good afternoon my name is francesco manacoda we are extremely pleased to have with us mr branco milanovic for the first time at the festival of economics he will present to us his studies on inequality they are very specialized studies but we have a crowded room here today so everybody is very well aware of the importance of this topic and by the way i must tell you that tomorrow at three o'clock we will have a debate about the situation in europe and what to do in europe with a number of economists and also with mister george shorrosh it is a an event that has been added to the agenda of the festival it is going to be out of the teatro sociali i'm sure that you will be numerously present tomorrow as well but let's go back to mr milanovic who teaches in the united states he has been for 20 years studying these topics and he did so before at the world bank we will also ask him why he decided to leave the world bank and devote himself entirely to the studying of this uh issues in order to introduce him to you i would like to quote a post of from his blog which is absolutely in line with the current events in italy and europe it was on the 31st of may and he expresses the joy of being in europe as a coming from america he says america europe sorry is fantastic you see castles and you see everywhere wi-fi covered areas and beautiful forests it is the best place ever to be in the world people should simply be living happily in in europe but it is not so european voters european citizens are unhappy out of several reasons they dislike the way politics is they are have concerns for the future of their children they fear unemployment jobs are at risk security is also perceived as being problematic and being it so he talks about two a sort of uh evils being the problematic situation with uh migration flows when they are so strong and he places that within the framework of an income inequality scenario the average european income today is approximately 40 000 national dollars which is a standard currency which is used to compare and contrast which is 10 times higher than in africa which means that there is an incentive to migrate from africa to europe but that is something you cannot stop how can you tell people they shouldn't try and get to a place when they where they can earn 10 times more and he also makes an example telling about dutch people earning a 50 000 euro a a yeah and you tell them if you migrate to new zealand you will get 500 000 euro a year well most likely they would uh make the effort to say and make a journey to new zealand and that is the first thing and the second problem so to say is that wealth is not homogeneously uh distributed the difference in income and wealth and in the two things coming together which uh seem to be the trap of the modern society we have in europe this causes discontent obviously mr milanovic has a contribution has a presentation and we will also accommodate questions at the end i will ask him how his theories adapt to a new situation in italy now not so much in relation to the institutional scenario but to the political one in particular i would like to understand from him how come that at a certain point the left-wing parties discontinued their efforts and fighting to decrease uh inequality in income and wealth and apparently it has been other movements that followed suit in that uh in that endeavor now the floor to you well i would like to thank everybody for coming here because i know it's first saturday and in june so it must be there are too many temptations to go out and to spend instead of that to spend time in the evening this is my first time as francesca said it's my first time to be in trento i mean in trento for the festival i've been here for the summer school it's it's a great place i wish i could stay longer but at least i would be here today and part of tomorrow now uh i would speak for about i agreed for francesco for about 40 minutes he is going to let me know when i'm at 35 minutes because i would really like to have you to give you a chance to ask questions and i'm sure i would cover some other things in the q a so i would actually now stand up i think because it's easier for me i sometimes i think actually that i can i need to stand in order and to walk in order to start thinking so if i sit down my brain kind of doesn't function so as you see actually i'm going to talk actually today really entirely until the very end and i'm not sure we would even get to the very end but i would really talk about uh global from the global perspective so at the very end there are of course things which are in the my book in global inequality and in my forthcoming book which is called capitalism alone which deal really with rich countries but as i said today i really want to put it in entirely into the global framework and to speak of the rich countries as part of the of that sort of worldwide approach so let me go over the structure of the talk i'm not sure i would finish with all these things but maybe we'll do some of them in the q a first of all i would like to point out to two uh uh key features of today's current of today's period of the current period rather uh which are obvious but you know by being obvious they are sometimes forgotten the first one is that actually i think that for the first time in history we have a single socio-economic model or mode of production as it's called in marxian terminology we have essentially capitalism all over the world and i think it's something very unique because if you go back to the time of before the industrial revolution the industrial revolution and you had globalization of the similar kind that you have now you actually had other modes of production clearly feudalism was very much present and i'm not using the term just simply to say that somebody was underdeveloped i'm using it in a specific sense that you had obviously first slavery in the in the united states until 1863 or 1865 and then you had served them in russia and you had very similar relations where peasants were tied to land in india or even in parts of today's china so then of course after world war one capitalism had a big competitor which of course we all know was socialism and it's really only now that it's alone now i know that some of you would ask a question about china i'm not going to talk about that i will take it as a given that china is a capitalist country and i can discuss that afterwards but that's something that i'm discussing in the book simply by looking at the size of the private sector versus public sector and i think that's very clear now the second part which is also uh like a big change is the uh re-emergence of asia so what it does it actually brings the distribution as you can read here the distribution of economic activity in the eur asian continent to something which looks which looks more or less the way that it looked in the 15th or 16th century so in other words where it brings it back to the relatively high position that asia had compared to europe uh before the industrial revolution so this is really i think these are two biggest developments of the current period once again capitalism is the sole mode of production and the resurgent asia to use angus medicine's terminology then this is of course linked with the emergence of the global i call it sometimes middle class although i'm not very happy about that but let's call it global median or middle class which is also a new development you will see that in numbers that for the first time also probably in history we have or at least since the industrial revolution we have a significant share of the population that is now around the global median income now i'm reluctant to call it the global middle class because in rich countries when we save the middle class you expect a certain level of you know living certain level of standard of living certain level of education and so on which that global middle class doesn't have because there are people who are significantly poorer than the western middle class but they are still in the middle of the income distribution globally now this is interesting also and i will not talk much about that but i would just sort of give it as an idea for thought is because the role of that global middle class is quite unclear politically when we speak of the political influence of the middle class we speak of of course individual