Thank you, Sergio, for that introduction, and to all of your colleagues for hosting us here, and to all of you for coming on what finally looks like a spring evening. Hopefully winter is not going to make its last roar. It's a real pleasure to introduce our speaker this evening, Professor Branko Milanovic, and the subject of his talk. We live in a world defined by capitalism. Historically, it's delivered general prosperity in many societies. It facilitates exchange of goods and services, the flow of capital and ideas across great expanses. Over time, it's developed a variety of forms, from liberal market economies, excuse me, to corporatist regimes to the more progressive social democracies of Scandinavia. In recent decades, the world has witnessed the transformational rise of China, which has developed its own version of capitalism, a political capitalist model of development led by the state, which has catalyzed growth in much of the global south.
But the relentless pursuit of profit that distinguishes capitalism has always had a price tag. As Professor Milanovic has said, it broke the bonds of feudalism but commodified wage labor. The search for commodities and markets in the Americas, Asia, and Africa spurred the expansion of imperial power and colonial rule since the 19th century. Its cycles of boom and bust and the periodic irrational exuberance of its financial markets generate tremendous economic instability and social dislocation. The power of money has turned many democracies into plutocracies, and the never-ending drive for economic growth in our carbon-based economies has exacerbated climate change, perhaps the greatest market failure in history. Since the late 1980s, Western capitalist democracies have become increasingly unequal, generating precarity amongst those left behind, a backlash against migrants, which is even touching Canada in recent years, and support for autocratic populists. You can think of a few.
Yet the expansion of capitalism since the end of the Cold War has also reduced global inequalities, whose peak after World War II exceeded that of apartheid South Africa, driven by the rise of China and Asia more widely. So how are we to make sense of these historic transformations? What does it mean to be rich and poor in the 21st century? What do we owe migrants arriving at our shores? Does Chinese state capitalism offer a model for development for the post-colonial south? And can we lessen poverty, reduce inequality, and achieve sustainable growth while confronting climate change? Our guest this evening is one of the world's leading economists to tackle such questions. Branko Milanovic is a research professor at the City University of New York Graduate Center. Since earning his PhD in the late 1980s from the University of Belgrade, Professor Milanovic has served in many positions, from lead economist in the World Bank's research department to senior associate at the Carnegie Endowment for International Peace. He's also held various teaching positions and visiting fellowships over his career, which have taken him from the University of Maryland and Johns Hopkins University to All Souls College in Oxford and the University Carlos III in Madrid. Professor Milanovic is renowned for his pathbreaking work on economic inequality in its global dimensions, for which he was awarded the Leontief Prize for advancing the frontiers of economic knowledge in 2018. A prolific author, his many award-winning books have been translated into over a dozen languages. Their titles, Worlds Apart, The Haves and the Have-Nots, Global Inequality, Capitalism Alone, and Visions of Inequality capture his long-standing intellectual concerns. Apart from providing many insights, they're also incredibly well written and sparkle with irreverence. His latest book, out in November, I just found out, is The Great Global Transformation: National Market Liberalism in a Multipolar World. Branko will speak for about 10 to 15 minutes to sort of set the stage. We'll then have a conversation over some of these issues in his writings and what he brings up to bear today. Before we open the floor to your questions and comments, please join me in welcoming Professor Branko Milanovic.
Well, it is an honor and pleasure to be here. Thank you to Sanjay for such a really beautiful introduction. So I will have a really hard time living up to the introduction that Sanjay so very nicely sort of described my work. I would not speak for too long because I think we would actually then have a chance to discuss things between ourselves and also to include you to have, you know, questions and discussion. So let me simply set the stage by addressing two areas of my work which I think are maybe the most interesting. They're all very empirical. Normally I have also slides, but tonight I'm going to describe them and actually maybe I will sort of draw them in the air when I really have a need to do that. The first type of work is about inequality and in particular about an area which really has not been studied until the late 1990s. It's about global inequality. I'll just define it in a minute. And the second area of work is about the type of the elites and in what sense the elites are different in countries of, let's call it, liberal capitalism, and I use the US in particular there, and countries of political capitalism, and I use China. So I would actually very briefly say something again empirically about the two types of elites.
