Thursday, 26 May 2016

Look Who's Gaining Most From Globalisation & Why Things Are Getting Cheaper

We often hear about how much richer the top 1% are getting, and we also often hear about how many people in the lower quintiles in the UK and USA are feeling the pinch a bit. I thought some here might be interested in the latest article from Branko Milanovic (see bottom of page), which gives some nice data and illustrations about some of the things I'm always banging on about in my blogs. Namely...

1) In-country inequality in rich countries like ours has a lot to do with poorer people in less well off countries seeing increases in their real income.

2) The rich are not getting richer at the poor's expense - they are getting richer along with the poor getting richer. The poor's gains are actually greater than those of the rich, as the poor grew their rates of consumption twice as fast as the world as a whole in the past 35 years.

3) As the real income gains in percentage chart I linked below shows, even those feeling the pinch the most - that's Western lower middle classes - have seen real income gains in the past 25 years, and let's not forget they also continue to be in the top 20% of the world's wealthiest people.

4) It is primarily the globalisation of free trade that has caused these worldwide gains.

And that's not the end of it. Have you noticed how much prices have fallen in so many of the goods and services we buy these days? A whole range of things: food, drink, books, movies, music, clothes, computers, cameras, mobile phones, software, fuel, airfares, solar energy, furniture, and most household electrical goods (televisions, fridges, freezers, microwaves, washing machines, cookers, etc) have all become cheaper in recent times, and it is primarily because of more globalised free trade.

The more trade expands, the more competition there is, which means things get made more efficiently, which means humans get better at making things, which means humans feel the benefits in lower prices.

The network of the free market is rather like other networks that benefit from increased connectivity - phone networks, railway networks, social media networks - the more connections added to the nexus the greater (exponentially) its utility.

Think of Facebook as a good illustration (which is very possibly where you were notified of this Blog post in the first place). When you set up your Facebook profile, you gain local connections (real life friends), and if you're like me, broader connections too (friends from all over the world, gained usually through common interests or group connection).

Now the thing is, you don't just benefit from your connections, you benefit from your connections' connections too, and their connections, and so on - because it is through that mass connectivity that you get to share in all the interesting and edifying things out there.

The intriguing article you read about Camille Paglia, or the mind-blowing video you saw of some crazy guy doing a stunt that most of us wouldn't dream of attempting, or the really special friend you now associate with who lives in a continent you've never visited were all thanks to the connections you've gained, or connections friends or friends of friends have gained and made their way into your life.

Just as on Facebook you don't just benefit from your own connections, but by connections generally - similarly, the market works that way for our benefit too. As more and more people from other countries enter the global marketplace, we find an influx of new skills, new innovations and increased competition, which drives up efficiency and drives down prices.

To read the full article (click here).

For further reading, in April 2015 I wrote an article on Branko Milanovic's findings from last year (click here).