countries and we have different theories that tells us actually going back to aristotle tells us that the middle class is good for democratic development stability of the country and so on but what was interesting in the current period is that we have the emergence of this global middle class which does not have a structure of governance to go with it because there is no governor structure there is no world as a single you know government or a country which is actually accompanied by the erosion or the disappearance not disappearance but at least hollowing out of the middle classes in the rich world so we have two uh sort of contradictory developments we have global class at the global level emerging and we have middle classes in the rich world becoming smaller and the politically uh political influence or political meaning of the first of the global middle class is unclear the political meaning of the hauling out of the middle classes in the rich world seems to be clear and of course that of course leads us to the issues of different elections that we have seen in the last several years uh then i would as i said this is very ambitious agenda so i probably will not go over all of that but let me just tell you what is there it is uh also i would i would if i ever get to that i would mention political or philosophical issues which are brought up by looking at global as opposed to natural inequalities and these are the political issues some of them i mentioned now but there are others what i call in my book citizenship rent which is essentially the fact or citizenship premium is that the same individual who is born in a rich country and and in a poor country would have very different income depending on the place of birth now this is something that was a little bit studied by political philosophers but really by very few people because they did it in a very abstract fashion but of course this is the reason why there is migration systemic what i call systemic migration economic migration but it also raises some philosophical issues it raises the issue about global inequality of opportunity in other words if i were to tell you that somebody and of course italy is a very good example that somebody who was born for example in the north compared to somebody in the south has really the right to have an income which is twice or three times higher uh although it is of course the case that in italy there is large regional difference it is not something that is taken as sort of a given unchangeable or desirable but we never think about this issue globally so in other words we take is as given that of course global inequality of opportunity exists so again we have a dichotomy we have we fight for equality of opportunity opportunity within nation state but we entirely ignore inequality opportunity globally including for example roles who in his the law of the peoples uh basically uh sort of took a very negative dim view about migration and about the existence uh permanent existence of large income differences between different individuals so this was actually sorry that actually i already mentioned that global inequality of opportunity and then i would say maybe something about what you might say what is the global income distribution optimal optimal global income distribution uh basically the the essential idea there is that you have um sort of two trade off or two forces to play one against another either you can actually concentrate your attention to to driving inequalities within nation states down while leaving for example inequalities between nation states as they are or you can do the opposite you can actually focus more on reducing differences between the countries and let's suppose leaving inequalities within countries unchanged now the thing is that with as you will see in the moment with the current structure of inequality in the world it turns out that the efforts spent on reducing inequalities between the countries are more efficient in the sense that they would reduce global inequality more but as you will see also in a minute uh we are now in a process where these differences between countries thanks to china and india are being reduced but at the same time inequalities within nation states are going up so yet again you have you don't have a sort of a very optimistic or very pessimistic picture you have really to sort of balance one force against another one um and then actually i i like this ending uh i actually of course play on mandeville's that you know private uh vices produce public virtue and then basically the question here is can national vices meaning nationally increasing inequalities within nation states produce global virtue meaning reduced inequality globally and the emergence of a global middle class in other words is inequality higher inequality in the united states or or italy is this the price to be paid for reducing inequality worldwide or if you want to put it differently and in a very brutal way is the shrinking of the american middle class the price to be paid for the rise of the global middle class or the chinese global plus in in particular so let me then go in some numbers this is how global inequality looks over the last two centuries this is actually the new numbers that i calculated based from the 1820 these are numbers that come from uh uh francois bolguin and christian morisson but i took their numbers you know their income distributions but introduced new 2011 medicines gdp per capita numbers so they look more or less like the original numbers that uh francois bourguignon and mauricion had but there are some you know slight differences so it's it's an update uh and of course the most recent period here maybe most recent period here after 1980s is based on the numbers that i have with christoph luckner so the the the very ending is based on our numbers now what does it tell you first of all it tells you that at the beginning let's suppose we start with essentially 1820 so we start at some point of the industrial revolution depending whether you want to date it from before the napoleonic wars or afterwards and you see that on the vertical axis you see that the genic coefficient here was about 55 which was you know a fairly high level of inequality in the world which existed even then but then after that you see really practically uninterrupted increase of inequality uh until world war one and there is of course some slow down there because rich countries essentially did not do very well and then there was a great depression but what does this increase show you it shows you the the effects of industrial revolution and the fact that the the the west and the northwest basically europe uh north america oceania and later japan became much richer than the rest of the world in particular india and china so in in order to simplify these things one really can basically think of the three actors it is really the west india and china because in terms of population they still today actually largely determine what happens to the global inequality so as you know india and china had either stagnant incomes then or actually in the case of china according to medicine even a decline and the west of course there was the rise of the west and and much higher income when this is basically the countries were launched on some sustainable growth path so inequality went up i will come in a moment to the contribution of the between and within nation inequality to that increase but you notice that that increase is then continuing a pace until practically the last quarter or even last decade of the 20th century if there is a plateau but there is no decline so why is this current period so special is because we have the rise of asia now how is the rise of asia reflected in these numbers is reflected by reducing global inequality so it's almost like a mirror image and of course we can project into the future what would happen but it's essentially a mirror image of what the rise of the west did in the first period which was actually increasing inequality to some extent the industrializing india as well and then here you have a mirror image which is the rise of asia which now reduces inequality because asia is catching up with the west and in the process is also sort of the industrializing uh the west obviously i don't talk here about the industrialization and things like that i just