Urban inequality rising far more in India: François Bourguignon6 min read . Updated: 23 May 2015, 01:14 AM IST
Bourguignon on growing inequality and the challenges it poses
Bourguignon on growing inequality and the challenges it poses
François Bourguignon, emeritus professor of economics at the Paris School of Economics, is one of the foremost experts on inequality—something that has become a talking point thanks to the seminal book by Thomas Piketty, coincidentally a colleague of Bourguignon. The former chief economist of the World Bank has just published his own tome—Globalization of Inequality.
The professor, who was in Delhi recently, spoke to Mint on the growing challenges of inequality, both in developing and developed countries. Edited excerpts:
Why is there a renewed interest in inequality worldwide, both among intellectuals and politicians? Globally, it seems to have taken wing.
This is because inequality has increased over the last 15-20 years in several countries; not just in the US but throughout the developed world. At the same time, the growth rate of those economies is slowing down. There may be no correlation between the two (trends), but the fact is that people feel the impact of inequality in economies that are growing very slowly. Consequently, inequality becomes less easy to bear than if the economy was booming.
If you look at the US—actually quite intriguing—especially the last 30-40 years, you observe that despite an average growth of the economy of about 1-1.5%, the (real) income of the median household showed no growth. And below the median, the income of some has gone down. As economists we have sounded a warning that something is not right here—all the growth cannot accrue only to the top income earners.
So, in the US, it was a wake-up call on inequality and when the politicians started picking up the issue, beginning with (President Barack) Obama, then this became a national issue. It is likely that the next presidential campaign will focus on the inequality issue.
In most successful emerging countries like China, India and Indonesia, too, we observe that inequality has increased a lot. Now, we may think that this is basically an outcome of economic development. This may or may not be (the case). Regardless there are some worrying signs that inequality has increased but it will not go down very easily.
In your work you distinguish between inter-country inequality and intra-country inequality; the former is declining while the latter is worsening. How do you marry these seemingly contradictory trends?
It is not completely clear that there is a relationship between these two trends. An apocalyptic view of the world will say the world is transitioning from inequality between countries to inequality in every country; the story behind this will be the complete globalization of the world. Tomorrow, people are free to move wherever they want, capital is free to move; then what we will observe is that unskilled and skilled workers will be paid the same wages in every country. And capital will be paid the same thing.
If this happens then there will be a lot of inequality in the US as unskilled workers will be paid at the Chinese (wage) rates and in China skilled workers will be paid at US rates. In this apocalyptic view, the huge inequalities that we see today will appear in every country in the world.
Fortunately, globalization will not proceed so fast. There are some goods which are not being traded, there are barriers to mobility, and because of that there will be differences across countries. And on top of that, the level of education and distribution of skills within countries will remain different.
So, it may be the case that in India unskilled workers will be paid the wages paid in African countries and skilled workers at the levels observed in Europe. But what matters is the proportion of unskilled workers to skilled workers.
Because of this, some differences in inequality will remain between countries—but this will be due only to the fact that human capital and the wealth of the people will not be the same; it will not be due to the fact that people are not paid at the same rate.
There is a new facet to globalization—disruption. At one level this is forcing a redundancy in the workforce. How do you see the phenomenon of disruption influencing inequality and its impact on the middle income classes?
When you look at the evolution of inequality, what you observe in the US in the 1980s and 1990s is that you have a drop in the relative wage rate of unskilled workers; inequality is increasing because the bottom is doing badly with respect to the rest. And then later we see when we compare the bottom (income classes) and the middle, then the former recovers with respect to the middle.
Underlying this there may be two trends. One, the bottom is doing much better. Alternatively, the middle is doing much worse. Now, I am more or less convinced that it is the middle which is doing worse. This corresponds exactly with growth in technology advancement and maybe globalization—at least in developed countries.
We have something similar in Europe where we observe that the middle part has been losing in relative terms lately whereas the bottom part in many countries has been protected by the minimum wage. This is a political issue because it is the middle class which has been most affected.
In developing countries it may not be the same, because trade and services jobs have been outsourced from developed countries to developing countries—particularly India. So skilled workers may have benefited from it in India and in some African countries.
What about India?
To me it seems in the case of India there are two elements which play a role. One, it is mimicking what is happening in the rest of the world: share of capital in gross domestic product is increasing, capital is flowing very freely and the rate of profit has increased. This, of course, benefits the top income classes.
Second, there is growing demand for skilled workers in developing countries, who tend to be towards the top. This increases inequality. And in the case of India there is also the phenomenon of what is rural and what is urban, and that development in the last 20 years has been concentrated in urban areas.
As a result, the divide between urban and rural areas is increasing. And the data that I have been looking at shows that inequality is increasing much more in urban areas.
In your work you also emphasize the inequality of opportunity. How does this play out in the case of India?
It is obviously quite big. But there is a difficulty in measuring inequality in the following sense. Let us look at the inequality of education. In a country, you will have many people uneducated and a few educated would appear to be rather equal in terms of education—because the majority will be at the bottom. So when we look at the inequality of opportunity we have to careful to avoid not adopting the same measures that we do when we measure income inequality.
The bad thing about the inequality of opportunity in India is that it is not because there are not enough slots in schools and universities. Instead, it is that the talented people are not getting the slots that are available. In other words you have undeserving students who take up those slots.