The rise of the economies of Asia, Central Europe and Eastern Europe has led to a reduction in disparities between countries that could be the most spectacular in human history.
In 2014, French economist Thomas Piketty’s Capital in the 21st Century became an international sensation, reshaping the debate over inequality and propelling its author to superstardom. Piketty was right to point out that the political arguments for income redistribution are almost entirely focused on domestic concerns. But his central argument, that capitalism inevitably leads to growing inequality, collapses when we compare the situation of Vietnam’s impoverished farmers with the relative comfort of middle-class French citizens.
In fact, the trade-driven rise of the economies of Asia, Central and Eastern Europe over the past four decades has led to a reduction in disparities between countries that may be the most spectacular in the history of humanity.
Despite this, Western observers are rarely content to pay lip service to the approximately 85% of the world’s population who live in the South. While philanthropists like Bill Gates devote significant resources to improving living conditions in Africa, most foundations and institutions focus on reducing inequality within countries. While both of these causes are admirable, policy analysts often ignore the fact that, by global standards, poverty is virtually non-existent in advanced economies.
The need for climate action is an area that appears to be the subject of broad consensus.
Indian farmers, of course, have no influence on US or European elections, where attention has increasingly turned inward in recent years. Today, candidates don’t win by promising to help Africa, much less South Asia or South America. This shift partly explains why Piketty’s framing of inequality as a national problem resonated strongly with American progressives – and, indirectly, with former President Donald Trump’s Make America Great Again movement.
However, this interpretation does not take into account the hundreds of millions of people who live in climate-vulnerable developing countries. Furthermore, despite the lasting impact of colonialism, European welfare states or Japan are reluctant to pay reparations to former colonies.
Certainly, there are strong arguments for strengthening social safety nets in developed countries, particularly with regard to education and health care. From a moral perspective, however, it is questionable whether this outweighs the urgent need to address the plight of the 700 million people living in extreme poverty around the world.
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 advance their own interests.
The need for climate action is an area that appears to be the subject of broad consensus. This is why I have long advocated the creation of a World Carbon Bank which would support the green transition of developing countries by providing them with technical assistance and offering them large-scale financing for the fight against climate change, preferably in the form of grants and not loans.
As I recently argued, subsidies are particularly important given another essential means of reforming global capitalism: preventing private lenders from pursuing defaulting sovereign debtors in the courts of developed countries. To attract private financing, developing countries should establish credible courts and other institutions of their own. Until they do, the funding gap will need to be filled.
Ultimately, reducing global poverty requires greater openness and lower trade barriers. The fragmentation of the global economy, fueled by geopolitical tensions and populist politicians calling for trade restrictions, seriously threatens the economic prospects of the world’s poorest countries. The risk that political instability in these regions will spill over into richer countries is growing at an alarming rate, as evidenced by the increasingly heated debates over immigration in these countries.
Developed economies have three options, none of which focus solely on national inequality. First, they can strengthen their capacity to manage migratory pressures and confront regimes that seek to destabilize the global order. Second, they can increase their support for low-income countries, particularly those that are able to avoid civil war. Finally, they can send citizens to help low-income countries. Many governments have already experimented with national programs that encourage young graduates to spend a year teaching or building houses in disadvantaged communities.
At the very least, sending Western students to developing countries – even for short periods – would allow privileged campus activists to learn about the economic difficulties facing much of the world’s population and to see for themselves how people live in countries where capitalism has not yet taken hold. Such experiences could foster a deeper awareness of global challenges and give young people a clearer understanding of the crises that could potentially affect their own lives.
This is not to say that inequality within a country 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 to find the political will to allow countries to access global markets and bring their citizens into the 21st century.
Copyright: Project Syndicate, 2024.
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