look at the numbers but as you can see the numbers show you some kind of a as i said mirror image picture there now what is behind it is increasing the quality i already mentioned that so i would maybe speed up a little bit is that you have two components one component as i called it before was within national inequality which i call here just for simplicity class so these are really inequalities in all the countries that we have the data for and you can essentially think of them as inequality between landlords and peasants capitalists and workers basically within each nation state obviously these numbers are different because these are income distributions but just to sort of make it more intelligible or simpler just think of inequality between different classes and then this is the gray portion and then the red portion is what i call location and what i previously called the between country inequality so it's really the differences between mean country incomes now if you look at 1850 which is the first year here you see that the two components are relatively close to each other you know location is a little bit stronger than class but if you're for example karl marx writing as you know the first volume of capital was published in 1867 and of course you didn't know these numbers but you know it's not unreasonable to say well in the current situation and with the prospective immigration or lack of growth of the poorer classes the class component would generally rise maybe the location component would go down as you know actually early marxists were very actually in many cases very pro-imperialistic you know angels was in favor of french occupation of algeria marx was generally in favor of english colonialism in india so they saw that they look in my language here they saw the location component is possibly shrinking the class component of rising and if you sort of look at that and you say well there is a ground there for establishing an international solidarity between the proletariat because the bottom classes would be approximately the same level in rich countries and poor countries then by the here the next year is 2011 but i could have taken any year in the last 60 or 70 years the picture would have been the same it's very different picture it's really the location which is really the dominant component now and the peak of that location was probably around 1980s and that's why i put franz fanon although he was writing in the 60s but that you see the the political idea behind the world which is divided into a handful of rich countries and the third world of poor countries is the world where location is a predominant factor in explaining global inequality so as you know actually if uh fanun said it explicitly mount zitung also said it explicitly the west is global bourgeoisie and the third world is the global plateau and that's exactly what you had in the second part of the 20th century uh so that's why i said i put fannin as as a sort of a counterpart to marx but then you say okay what does the rise of asia mean for this particular graph well the rise of asia because they are all very large countries not only i mentioned china and india but we should not forget indonesia which is the fourth largest country in the world then vietnam thailand burma they are all very large countries and as they are growing and growing faster than the rich world that's the key point they are actually shrinking this locational component but at the same time they're becoming more unequal as inequality in china went up and of course inequality in the rich world went up so the the gray component now in or in the future we can project the gray component to be again increasing and the red component will be shrinking so the question then can be asked and it's obviously a very speculative question i don't have an answer and there may be some other factors which would not actually lead to the location component shrinking as much as it does in this graph because of unknown developments or difficult to project developments in africa but it could be that the world at the end of the 21st century looks in terms of the global inequality very much like the way that it looked in the beginning of the 19th century so that would make then obviously the class component more important relatively more important than it is today so in other words if incomes in china as you do very small back of the envelope projection you would actually find that china would reach the level of the median income of the european union in about a generation 24 years if i remember correctly so at that time china would be de facto another european country in terms of income level and then the location component obviously would become smaller but differences between different groups and classes within nations would be much larger and there are many implications of that i just wanted to throw one because to mention one because it is really something that very few people have thought in in the rich world is that currently and in the last more than 100 years or even probably more everybody who lived in a rich country like italy was really at the almost everybody was at the in the top 25 or 30 of the global distribution so basically when we talk about uh you know distributional struggles within italy we are talking or france or the u.s or so on we are talking about the distribution of struggle among globally rich people so we are talking about the struggles that involve the global quarter or 20 or 30 percent of the population what will happen with the rise of asia is that asian countries of course would actually gradually move into that territory of incomes so what will happen in the rich countries like italy is that you would have populations that will be globally speaking ranked maybe from the median of the global income distribution to the global top 1 so even if italian income distribution doesn't change the position of people who are now at the 72nd percentile i suppose of the global income distribution is going to go down so in terms of people the people's positions in globally italy would start resembling like suppose argentina or colombia so even if nothing happens to income inequality so even if income inequality within italy doesn't change which i think is an interesting sort of thought to entertain that you see interdependencies so even if nothing happens here because others are growing they are actually displacing people from their positions that they have now so another way to say that i would be very brief on this one is that actually i did a simple small calculation using madison's new numbers that shows you china india and indonesia with china and india as as reflected i mean as their gdp per capita compared to the british gdp per capita and indonesia compared to the dutch and of course i don't need to go over the numbers you see very clearly there uh the period of a large first decline of those countries the result of the growth of the west and then you see the rebound of the countries now so for example now china is at the same level compared to the uk that it was as you can see here in 1820 so that's the sort of recapturing of the chinese position and of course if we project it in the future we can expect the blue line to uh go up and um maybe as i was saying before maybe get to the you know 50 or 60 percent of the uk and possibly in not too distant future be 100 of the uk the same thing is can be seen it's kind of a little bit complicated graph but it can be seen if you compare distributions of uh china and the united states even over a period of 10 years obviously chinese distribution these are distributions where actually which are normalized to one for each country and then you just put them together and obviously in the very be in 2002 relatively few chinese are intersecting with the u.s income distribution as you can see by 2013 these are the latest numbers that i have from china there is much more intersection so what you should then project you should project these two distributions at some point really to look very much the same so you would actually have the two distributions kind of overlapping each other and just to sort of remind you this is really over a very very short period of time but you know over that short period of time china had continued actually with a high growth rate of you know six or seven percent per