Now let me go back to what I said first about global inequality. We have first to define what is global inequality. It kind of sounds really kind of a cool term, but let's get to what it really means. It means that you try to calculate incomes of everybody in the world, technically 8 billion people. Now we don't have the data for 8 billion people, but we have reliable and sort of representative household surveys on average from about 120 to 130 countries in the world. Not every year. That's why actually these numbers cannot be really produced every year, but we have enough surveys to do it every three years on average now. In the past it used to be much less frequent. You use these surveys, you actually get then income distribution data from countries from Algeria and Albania all the way to Zimbabwe and everybody of course alphabetically in between. You put it in technically in one distribution, you do have several problems. For example, how are you going to adjust for the differences in price levels between the countries? Luckily, we have an entirely different project which is called the International Comparison Project that actually calculates the price levels for different countries in the world. It started in the 1960s with the OECD. Now it has really spread to the entire world. Essentially, it means that poor countries generally have a lower price level. Consequently, when somebody in a poor country has $1, it actually gives him greater purchasing power than that $1 gives you in Canada or the United States or take Japan or Norway. So we adjust for that, which means we boost actually the incomes of people in poor countries because of the difference in price level. Once you basically put all of this together, you do have something which you can call global income distribution, and then you can actually look at the evolution of that.
As I mentioned before, before the mid-1980s or even early 1990s, we did not have the data that I'm describing, you know, because we didn't have surveys from China. It started really in '84. The Soviet Union had surveys going back to the 1920s, but some of them were destroyed and most of them were never actually displayed or actually opened to the public. And Africa did not have surveys in most countries, with few exceptions like South Africa, which had it for a while, and then you had Nigeria and so on. But many countries in Africa didn't have it simply because of lack of sort of administrative capacity. You have to actually have a census, you have to have sampling, you have to have enumerators who would go and investigate and find out what are the incomes. So then from that point I will talk about like how the evolution of global inequality was. Before I do that, we do have estimates which are sometimes guesswork, but let's suppose they are reasonable estimates going way all the back to the early 19th century. And the reason why I want to emphasize that is because when you put that in a two-century frame, what you have, you have original global inequality after the Napoleonic Wars. So let's take 1820, that was actually standard beginning, relatively low. We are talking now, I will not go into the Gini coefficients necessarily, that they don't mean very much to many people, but let me still say that the Gini in theory goes from zero when everybody has the same income to 100 where one person has the entire income or one family has the entire income of the world or of the country.
To give you an intuition, maybe it's very good that Canada is using the Celsius system because the intuition is essentially that nice inequality is like nice weather, so it's about 22, 25, 28 degrees. So that's the intuition. To give you another intuition, the US is at 41, China is at 45. These are really already hot climates. African countries and Latin American countries are over 50. Now the world was always much more unequal than each individual country, but it was relatively low. We are talking about the Gini of about 40 with all the world citizens in the early 19th century. It seems to you strange, like how is it that the world was much more unequal than today. But the reason was that differences between the countries were small. You had the richest countries like the Netherlands and the UK. And if you take countries in Asia like China that were already on a decline or India, the gap was three to one. And that gap during the 19th century rose tremendously. And during the 19th century and the first part of the 20th century, global inequality went up. And when you see that, you immediately understand that it went together with colonialism, with much greater economic, military, and technological power of the countries that developed. So if you want to think of another sort of analogy, it was like the big bang essentially. The world, which was relatively equal between the countries, experienced the big bang with European countries, the North American continent, and later Japan becoming much richer, and that pulled inequality up.
The second component of global inequality, which is inequality within nations, also went up. For example, the UK probably peaked in inequality in the 1860s, 1870s. The US probably 1910. So there were two components. First, people became more unequal within their own countries, and the countries themselves became much more unequal, and that was the key element. They actually expanded global inequality. Then over the 20th century, the second part of the 20th century, we are at a very, very high level of 70. So remember what I said about Celsius degrees. You know, 70 is like not even the Sahara during the daytime reaches that number. So that was the level of inequality. And why the early 19th century is important, because what we are witnessing over the last 30 years is the reversal of that movement. It is because of the growth in Asia, in particular China, India, Indonesia, Vietnam, and so on. These countries are becoming closer to the rich world. They are reducing global inequality, and we have really sort of a gigantic inverted U-shaped. So we start with the big bang, broadly speaking, the West becomes rich. India and China stayed the same or declined, actually in the case of China there was a decline even, and then there was a plateauing in the latter part of the 20th century, and then China starts growing up, and then India starts growing up, and then Indonesia and the rest of Asia, and they drive global inequality down. And I want to emphasize that because we have two different movements now. In the last 30 or 40 years, we have global inequality which is on the decline, and still higher than it was in 1820, but significantly lower now. It's actually, the Gini is now about 60 or even 58 points, and it used to be 70 points. And at the same time, we have inequalities within nation states going up. And of course, I don't need to tell you about that. You read about that every day in the newspapers. US inequality has gone up. In Canada, inequality has gone up. In Sweden, inequality has dramatically increased over the last 30 years. So this is why I think it's kind of sometimes difficult when people say, what is happening to inequality? It's not one story. And actually, if I were to continue, I could give you other parts of the stories, but the basic line is that the world as such and individuals in the world are becoming more equal, although the level of inequality is still enormous, but they are becoming more equal. And they're becoming more equal because the countries are not as different in terms of income levels in ratios today as they were 50 years ago, 40 years ago. And the reason why they are not as different is because Asian countries that have lots of people have grown fast. So that's basically the story of the world. If you have lots of people and if you're relatively poor and you grow faster than the rich world, you're going to reduce inequality. Think of this. Think of, for example, India or China in 1980 as basically the low class or poor people in a rich country. And these poor people grow fast and they reduce global inequality. But as I said before, within countries, including China, of course, inequality went up. So these are these two different movements that make it difficult for us very often to sort of figure out what is happening. So on one hand we are all concerned about inequality. On the other hand somebody comes and tells you, well, really, global inequality is down. So is this good news or is it bad news? Is the world really getting worse or is it getting better? There is no single answer to that.
