Reframing the Debate: Is Capitalism the Cause of Global Inequality?
In 2014, French economist Thomas Piketty’s Capital in the 21st Century became an international sensation, reshaping the inequality debate and making its author a superstar. Dr. Piketty was right to point out that the political arguments for income redistribution focus almost entirely on domestic issues. But his central argument – that capitalism inevitably leads to growing inequality – falls apart when he compares the plight of impoverished farmers in Vietnam with the relative comfort of middle-class French citizens.
In reality, the trade-driven rise of the economies of Asia and Central and Eastern Europe over the past four decades has led to what may be the most dramatic reduction in disparities between countries in human history. Despite this, Western observers rarely pay more than lip service to the roughly 85 percent of the world’s population living in the South. While philanthropists like Bill Gates devote significant resources to improving lives in Africa, most foundations and institutions remain focused on reducing inequality within countries. While both causes are admirable, political analysts often ignore the fact that poverty, by global standards, is virtually non-existent in advanced economies.
Farmers in India obviously have no influence on the American or European elections, where the focus has increasingly turned inward in recent years. Today, candidates don’t win by promising to help Africa, let alone South Asia or South America. This shift helps explain why Dr. Piketty’s view of inequality as a domestic issue has resonated strongly with American progressives – and indirectly with former President Donald Trump’s Make America Great Again movement.
But this interpretation ignores the hundreds of millions of people living in climate-sensitive developing countries. Moreover, despite the lasting impact of colonialism, there is little willingness in European welfare states and Japan to pay reparations to former colonies. To be fair, there is a strong case for strengthening social safety nets in developed countries, especially when it comes to education and healthcare. From a moral point of view, however, it remains highly debatable whether this outweighs the urgent need to address the plight of the 700 million people around the world living in extreme poverty.
To their credit, the World Bank and the International Monetary Fund have taken important steps to help developing countries. But their resources and mandates are limited, and rich countries tend to support policies and initiatives that suit their own interests. One area where there appears to be broad consensus is the need for climate action. With this in mind, I have long advocated the creation of a World Carbon Bank that would support developing countries’ green transition by providing technical assistance and large-scale climate finance, preferably through grants, not loans.
As I recently argued, subsidy financing is especially important in view of another crucial way to reform global capitalism: preventing private lenders from taking defaulting government debtors to the courts of developed countries. Ultimately, reducing global poverty requires greater openness and fewer trade barriers. The fragmentation of the global economy, fueled by geopolitical tensions and populist politicians pushing for trade restrictions, poses a serious threat to the economic prospects of the world’s poorest countries. The risk that political instability in these regions will spread to richer countries is escalating at an alarming rate, which is already reflected in the increasingly tense debates over immigration in these countries.
Developed economies have three options, which do not focus exclusively on domestic inequality. First, they can strengthen their ability to manage migratory pressures and confront regimes that seek to destabilize the world order. Second, they can increase support for low-income countries, especially those that can avoid civil war. Finally, they can send citizens to help low-income countries. Many governments have already experimented with domestic programs that encourage recent graduates to spend a year teaching or building homes in disadvantaged communities.
Sending Western students to developing countries – even for short periods of time – would at least allow privileged campus activists to learn about the economic hardships faced by much of the world’s population and see first-hand how people live in countries where capitalism has not yet taken any major steps. delay. Such experiences can foster a deeper awareness of global challenges and give young people a better understanding of the crises that can ultimately impact their own lives.
This is not to say that inequality within countries is not a serious problem. But it is not the greatest threat to sustainability and human well-being. The most urgent task facing Western leaders is finding the political will to give countries access to global markets and bring their citizens into the 21st century.
The writer, professor of economics and public policy at Harvard University
©Project Syndicate, 2024
First publication: October 11, 2024 | 11:50 PM IST