annum whereas of course the united states did not grow almost at all or grew i think on average by about one percent uh so what is then the the conclusion for the global inequality that in the long run is really determined by the spread of the technological revolution but i was saying before the west in the 19th century asia today but in the medium term it is determined by three if you want to think about that by three sort of factors one is what happens to inequalities within nation states the second is they're generally catching up of poor countries the in that case you would just look at whether poor countries without population waiting whether catching up or not and in the third case really this is the most important one are the poor populous countries really catching up or not and that's really something that one has really to focus if you really want to in a very shorthand see what happens to the global inequality so let's now go over the past 25 years the first story here is one that i already mentioned before but now i wanted to show you the graph this is the global income distribution 1988 and then 2011 what you notice there is actually sort of thickening i don't know if it seems like i cannot well anyway you definitely see the thickening of the income distribution here in the middle so that's something as i said before absolutely new you know danny kwa uh used to actually write about the the twin peaks of the world there was one peak lots of population relatively poor like india and china indonesia and then there was a smaller peak towards very high incomes where actually western countries were but now as you can see the the distribution looks much more much smoother than it used to be in 1988 and you see that the emergence what i call the global median class now i put the numbers there these are really not people who would be considered by any stretch of the imagination as the middle class in the west because even the top which is 16 per day is really something which would be like a minimal income in the in the rich countries so that's why what i said before i'm reluctant to use the term of the global middle class although you know just for simplicity i sometimes use it and it's you know global medium class is a little bit cumbersome to be used so i have to show very briefly because many people have seen that because based on the same data you can calculate what happened to the incomes at different parts of the income distribution and that became known as of course as many of you know the as the elephant chart it comes into different version variants i can at least show you 10 of them or maybe 12 uh depending on how you actually define people at a different percentile whether you use exchange rate to convert incomes or bpp in this case it is all done with international dollars so what does this chart tells you it's nothing new that i have not already mentioned it tells you that essentially people who were around the middle of the income distribution had a very good period where their incomes went up on average by over that period by 80 percent but behind these average numbers are per our details in china which have gone up by you know six times or five times and then that there was an another place in that distribution which actually attracted so much attention and that's why the chart became so quoted is that actually you don't have much growth around the 80s percentile of the global income distribution so then you say well who are the people at that 80th percentile and without going into many technical sort of arguments that sort of emerged after that i can tell you that about 70 percent of people there are people from the old rich oecd countries and three countries in particular stand apart because of their size the united states japan and germany and sometimes people are surprised that german did not have increase in incomes in the bottom half of the income distribution but that's the case germany actually had a fairly bad period when you take look at real wages and when you look what happened to the you know bottom 50 of the income distribution uh japan we know that and of course united states we know it as well and then of course at the very top you see that actually the very top of the income distribution the global top 1 percent had a very good period now that global top 1 percent is a little bit of a problem because with fiscal data that pkt has been using and this is based on household surveys we know that the incomes of the top 1 percent are really underestimated and they're underestimated in all the countries practically so it is true that when we make some adjustments for that underestimation the growth at the top one percent becomes even stronger and also we cannot really claim such a strong decline in global inequality as i've shown you in the very first graph but we cannot whatever adjustment we do we really cannot reverse that decline so the decline might become smaller but it's not going to go away despite the fact that the global top 1 percent is growing so the another irony or maybe sort of interesting thing of the global income distribution is that you see the rise of what you can call it global plutocracy people at the global top 1 percent who have been doing very well and whose incomes probably even rose well certainly rose much more than what i have shown you here and we see the rise of the global middle class but we really see a lack of growth among the global upper middle class which actually basically means lower parts of the income distribution of the of the rich countries so if you want them to put that in political terms you can see people there about the 80th percentile to be essentially squeezed between the competition from people with lower incomes coming with doing probably same jobs or willing to do the same jobs for much lower wage and what they called the indifference of their own top one percent so essentially you can say they are squeezed between workers in china and their global plutocrats at home and which also for some who have studied as i did marxism in the 70s really sort of leads to another paradoxical thing is that in the 70s when you did you know development economics uh there was sort of the term of so-called disarticulation so this articulation meant that development was driven by the from the core countries would develop only entreport type of economies in africa or asia so you would have people as opposed in the coastal areas who would do very well but the hinterland would be just left out and actually there will be no linkages to the development of the hinterland ironically we have something similar this articulation in the west i think it's very clear in the case of the united states where you had probably 10 or 20 percent of the people who have done very well who actually there are several books as you know about top 1 percent about top 10 percent about there is a book called the dream hoarders about the top 20 which are which is the the elite but the hinterland was left out and the hinterland and that's where this this articulation comes from and the hinterland as it were is are people who are at the let's suppose 80th percentile of the global income distribution so we really have sort of a processes that we believed 40 or 50 years ago to be very characteristic for the developing world we now see them as being characteristic of the rich world whereas the developing world shows some different processes actually quite different from what it was in the 1970s this is the update of the chart for 2011. the story is the same except that the top 1 percent is less dramatic now because of the effects of the financial crisis actually the the first effects between 2007-2010 were actually very strongly felt at the global top one percent because these are the people who lost because of the decline in dividends profits and so on so then uh let me just for the global talk one interesting slide which is a little bit complicated but let me show you in a minute what it means because what is complicated here is that if you look at the this is the the the average growth rate at every five-year interval uh for the world global and from the household survey mean global income but the interesting part is what happens to the uh mean and the median the me global median is the red line so this is the growth of income at the 50th percentile of