And the second part, actually, I would be very brief on that. It was about the empirical work on the elites. That work, I think, is interesting and somewhat, I think, important because it looks empirically at the composition of the, in the case of, I use basically US data, of the top, I use actually five or 10%. You know, of course, many people, including Piketty, they have started with work with the top 1%. That's a very important work, but we often don't know who these 1% are. In what I do, actually, I look at their incomes from capital and labor. And one thing which is very intriguing, and that led to this, you know, sort of new term that I kind of coined of hypercapitalism, is the following fact that you have an increasing proportion of people in rich countries at the very top who are both richest capitalists and richest workers. In other words, you have people who have very high labor income, which puts them in the top decile by labor income, and they have very high capital income, which puts them in the top decile by capital income. And this is a very new development. It just, if you think of classical capitalism, you had at the top either landlords or capitalists, you never had workers who would be there in the top 10%. If you think of more developed capitalism, you would have people like lawyers, doctors, and others who would be there in the top 10% by total income, but they would not be in the top 10% by capital income. In other words, they would have high, you know, income from professions, but not from property. But we now have people who are both rich in terms of property and so-called human capital. And that's a new development which I think in some sense creates a new elite. And that elite has power not only because it has political power, but it has power because it can sort of weather the decline of capital incomes or maybe, you know, decline of the stock exchange or whatever, but it can also weather the decline in wages. So in other words, they are really much better suited to sort of weather the crisis and to continue prospering. And I think that they do create a new elite.
What is the situation in China? Not surprisingly, but we have empirical data. When you look, we actually look from 1988 to 2018, you have a dramatic change at the very top in the sense that in 1988 and even 1993, we have data for each five years, you had the majority of people who were in the top 5% getting their incomes from the state sector, state-owned enterprises, government officials, even workers, engineers, and so on represented more than, if I remember correctly, 80% of people who were there at the job. Nowadays, you have almost the opposite situation. You have private sector capitalists, small and large capitalists. In China, everybody who employs more than eight employees is considered a big capitalist, and everybody below that or self-employed are small capitalists. And then you have, of course, professional managerial class that is mostly employed in the private sector. So they represent now about two-thirds of the elite.
What we have seen in China, and when I was comparing that with the UK in the early 19th century, what was also a massive transformation from a basically, you know, landlord-based society to a capitalist society. In China, that happened much faster. So capitalism in China really grew much faster and more extensively than in the UK in the 19th century. And what is also very interesting in China, and that's a very interesting detail, when you start really breaking down these people at the very top, you also have in China the only country in the world, I think, which has the data on membership of the Communist Party. And what you find is that people at the very top, those who are rich capitalists and who are members of the CPC, have unusually high premium. In other words, what you realize is that especially in a one-party system, being a member of the party and having political connections and having private business is really the winning combination, and that itself also represents an elite. So we see the two elites of the political capitalism and liberal capitalism having certain features which are somewhat unique, because obviously in the case of China we have had this rapid transformation, but we see also, I think, that the elites have several tools to be rich. So it's no longer only capital, only labor, it is labor, capital, connections, membership of the party, political influence. So all of that, or meritocracy in the sense that, of course, people go to the schools that then guarantee you best jobs and so on. So we really have, I think, to some extent formation of the elites, and it's no longer, I think, simply sufficient to talk about class structure. I think that we, as I said, we have difference in the fundamental way that people acquire income and wealth compared to everybody else in those countries. So that would be, I went a little bit over, well, maybe more than a little bit over my original time, but I will stop now. Thank you very much.
