The End of IPE

Class 24 – Thursday, 7 May 2009J A Morrison 1

Adam Smith, Karl Marx, Joseph Schumpeter, JM Keynes

Agenda: End of IPE

I. Globalization’s Winners & LosersII. Evaluating GlobalizationIII. Course Evaluations

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Agenda: End of IPE

I. Globalization’s Winners & LosersII. Evaluating GlobalizationIII. Course Evaluations

3

Before we evaluate globalization normatively, it’s worth

investigating its distributive effects.

As globalization increases, who wins and who loses?

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We’ll look at differences in income distribution across time and across

space.

Then we’ll consider the role globalization plays in influencing

these changes.

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II. Globalization’s Winners & Losers

1. Income Distribution: Cross-Temporal Variation

2. Income Distribution: Cross-Sectional Variation

3. The Role of Globalization

The Recent Increase of American Incomes

Comparative GDP per capita of Selected Countries: 1975-2002

So, GDP per capita is rising virtually everywhere.

But how are these gains distributed?

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The Gini Index

• Index is one way of capturing the distribution of wealth

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0 1

Income is uniformly distributed; no inequality

Income is completely concentrated; total inequality

US Income Inequality, 1967-2007

11Income listed by Household. Source: US Census Bureau

Share of US Aggregate Income

12Income listed by Household. Source: US Census Bureau

The size of the middle class has shrunk upwards of 10%!

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So, the US has become less equal over time.

Where have the increases in income gone?

Surely the poor must have gotten richer—if only more slowly than

the rich have. 14

Percentage increase in Average After-Tax Income: 1979-2000

15Source: Center on Budget and Policy Priorities, 2003

So, globalization is increasing American wealth, but those

increases fall into the hands of a very, very small group.

This causes income inequality to rise in the US.

Is globalization causing this rise?16

Let’s examine the US in a global context.

Keep the following question in mind: is there high correlation

between the level of globalization and the level of income inequality?

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II. Globalization’s Winners & Losers

1. Income Distribution: Cross-Temporal Variation

2. Income Distribution: Cross-Sectional Variation

3. The Role of Globalization

The World’s Most Equal Countries

Country 2005 Gini Coefficient

Gini Rank (out of 136)

2007 Globalization Rank (out of 122)

Sweden 23 1 3

Denmark 24 2 11

Slovenia 24 3 34

Iceland 25 4 35

Austria 26 5 2

Czech Republic 26 6 10

Finland 26 7 9

Luxembourg 26 8 25

Slovakia 26 9 27

19Sources: CIA Factbook; Foreign Policy Magazine

The World’s Least Equal CountriesCountry Gini Coefficient

(Various Years)Gini Rank

(out of 136)2007 Globalization Rank (out of 122)

Zimbabwe 56.8 127 107

South Africa 57.8 128 49

Paraguay 58.4 129 80

Bolivia 59.2 130 86

Haiti 59.2 131 119Central African Republic 61.3 132 121

Sierra Leone 62.9 133 117

Botswana 63 134 93

Lesotho 63.2 135 NA

Namibia 70.7 136 6620Sources: CIA Factbook; Foreign Policy Magazine

What about the United States?

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The US and Some “Neighbors”Country Gini Coefficient

(Various Years)Gini Rank

(out of 136)2007 Globalization Rank (out of 122)

Nigeria 43.7 90 69

Kenya 44.5 91 85

Philippines 44.5 91 55

Cameroon 44.6 92 105

Côte d'Ivoire 44.6 93 119

United States 45 94 19

Uruguay 45.2 95 51

Mexico 46.1 101 61

Rwanda 46.8 102 118

China 46.9 103 3722Sources: CIA Factbook; Foreign Policy Magazine

II. Globalization’s Winners & Losers

1. Income Distribution: Cross-Temporal Variation

2. Income Distribution: Cross-Sectional Variation

3. The Role of Globalization

What patterns emerge?

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Predictors of Income Inequality

• GDP per Capita– Higher GDP per Capita Greater equality

• Continent: Europe vs Africa– Europe: Most equal– Africa: Least equal

• Level of Globalization– More globalization Greater equality

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But there is a conspicuous exception to these rules: the

United States.

The US has high per capita GDP and high globalization but

considerable income inequality.

What gives? What divides the US from Europe? 26

Transfer payments.

The United States has a much, much smaller “welfare state” than

do the Europeans.

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Social Expenditure as % of GDP

28Source: OECD, “Welfare Expenditure Report” (2001)

Rodrik: Soften the Blow

• Most developed states have coupled integration with social safety nets– US is the exception to the rule

• Rodrik: this coupling is vital– Normative: spread the gains around– Positive: globalization will cease without this

mollification

(See Rodrik, “Sense and Nonsense”)29

The story here is clear…

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The last 40 years have seen radical increases in the wealth of the richest

Americans.

This has hollowed out the American middle class. And considerably increased income

inequality.

The US government has been reluctant to intervene and either slow these changes or

counter their effects.31

Now we’ll consider whether this is a good thing or a bad thing.

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Agenda: End of IPE

I. Globalization’s Winners & LosersII. Evaluating GlobalizationIII. Course Evaluations

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II. Evaluating GLOBALIZATION

1. Globalization’s Critics2. In Defense of Globalization

What could be wrong with globalization?

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Rodrik: Globalization not a Substitute for Development

• Liberalization can distract from actual development policy– Education, public health, social cohesion, &c

• Liberalization can hurt development– Africa, Aids Drugs, & TRIPS

• “High Tariffs Don’t Mean Low Growth”• Remember: Developed states didn’t follow

the Washington Consensus

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Stiglitz• More people are impoverished than before; markets

aren’t any more stable• Globalization benefits developed countries the most

– Terms of trade– Vital products (pharmaceuticals)

• Institutions are designed to serve the developed world

• Institutions have tried to reinvent themselves, but they have failed

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II. Evaluating GLOBALIZATION

1. Globalization’s Critics2. In Defense of Globalization

Williamson: Convergence with Inequality

• Examines influence of globalization on income inequality within countries and between North & South

• Globalization causes convergence between N & S

• But it also exacerbates inequality within the N• This produces potent political backlash• Does globalization sow the seeds of its own

destruction?39

Freeman: It’s not So Bad

• Investigates apparent immiseration of low-skilled labor in North– US: lower wages– Europe: higher unemployment

• Results– Demand for unskilled labor is down all around– Technology and other factors matter more than

trade

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Krugman, et al: Bad Jobs are Jobs

• Rural poverty vs “jobs” in export industry• “biggest beneficiaries are…Third World

workers”• “A policy of good jobs in principle, but no jobs

in practice, might assuage our consciences, but it is no favor to its alleged beneficiaries.”

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Another Perspective• Postwar order was designed to prevent WWIII

– Lesson from Versailles: create integrated order acceptable to major powers

This order has been remarkable successful!

• Unclear, new-fangled model for North/South– Development was much lower priority than reconstruction– Self-determination: political independence guilt free

economic domination

We need to rethink our model of int’l organization. (PS 0456!!!)

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Agenda: End of IPE

I. Globalization’s Winners & LosersII. Evaluating GlobalizationIII. Course Evaluations

43