the global income distribution so forget everything else just look at this last period 2008 to 2011. you have global mean growing at very relatively low rate which is i think about one percent and a half but the global median is growing at five and a half percent why is it happening because the growth in asia continuing a pace and these are the people who are at the global median so they continued growing and actually as you can see they grew actually faster than before so we are very much impressed with the global finance so-called global financial crisis but when you look at the numbers you it should have been really called north atlantic financial crisis because it spread a little bit to the rest of the world by slowing down the growth rate but it really did not markedly slow down asian growth rates and that's very obvious when you look to what happened to the development of the median and the mean it has actually many other implications so i just mentioned one of them just occurred to me now because it's not in the slides but the very strong rise of the median income in the world again driven by china india etc has the following implication for africa so you will see the interdependence is very well there when china is becoming richer and pushing the median up if you define the poverty line of the world as a percentage of the median as it's normally done for example in the european union where you take 50 percent of the million or 60 percent of the media what is happening is that you have an increase in poverty because many countries in africa are obviously not growing at the rate rate of growth of china which dictates the growth rate of the global media so you have the situation that despite the world getting richer and despite the fact or actually because of the fact that the median is becoming richer you have more people falling behind that median and relative poverty going up so that's where africa i just occurred to me to mention that now but that's where africa comes into the play i have mentioned africa very little until now but now when we look at the future because of the absence of catching up or convergence of africa and high increasing population africa would start playing bigger and bigger role it has two obvious implications one it might actually reverse the decline in global inequality and poverty defined the way that i just did it and secondly it has an obvious implication for migration that you know was mentioned before is that basically african population which is 10 i mean one has one tenth of the west european income now has about 1 billion people versus european union of 500 million but in 2050 or i think 2006 they have forgot exactly it would be more than 2 billion versus half a billion so the ratio in terms of population would move to 2 to one to four to one so in that sense africa will it will be the only continent with really significant increase in population so uh finally uh well this is maybe an extra slice i seldom mention it uh but this is the same elephant graph but there is a small technical detail there that you keep people at the positions where they were in the global income distribution in 1988 and i think about this nice illustration here is only look at this two dots here between thailand and the us so these are the people who in 1988 relatively rich people in thailand were at the same position here at the almost 9 85th percentile of the income distribution but what happened these people in the u.s which are here are real low d south they are the second or third itself so they're relatively poor people in thailand this is really very high they saw so what happened in the next 25 years in the following 25 years is that they sell in thailand grew at the rate as you can see doubling their income the same the same people i mean the people who were the same position in the u.s actually did not grow uh well 20 they grew so what is actually interesting this is what you invariably do get in graphs like this is that that people who were at the original state in 1988 at the same income level between the us and asia grew at a very different rates of growth so i will now have to wrap up and i would do it by sort of showing you that there was no elephant in the previous period so i took a bourguignon and morrison data this is actually the only data that we have there of course much inferior to the numbers that we have nowadays but if you do exactly the same calculation that you do to get the elephant today you actually don't find the sort of the particular shape that we have seen now as you can see actually the the the growth rate was approximately the same you know it's actually what is interesting is that the growth rate of the world was actually slightly higher now in this second period but you see there this is actually intentionally drawn on the same scale so you see here the growth rate over that period was about 50 percent but it was across board 50 nowadays of course you had this very characteristic bulge here and lack of growth there so you know again what we see today is something which is new we have not seen that before and of course there are of course i think good reasons to believe that globalization was the major factor behind it um so i mean i would actually have now to to wrap up because of lack of time and actually i've already mentioned a few other things but i just want to maybe show you the last slide which is uh one actually it's my wife's favorite slide so i have always to show it uh because it really illustrates i think somewhat dramatically the differences in incomes between the countries so what it does it shows you on the horizontal axis your position let's suppose i ask you what is your income you tell me what is your income and i say okay i know your income i'm going to place you in the in the italian in this particular case i would use the us income distribution and then on the vertical axis i take the same income converted into international dollars comparable dollars and i place you in the global income distribution so what you notice here and this is done for all percentiles of the countries you see that actually even the very poorest americans are as i was saying before at you know 60th percentile of the global income distribution i think i said 70s because depending whether you use very narrow definitional percentiles or use broader and then of course every next percentile in the us is richer and then goes up in domestic national distribution and in global and just for information the top 12 percent of the americans are actually in the global top 1 percent in european countries like italy rich countries it's about five to eight percent of people who are in the global top one percent which if you want to be again sort of to sort of look at things from a different angle when there was that top one percent demonstration and all of that you can actually ask like who is then this top one percent i have at my university there was a guy in the sociology department who actually has a big poster saying we are 99 and wherever i pass by that post i think well you might not be 99 percent you may be actually globally one percent you know there are obviously relatively well off people but nationally he's probably i suppose at the 89th percent of the american income distribution but globally he can easily be at 99 percent of the global distribution so you know there is even it's unclear really who is where anymore and this is for india with new data which are income data this is something which is new because india used to have only uh consumption data which actually showed of course lower levels but with income data is higher levels and of course now you can see india and top income distribution actually reaching almost global top 1 and if i were to break india into smaller units because each 1 of india is 13 million 12 to 30 million people but if i were to break it into three millions then of course some of them would be in the global top one percent uh this is china which is also with the new data which is the best that we have which are there micro data uh you know i cannot i can actually speak about chinese data forever but um they're somewhat you know problematic but given what we have as you can see actually already the global the top one percent of china is in a global top 1 percent this is a lot this is actually 13 million