 Bill Gates $109.3 Microsoft United States #10 Steve Ballmer $99.9 Microsoft United States Source: Forbes, 2023 Source:https://www.imf.org/en/Publications/fandd/ issues/2022/03/Global-inequalities-Stanley https://www.imf.org/en/Publications/fandd/issues/2022/03/Global-inequalities-Stanley Course content 1. Concepts of inequality and poverty 2. How have high-income (industrial) countries become more equal? 3. What is driving global inequality today (after 1980)? 1. Concepts of inequality and poverty What is inequality? (Inequal) distribution of wealth and income Inequality is linked to social problems (life expectancy, poverty, education, access to resources) Inequality is linked to social stratification, hierarchies and patterns of exclusion Place Social status & rank (aristocracy vs farmers) Class Gender Ethnicity Example of inequality (gender) Sources: our world in data,  Inequality and social status in pre- industrial Europe Inequality in industrial societies Inequality Intra-national inequality: distribution of wealth within countries Inter-national inequality: distribution of wealth between countries Comparing GDP per capita Global inequality: intra-national inequality and international inequality combined How can we investigate? 1) Gini – coefficient 0 = perfect equality 1 = perfect inequality Gini-index = x100 2) analysis of income groups, decile, quintiles For instance, the “1%” vs “50” Lorenz curve (Gini-coefficient) 100 90 80 Cumulative share in total income (%) 70 60 50 A 40 30 20 B 10 0 0 10 20 30 40 50 60 70 80 90 100 Cumulative share of the total population (%) Limitations to Gini The maximum “Gini”: maximum “amount” of inequality that can be sustained by a society according to subsistence ($ 300 PPP) How much can top layers accrue with people able to survive ‘Inequality extraction ratio’: measured Gini as a percentage of Maximum Gini ‘Inequality possibility frontier’: in poor societies inequality cannot be very high, inequality can be higher in high-income societies  Mean income in terms of Maximum feasible Gini Inequality extraction ratio (in Country/Territory year Gini s (s = $300) (IPF) %)* Roman Empire 14 39.4 2.1 52.6 75.0 Byzantium 1000 41.1 1.8 43.7 94.1 England & Wales 1290 36.7 2.1 53.0 69.2 Tuscany 1427 46.1 3.3 69.3 66.6 Holland 1561 56.0 3.8 73.4 76.3 England & Wales 1688 45.0 4.7 78.8 57.1 Holland 1732 61.1 6.8 85.2 71.7 Moghul India 1750 48.9 1.8 43.4 112.8 Old Castille 1752 52.5 2.5 59.7 88.0 Based on: Milanovic, Lindert and Williamson England & Wales 1759 45.9 5.9 82.9 55.4 (2008) – Ancient Inequality. In The Economic Journal. Volume 121, Issue 551, Brazil 1872 43.3 2.4 58.3 74.2 pages 255 272, March 2011. Peru 1876 42.2 2.2 54.0 78.1 Java 1880 39.7 2.2 54.6 72.8 China 1880 24.5 1.8 44.4 55.2 South Africa 2000 57.3 14.7 93.1 61.6 United States 2000 39.9 77.7 98.6 40.5 Sweden 2000 27.3 52.2 98.0 27.9 Germany 2000 30.3 62.0 98.3 30.8 Nigeria 2003 42.1 3.0 66.7 63.1 Congo, D.R., 2004 41.0 1.5 33.3 123.1 Inequality and industrialization Kuznets curve 1955: industrialization & inequality Link between inequality and per capita income : During the early stage of economic development as per capita income rises the income inequality first rises but then, at a certain moment, when the (industrial) economy matures inequality declines (an inverted U-shaped relation). Kuznets emphasized the role of sectorial shifts as an engine of inequality Transfer of labor from agriculture to industry Global trends in intra-national inequality Van Zanden, Jan Luiten et al., The Changing Shape of Global Inequality 1820-2000: Exploring a new dataset. CGEH Working Paper No. 1: http://www.cgeh.nl/working- paper-series/ Poverty Majority lives in poverty 10 % = $ 1,9/day (IPV = international poverty line -> UN, 2015) 60 % = $ 10/day 85 % = $ 30/day PPP is needed -> consumption for subsistence The IPV is extremely low Share of people living in extreme poverty has decreased, especially since 1970 Share of world population living in absolute poverty, 1820-2015 Historical trends? Big trends: Before 1900/1910: Rising intra-national inequality. Most of the people are very poor. International inequality rises as well -> Great Divergence. 1900/1910-1980: (intra) inequality declines (wealth equalization) But not in the same way (geographical variations). Mostly in industrial countries, people are better off. After 1980: Intra-national is rising again International inequality has declined (convergence replaces Great Divergence) ‘Absolute’ poverty has declined systematically 2. How have high-income (industrial) countries become more equal? The problems of industrialization and intra-national inequality 1) Proletarization of workers Female and child labour Class conflicts 2) Le Chapelier (1791): no association of labour, trade unions forbidden 3) Little or no protection on the workfloor No social security (sickness, accidents) 4) Poor living conditions Homeless men seeking shelter in 19th Rapid urbanization: countryside century London (Getty-Images) -> cities https://www.core-econ.org/the-economy/b ook/text/02.html#figure-2-21f 2.1. Trade union power Changing labour union power Representation by the labour union grows by the end of the 19th century Right to strike Japan only after 1945! After 1945: unions are acknowledged as “social The miners’ strike of 1902: the partners” first time the US-government Different interests did not repress union activity but insisted on negotiation Sectoral, national or company interests Position of trade unions Corporatist bargaining model (Europe) Liberal model (US, Japan) Collective bargaining at Restricted role in the national, sectoral, and management of economy firm level Power at the level of the Embeddedness of union in firm social-economic institutions Wages, working conditions Board representation Enforced by the state 2.2 Social insurance: first steps Germany, the pioneer Political calculation of Bismarck: Industrial labor which was organizing itself in a subversive (socialist) movement had to be convinced of the benevolence of the German Emperor by offering protection against risks. Initially only for blue collar (industrial workers), although hardship among agrarian and domestic workers was not less. Accident Insurance Law – 1871 Sickness Insurance Law – 1883 Old Age and Disability Law – 1889 2.3. The ideal of the welfare state (20th century) New perspectives on the role of the government (20th century) Democratization & workers voting rights Laissez-faire vs active government intervention John Maynard Keynes (1883-1946) Employment Cushioning crises (Great Depression) After 1945: Fordism Productivity linked to purchasing power Labourers and employers coordinate productivity Trentes glorieuses (1945-1973) & golden sixties 3. What is driving inequality today (after 1980)? Pressure on welfare state and labour International inequality Real GDP Per Capita (1960) Real GDP per capita (2019) Intra-national inequality Conclusion: global inequality? Decline in intra-national inequality (1900/1910-1980) = unique moment in time? Labour union Social insurance Welfare states After 1980? International inequality as an outcome of the Great Divergence & differences remain high Convergence but not towards it was in 1820 Intra-national inequality? Progressive income rates & social spending in the West stagnates Emerging countries sparsely increased social spending post 1980 Thomas Piketty, capital in the 21st century: Wealth concentrates if revenues from capital (wealth) outpaces that of labour. Progressive (and global) tax revenue system?