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How globalization affects inequality and populism in one chart

June 29, 2017 at 6:25 PM EDT
The hottest curve in economics right now helps explain the rise of China, the rise of populism in Europe and the rise of Donald Trump. From a global perspective, income inequality has gone down. But if you're middle class in the U.S. or Europe, you see the rich getting richer and inequality growing. Economics correspondent Paul Solman examines the widening gap.
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JUDY WOODRUFF: But first: A key part of President Trump’s campaign was pledging to restore prosperity and to ease the anxiety for those left behind by globalization.

Income inequality was a problem during President Obama’s tenure, too. The trend began well before either took office. And the widening gap here is connected to growth in other parts of the world.

Our economics correspondent, Paul Solman, has been exploring those trends, and it’s the focus of his weekly segment, Making Sense.

BRANKO MILANOVIC, Author, “Global Inequality”: The good news is that people around this point A, like one third of the global population, have done really quite well.

PAUL SOLMAN: At the City University of New York Graduate Center, economist Branko Milanovic and the hottest curve in economics right now, charting the climb of a billion out of poverty, and explaining the rise of China, the rise of populism in Europe, the rise of Donald Trump.

And thanks to its pachydermal profile, and Twitter, it has an almost unforgettable name: the Elephant Chart.

BRANKO MILANOVIC: I remember in June 2012, the first time that I saw what later became the Elephant Chart, I was immediately struck, because I thought, well, that’s exactly what we all knew.

PAUL SOLMAN: And what is it that we knew?

BRANKO MILANOVIC: Well, we knew that China and large groups of people in Asia who were not very rich compared to Americans, who have done very well. We knew that lower- and middle-class Americans and Japanese and Germans have not done well, and then we also knew that the top 1 percent in the rich countries have done well.

PAUL SOLMAN: Now, at the risk of Dumbo-ing this down, let’s take the Elephant Chart from tail to tusk.

For that, we have to head into the wild blue yonder of my producer’s basement. On the bottom, the horizontal axis is the entire world population, arranged by their incomes back in 1988, poorest over here to the left, the richest to the right.

Just past the middle, at about the 55th percentile, a family of four with $3,000 a year after-tax income. Middle-class U.S. family taking home $30,000 a year would land about here, at the 80th percentile. And in 1988, $160,000 of after-tax income would’ve lifted you into the global 1 percent.

On the vertical axis, going from bottom to top, is how much income grew, in percentage terms, over 20 years, from 1988 to 2008. The two winning groups, the fabled 1 percent and those in the middle of the income distribution. As for the poorest, they had about a 10 percent rise.

BRANKO MILANOVIC: If they started with like $2 a day, now they have $2.3 a day.

PAUL SOLMAN: But now what this story is telling us is, here, at the middle of the income distribution globally, those people have almost doubled their income in real terms after taxes.

BRANKO MILANOVIC: Right. Right. After taxes, yes.

And as you can see, this is not a small group of people. So we are talking about people from the 40th percentile to the 70th. So this is almost like one-third of the global population who have done really quite well.

PAUL SOLMAN: And who are we talking about here? These are the Indians in Bangalore, the Brazilian middle class, the South Koreans, the Chinese, who’ve flocked from the countryside to the cities.

BRANKO MILANOVIC: There was a large chunk of people, two-and-a-half billion, who have done extremely well.

PAUL SOLMAN: And those are the people up at the top of the back of the elephant.

BRANKO MILANOVIC: Top of the back of the elephant, so basically what is called resurgent Asia.

PAUL SOLMAN: Resurgent Asia, indeed. Now, you may have seen one of the most popular Ted Talks of all time.

HANS ROSLING: Income per person on this axis, poor down here, rich up there.

PAUL SOLMAN: The late great Hans Rosling depicting this phenomenon in his own inimitably graphic way.

HANS ROSLING: You see China under foreign domination actually lowered their income and came down to the Indian level here, whereas U.K. and United States is getting richer and richer, and after Second World War, United States is richer than U.K. But independence is coming here. Growth is starting, economic reform. Growth is faster.

PAUL SOLMAN: So, the good news is that income inequality has, from a global perspective, gone down, as the incomes in the developing world rise, catching up with incomes in the developed world.

And that’s a point the Elephant Chart is often used to make. But perhaps the chart’s most memorable message of the moment is the crisis of inequality in the very well-developed world, the hollowing out of the middle class in France, the United Kingdom and especially the United States of America.

Here, at incomes of about $20,000 to $100,000 a year, inflation-adjusted, there’s been negligible income growth for decades. Once you get to the 70th percentile, so you’re the richest 30 percent of the world’s income distribution, it falls off a cliff.

BRANKO MILANOVIC: True. It was really people who are generally dissatisfied with their economic position and who feel threatened by migration and who feel threatened by lack of jobs or insecurity of jobs.

And you look at actually who are voting for Le Pen in France, who voted for Brexit, and then — and Trump, we saw that this sort of growth of right-wing populism is driven on one hand by this insecurity of jobs, which is a result of globalization, and by migration, which is also part and parcel of globalization.

PAUL SOLMAN: And globalization was supposed to be win-win for everyone, wasn’t it?

BRANKO MILANOVIC: One thing was promised to them essentially, with globalization, they would all get better off. And then gradually they see that their wages are stagnant, and they have been stagnant for 25 years.

PAUL SOLMAN: The rich getting richer, the trunk of the elephant tilted skyward.

And then, of course, you look backwards, and then you see that these people might be catching up to you.

BRANKO MILANOVIC: Yes, right, because they actually are coming on the big tide, like a wave, and then really your relative position is going to really slide down quite quickly.

PAUL SOLMAN: And so we end with the jumbo takeaway, that while a rising middle class in the developing world has been narrowing global inequality for decades, the story has been just the opposite closer to home, and fueling a reaction as radical as it is understandable.

For the PBS NewsHour, this is economics correspondent Paul Solman, reporting from the City University of New York and my producer’s basement.

JUDY WOODRUFF: And we’re just glad you’re safe, Paul.

And there’s more of Paul’s conversation with economist Branko Milanovic on our Web site. You can find it at pbs.org/newshour.

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