people who are there uh but you notice also really significant poverty at the bottom in china because they're actually at the global bottom like global bottom one percent or two percent or so on uh this is russia which actually has significantly higher incomes at the bottom compared to china and india and more of a middle class although again you you have to take that into you have to take into account the russia's population is 150 million one tenth practically of a little bit more than one tenth of chinese so the the units could be you know partitioned differently and finally this is a one of my favorite countries and of course then you ask like what country can it be that has actually people who are really at the bottom of the world but it has people who are the middle class as you can see the median person in that country is at about 60th percentile globally then it has people at the global top 1 percent well that the country that country has to mimic the world income distribution right so it has to have to look a little bit like the world to be very unequal to have really bottom dirt poor people and very rich people and significant middle class and that country is brazil uh if i took south africa it would be practically the same and the last graph which is the extension of that i just want to show you the shocking sort of finding the fact that european countries particularly rich countries that have very strong wealth for state uh are not only just much richer than african countries they are much richer across the entire income distribution so that in actually in some cases you don't have even a statistically speaking overlap so it doesn't mean that everybody in the netherlands is richer than everybody in mali but it means that there is no statistically significant number of people in mali who are sufficiently rich to be richer than even the poorest percentile in the netherlands which also can be used as an argument that whatever you think about aid international aid you really cannot argue in my opinion that aid can be regressive in other words that aid comes from the pockets of the poorer tax holders in the west and is being taken or given to the people who are richer than them in the poor countries in order to believe that you really have to assume really rather extraordinary assumption that the entire aid for example is pocketed by the like three richest guys in mali but that i think is rather unlikely so uh so we have a thing covered lots of ground and i've probably gone over my time i might certainly gone over my time uh but i would like to stop here thank you for your attention and of course give you an opportunity to people to ask questions thank you thank you very much professor milanovich for this very dense presentation but before i open it open it to the floor i'd like to ask myself two questions to you based on what you said if we don't stop globalization this phenomenon of a shrinking middle class in the west will never be stopped we can see examples of that right now and at one extreme we have donald trump's policy based on protection to protect us workers and on the other some kind of ill fated attempts in france of introducing tax for the super rich this is not easily taxed because assets and capitals are much more mobile than other production factors so in order to stop inequalities within western countries should we stop globalization to core and in doing so is inequality going to go up between western countries and other countries what's the outcome of this game i will be very brief because it's a huge topic and i did not as i said in the beginning i didn't want to talk about individual countries uh i believe that the problem i think is the following you have your incomes more and more dependent on what happens globally as we have seen here with really interdependencies of the continents and the in the world uh on the other hand political decision-making or political transfers and everything else is at the level of nation-state so it is quite understandable that people who who are actually upset for example by chinese imports have complained as it were to make to the national government of the united states they're strictly speaking two different options one as you mentioned is are we going to sort of reverse to stop globalization and the other option is should the governments take a much more active role in helping those people who have actually been effective at globalization i think that is to the large extent very clear that uh the latter option is much better i will not go into all the details why it is much better but i also think that it's difficult uh one reason that you mentioned is that actually taxation on top uh incomes and taxation of capital is much more difficult now than it used to be in the 1960s and the 70s where there were capital controls and uh with globalization were obviously where you can move money much more easily you can hire workers you can uh outsource uh so it is more difficult but in my book i argue and i will not explain that because it will take another 15 minutes and we don't have it i would i actually argued that rather than being focused as in the past on the redistribution of current income the new policies should have an objective or what they call egalitarian capitalism in the sense of trying to equalize endowments in terms of skills education and financial capital which is extremely unequally distributed so that should be an objective but as i said this is maybe a topic for maybe next year when you mine let me summarize uh some options such as inheritance tax a much higher than there is at the moment in some countries and then having education from elementary school to secondary school which is more homogeneous and equal for all this is of course much more the case in europe than in the united states sitting from now wrong there was a third aspect which was the lack of incentive to creating big wealth and incentive for companies to have employee shareholding in order to have better distribution of wealth ways and you also mentioned when you introduced me about your the blog it really focused on the issue uh of very high inequality in wealth now that very high inequality in wealth in rich countries which you know with the gene coefficient of 90 for example in in the us and it's not very different in italy and elsewhere the 10 of the richest people own 92 percent of the financial wealth so what happens with the rising share of capital income is that essentially it you have a quasi-automatic translation of that rising share of capital income into rising inequality between individuals because people who get most of income from capital are rich people and they're very concentrated so when pikatis argued for the global wealth tax many people who have not read his book they thought well this guy just says okay let me tax something so i'll take wealth but the logic is is there in the book is the logic is i'm going to tax the factor of production that actually is really contributing the most to inequality and if it's unchecked it would really be translated into a rising inequality as i said and then of course as you mentioned there are other ways also to do that there is you know inheritance tax there is a proposal that tony atkinson had there is also what i also mentioned uh a way to give tax incentive to small investors to discontinue with the power of lobbyists that were actually given lots of tax incentives to the rich investors so there are many other possibilities let me just one anecdote because i think all these people like find this funny and actually i found it somewhat funny when i heard it from my account and in washington i started paying my u.s taxes because i became a green card holder and during every election you hear first what there are four years ago romney paid 12 average tax rate uh trump paid zero so i asked the guy uh i said well it was in washington i said well is it like how does it happen i said he said well that's very common he says all my rich clients pay about on average five to six percent tax rate and this is absolutely mind-boggling and how it is all legal because they of course convert their incomes into different either capital incomes or become actually company incomes or they have so-called upstream deductions so the top pays really tax rates which are similar i would say uh to the tax rates