June 29th, 2016
(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: email@example.com
Economists have long predicted this sort of convergence. Observing how U.S. states tended to have more similar income levels over time, economists such as Robert Solow built models in which fast catch-up growth eventually leads to a more equal world. But the stubborn failure of global incomes to converge defied the theory, and economists were forced to accept the idea that countries’ differing institutions created differences in their long-run economic potential. That was a somewhat unsatisfying explanation, because it relied on the influence of unobservable factors. The leftist alternative — that the global capitalist game was rigged — couldn’t be easily dismissed.
But the last few decades show that global convergence is finally happening. Maybe all it took was a period of post-imperial institutional hangover for the poor countries to get in gear. After China’s Great Leap Forward and Cultural Revolution, India’s License Raj, and other misguided attempts at finding an alternative route to development, poor countries finally decided to open themselves to trade, to promote infrastructure and property rights, and to adopt other policies focused on building a robust capitalist economy. Whatever the reason, it’s no longer easy for people on the left to claim that poor countries are getting the short end of the globalization stick.
The elephant graph also calls into question another of the left’s big ideas. Even as inequality across the globe has fallen, it has risen within nations, including in rich countries like the U.S. Most on the left attribute this rise of in-country inequality to deliberate policy choices — the weakening of unions, a finance-focused industrial policy, tax loopholes and deregulated markets.