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).