at the bottom pace a final question you say you don't want to talk about individual countries but can you please explain a phenomenon which seems to be quite global this western middle class crashed between the new middle classes and the global plutocracy vo votes and they vote either for populists or anti-establishment parties so how can we change this and if we want to change it what can we do what kind of economic recipes can we give what kind of income distribution i think it's difficult for everybody if people had the answer they they would have found it already but i just would go back to what i said before i think it's actually it is the responsibility of national governments to enact policies that would actually help people who have been affected by globalization technological change and i also think that we should not because of what's happening in the us and trump we should not really sort of change our narrative i want to be very clear on that i was always of the opinion that globalization is one of the major factors which led to the results that we have seen uh i cannot prove it but of course i've abused work by of david daughter and others who have actually really empirically shown that the effects on u.s wages and and prospects of employment due to chinese imports but now if you oftentimes say that it is considered politically not acceptable because it seems to justify some of trump's measures which i think are somewhat and to put it in nicely but we should not be actually changing our narrative or our results simply because politically it's expedient or not experience uh any questions from the floor we have a microphone and in italy can i ask the question in italian yes my question is the following that part of the curve that you talked about the elephant curve where income doesn't go up so they're practically stuck to zero that's a mean is that right so my question to you is that you probably saw curves for different countries without getting into the specificities of an individual countries my question is in that area are there growing countries but there may be countries that have declining income if i understood correctly is that really what happens to the part of the curve where actually there is no increase in incomes oh there was a decrease in that part uh i have to think actually the the mass for example east european countries which are also the i mentioned 70 percent of people there are from the old oecd other 30 percent are from the transition countries uh from the old icd i cannot remember if there was like some parts of the curve where there was actually negative growth uh there could be but i'm not not sure it could be all uh small positive growth but i remember for japan that the growth was quasi zero as i mentioned for uh germany it was a single digit it was like nine percent or something u.s was 12 but i don't really remember that it was negative and let me just say why the question is i should first check the numbers and tell you that but also the question is very good because it actually shows that you don't have in the rich world you don't have necessarily groups of people who have become worse off in absolute terms or in real terms but you have people who have not grown so that their position has deteriorated compared to other people in their own countries and to other people in the rest of the world can you hear me hello professor milanovich can you hear me hello this is channel 2. can you hear me can you hear thank me very much because you talked about economics at a global level this is not often the case so getting out of a territorial approach at the same time let me ask you the following you mentioned marxism and capitalism as fundamental in your dissertation i keep reading about capitalism and marxism we do much more talking about that in more advanced western countries that have already experienced the the shocks so the the counter shock of capitalism uh compared to other countries that have not experienced it yet in your opinion is there anything we can do is there any step we can take is there any way to sort of translate this line of thinking which is not necessarily due to an ill-fated marxism or a capitalism even in china it's always been capitalist a capitalist country the same as for russia in certain periods of time so in your opinion what steps can be taken in order to transfer this line of thinking from the countries that have already experienced this situation to countries that are still developing i'm not sure i've understood your question you want to know how the countries that have already experienced capitalists can export their thinking to developing countries i'm sorry but there's no microphone but i'm not quite sure if i i i'm not quite sure why do you use the i mean why do you think of exporting capitalism if they already are capitalists he's talking about the idea of exporting the marxist thought and the fact that capitalism has problems towards this world these countries that think that capitalism has a very long way to go well i i'm not quite sure but what i want to maybe indirectly to answer the fact is actually if you look at the in sort of surveys that leaving us capitalism aside for a moment looking at globalization uh globalization is most strongly supported not surprisingly in the countries that they're doing very well for example vietnam is the top in terms of support for globalization and france is at the bottom so that was the result about six months ago i saw that um i actually think that the first of all that you know as i said before they really they are all capitalist countries they are just at a different stage of development and they are some of them are doing very well in profiting a lot from a global supply chain globalization outsourcing exports and so on and others are to some extent on the receiving end and the receiving again meaning that they are actually not doing as well as they originally expected because i don't think that that margaret thatcher or ronald reagan would have been they would not have sold globalization and neoliberalism with the outcomes that we have seen here you know i don't know if this is i didn't touch marxism there at all because i'm not sure what marxism has exactly to do with these outcomes but uh i think the gentleman means as an alternative as a quitting as a question yes but we don't have an alternative anymore are there any questions there is a gentleman here then another one down there one two three testing can you hear me good afternoon my question is the following about the theory of international economics it is said that the opening of the markets starting in the 90s should have led to a convergence between the economies of the various world countries but if we look at the graphs of some of the graphs it seems that this is confirmed i think of the elephant graph or the reduction in inequalities among countries between countries but does this still apply if we take out china and india from that number of countries or indonesia because there is a strong concentration of that global middle class in those countries rather than in others it's very it's very good question of course i didn't have i couldn't go into that but i have the numbers and i can show you a slight graph on that you know there are really basically two types of convergence one is general convergence that we study it was unconditional convergence where each country counts the same so when you look at debt uh there was during the high period of neoliberalism in the 1990s there was divergence actually because lots of african countries and transition countries and latin america which had the lost decade had very bad period so there was a divergence now that divergence stopped around 2000 because between 2000 and 2010 generally speaking poorer countries grew faster than the rich but when you do the second type of convergence that you actually rightly mentioned which is population weighted where countries in the results come with their population so china counts many more times than chad then you have convergence throughout so in other words but that's driven really by china by india by indonesia and so on and actually until i think year 2000 the entire if you were to take china out you would actually have the increasing global inequality so until year 2000 china alone was preventing the increasing global