The last 20 years, and especially the eight years since the 2008 crisis, have been a time of profound growth and improvement for the middle class, whose incomes and purchasing power have more than doubled.
Does that sound right? It does, if you live in Asia or some parts of Africa and South America, where this has been a time of massive improvement, even taking into account the current crises in China, Brazil and South Africa.
But if you live in North America or Europe, that statement makes no sense; chances are, your income has changed little since 2000. You're increasingly likely to vote for someone who will promise to stop that decline, even if that involves closing borders and throwing up protectionist walls.
Here's the problem we're unwilling to confront: The world is becoming more equal. We no longer live in a world where the well-off live in the West and the very poor live in the East. Inequality, on a global level, is plummeting, and that means the middle classes of Asia are doing better while middle classes in the West are not.
For all the talk of inequality and the rising power of the one per cent (real phenomena in many countries), the larger phenomenon is the increasing equality.
That is the headline discovery of American economist Branko Milanovic, who has made a career studying, and virtually inventing the analysis of, worldwide equality. As a scholar, he has taken advantage of one of the consequences of this increasing equality: Since 1988, all of the world's largest countries have been releasing reasonably detailed and accurate census data. This makes it possible to rank the world's people by income and spending power, and look at trends beyond national borders.
What Mr. Milanovic has found, in his new book Global Inequality: A New Approach For the Age of Globalization, is a pattern.
Until very recently, economists believed that countries always became more unequal as they escaped poverty, and then became more equal as they fully industrialized – what they call the Kuznets curve (named after economist Simon Kuznets). But Mr. Milanovic has found that this is not so much a curve as a wave. Inequality has increased in the Western world since 1980, after dropping from 1900 to 1980, and is starting to rise in places such as China. The world as a whole, however, is still in the phase of declining inequality.
We live in the coincidence of these waves. Since 2000 or so, he found, the gains in income, around the world have been strongest in two groups: the middle classes of poor and emerging countries (that is, people with family incomes between perhaps $7,000 and $20,000 per year), and the infamous global one per cent. The lowest gains, and sometimes losses, are found "among people situated around the 75-90th percentile of the global income distribution" – that is, almost everyone who considers themselves "middle class" or lower middle class in North America and Europe.
Could you reverse these forces by shutting down international trade and reindustrializing your country, as populist leaders propose? Not really. With only domestic markets, it's unlikely the middle class would do any better, and possibly even worse, and you'd be hurting the prospects for the world's genuinely poor.
What are the forces that can reduce inequality? Mr. Milanovic identifies a few surefire ways to make your country more economically equal: A major war, a plague or epidemic disease, a complete state failure – all make everyone more equal, albeit at a low level. And political policies that equalize shares of corporate gains, more-widespread education, aging populations and some forms of technological change can help at a higher level. He endorses expanded education and more redistributive policies, through wage policies rather than taxation (there are too many Panamas to make that work).
To solve global inequality – to end poverty and misery as widespread phenomena in the world – he calls, uncontroversially, for high growth rates in poor countries and, more controversially, for lower obstacles to international migration, which economists are increasingly identifying as a key cause of progress in the poorer "sending" countries.
A more equal world, we're discovering, does not make people happy. But if we tread gingerly, it could still make a lot of people less miserable.
Doug Saunders