inequality after that india starts really playing a more important role and in the future india would play even more important role because china by becoming richer would actually move to a situation where it would no longer reduce global inequality so it would be neutral and maybe at some point maybe in 20 years or so it will start adding to global inequality i have a question to you professor milanovich what do you think about the possible effect where inequality has increased markedly and the middle class was damaged by globalization and i'm talking about italy how do you consider introducing a flat tax on income in such a country and what what is the reason why there is such a popular consensus for a flat tax well that goes back a little bit to the question that francesco asked me before uh okay i'm very let me put it in very clear terms um let me put it like this i'm very skeptical about the the the uh sort of uh uh uni uh i'm sorry did you say flight tax or universal basic income flat tax no sorry so i would think of the universal basic income universal basically yeah it's nice yes we would like to ask you as well okay i okay okay let me on the flat tax i don't think it's a good idea i think simply the flat tax is of course non-progressive tax so by with the flag tax we are going back to the situation from uh probably until he had a flat tax or quasi attacks probably at the time of unification or something so it's really we're going back to the 19th century now in many things we are going back indeed to 19th century you know so that would not be an exception but i don't think it i would not be in favor because actually i'm in favor of more progressive taxation rather than less progressive but when it comes to universal basic income uh you know universal basic income as you know ubi has uh the agreement both of the left and on the right you know for different reasons on the left they believe that of course if you have sufficiently high income level you would have to tax a lot you know rich people in order to sustain that income and they believed in basically inequality would be reduced poverty would be reduced because you would have such high ubi on the right they actually are in favor of the ubi because they say well once we pay you that stuff for doing nothing just don't come back to us asking anymore and i think that's essentially the reason why the right is in favor of that i'm very skeptical because i actually believe that it would require philosophical change you know if you look at the welfare state it is based on the system of insurance combined with assistance but this is you're ensuring against things that generally happen uh that for example obviously when birth happens you you're having a paid leave for mothers and fathers when you age you have pension when you lose your job you have unemployment so it's social insurance that's why it's called social insurance if you were to move to ubi you cannot have the two systems coexisting together simply because they're too expensive well then you would really move to an entirely different system where you would actually have obviously citizenship as the qualifying condition and you would actually really sort of have to forget about the social insurance system moreover i i'm very skeptical about that because i don't think that a society where you would essentially encourage people i would have to say basically not to work would be a society desirable in itself i believe that we have to pay people who are unable to find jobs or who cannot for other reasons being validity or something else and that's why there is unemployment benefit there is that's why there is social assistance but not as a matter of principle that you might have like 10 or 15 percent of people who never fi got a job i don't think it's a good society i think actually working is very important homo faber so i yeah you know there is a philosophical reason why i'm mostly against it let's put it later congratulations because you explain very complicated things economic concepts in such a clear way i ask you because you have knowledge about the international scene and he also worked at the world bank since politicians are not so much interested in fighting inequalities because they lack the knowledge i think they are ignorant i would say and they are distant from the lower classes and the middle classes so do you think given the situation that there are organizations at international level that deal with this issue or is it just you economists writing about these topics because it seems to me that at political level there is no interest for these topics rather i would say the opposite people do not care much and populism is this it means being distant and remaining at a distance from the problem of inequality of poverty of precarious jobs are there international organizations in your knowledge who indeed do the opposite and are very sensitive about these issues um let me answer it in in two parts first of all an easy part would be about the role of international institutions i think that um well there is a change but you know the international institutions in my opinion really cannot have such a particular on rich countries like italy or you know or even greece you know for that matter they cannot have such an influence that they have maybe in poorer countries and there we have seen some kind of a dichotomy emerging in the role of the imf because as you might know the research department of the imf has been very strong actually arguing about negative impact of inequality on growth so they had several papers they are actually producing them they are even arguing that redistribution is neutral and so on but lower inequality is good which is a total change from what happened like you know for the last before that for through the previous 20 or 30 or maybe 40 years but they did not seem to me did not percolate to the level of operations because recently we had a problem in tunisia where the fund again followed the same policy of discontinuing subsidies and austerity and all of that which it followed in the past so there are different views you know some people think it's actually basically cynical division of responsibilities as in the us they call it good cop bad cop so you have good guys but then you have bad guys and they play that role or it could be that essentially the research department uh as i was in research department of the world bank does not have much of an impact or influence on what the real institution does or it might have it in the future but not now but when i come to the second part i would actually say that the role for to address again inequality poverty and so on is something which belongs to national governments international politicians and there i totally agree with you we have a paradoxical situation that never have has never has inequality being so much in public focus and never have people spoken and written so much about inequality but when you look at policy changes they are really very very few uh and what the ones that you see for example like tax cuts in the united states they go in the other direction if you look at the macron's uh flexibilization of the labor market it goes also in the other direction so it's very difficult to have uh sort of a paralysis at the policy level and a huge amount of talk and talk and talk at the level of well our level but it does not have really an impact on on policy i was for the first time last winter asked actually to come to um to davos and i thought it was really kind of somewhat ridiculous because you know these people have been talking about inequality for 10 years now every year what is the biggest problem in the world inequality so they all say yes this is really we have to fight it and what do they do they of course you know make more money they hide that money in paradise islands or panama islands they actually don't pay taxes as you know all these large companies have now discovered a new way of dealing which is like not paying taxes rich people also don't pay taxes or to hide money so why are we talking about that i actually don't understand they should actually drop that topic all together and do other things we'd like to thank blanco malachnovic for his presentation has been so enlightening you've been able to explain very complex global concepts in a very very simple way thank you you