Thank you, Branko, for giving us a really big, sweeping, broad picture to start the conversation, which is about patterns of inequality in the world since the Industrial Revolution, and these two critical components, right? So there's inequality growing within countries, inequality growing between countries, and then this remarkable thing that's happened in the last 30, 40 years, that the inequality between countries, and particularly the West and what we call the South, what used to be called the Third World, is narrowing. So I wanted to start the conversation with looking at those patterns. One of the things that comes through in your work is that, as you put it, you know, in this period of what's called hyperglobalization, according to Branko, like the late 1980s to the crash, the great financial crash of 2008, when you have privatization, deregulation, increasing flows of trade and investment, capital flows across the world, you have sort of two groups that really win, so to speak, two groups that benefit a great deal. One is the emerging lower middle class, particularly in Asia, China, India joins that, Indonesia, Vietnam, and so on, Thailand, of course, the so-called tigers, Singapore had made it earlier. And then you have what you describe and many describe as, since, you know, since Occupy Wall Street, we are the 99%. So the other percent is the 1%, the global plutocrats. So these two groups are the ones that in relative terms gain the most in terms of income and in terms of plutocrats, even wealth. And this is the story we all know and we're living with, is that the middle classes of the Western world, so Western Europe, North America, its offshoots, and Japan, right, the rich economies of the G7, some of the OECD, it's the middle classes here that experience all the things that we've been talking about now for years: wage stagnation, growing precarity, life is just harder, battling inflation, cost of living crisis, and so on. It's before the pandemic and before what's happened now. So can you tell us a little bit more about this? Because, you know, one way of reading this very simple is saying, okay, so the emerging middle classes in Asia are benefiting because we privatized, deregulated, liberalized our economies. So we had outsourcing, we had offshoring, all those jobs that we used to do here, factories and so on, even service sector ones, went there because of the technological revolution of information and communication technologies, lowering transfer costs, and so forth. Our multinationals went abroad. Labor was cheaper. Maybe environmental regulations were weaker. So they took advantage of that. And so those workers benefited at our expense. That's one way of reading that. And the other ones that benefited were the very rich in our own societies. So two groups benefited at the expense of this one. So that's one story, and that's a story that's told. But the other thing that comes through in your work, which I think is very important, is that these two groups that benefit, benefit in relative terms. But it's still the case that if you take someone who belongs, say, to the middle class in Indonesia or Vietnam, even though their incomes have grown in relative terms, really striking in the last 40, 50 years, that their level of income is still far, far less than if you belong to the middle class in Canada or France or Italy. So can you tell us a little, unpack that? Because I think that's a complex global situation that we struggle with and trying to understand about, you know, what is the connection, relationship between things getting better there and things getting worse here for many people.
It takes really quite some time to unpack it because there were many things going on. Let me start with one sort of unpacking. You mentioned, well, we are 99%, right? That was the slogan of the time. For somebody who works on global inequality, this was always sort of a dubious slogan. Why? Because about 11 to 12% of Americans are in the global top 1%. You know, being in the global top 1% is obviously easier than being in the top 1% in the US. So when the demonstrations took place, people intuitively say, okay, we are against the top 1% in the US, and somehow it gets sort of conflated with the global top 1%. No, actually, people who were demonstrating were many of them in the global top 1%. You know, it's the fact, you know, here, for example, I think nobody is below the 95th percentile of the world. It is essentially that the rich countries, most of the distributions, and particularly the distributions are not very unequal, they are really in the global top decile. Now, of course, there are some parts of the distribution even in rich countries that are below, but the bulk of people are at the top. So that's why, you know, this global versus national becomes complicated.
And that's why actually the changes that you mentioned with the, let's call it the rise of Asia, because it is the rise of Asia, and it's really the equivalent, like a mirror equivalent of the Industrial Revolution. While the Industrial Revolution made the West rich and created global inequality, we now have Asia getting rich and reducing global inequality, because it is, it's the levels of income of large masses of people in Asia are becoming relatively higher. I'm talking all the time about relativities, relatively higher than they were 40 years ago. So that was the change. And of course, many of you have heard about the so-called elephant graph that actually Christoph Lakner and myself did based on the global data. And that elephant graph, that was for the period of hyperglobalization. We were very lucky actually that the data that we had exactly covered that period, 1988 to 2008. And as you mentioned, Sanjay mentioned, what stands out there is the following thing, is that you have the middle of the global income distribution, which is disproportionately people from the rising Asia, they are doing very well. Obviously China in particular, you know, they increase at 7, 8% per year. And then you have at the very top a select 1% basically from rich countries that are doing well, they grow at about 5% or 4% per year. And then you have people who are like relatively rich compared to the Asian middle class, but relatively poor compared to their own top 1%. And that's kind of essentially lower parts of the Western countries' income distributions. And these guys are not doing well, and they are growing at between zero and 1% annually during this 20 years. And that's where you find like lower parts of the distribution of the US, for example. To give you like three large countries, US, Germany, and Japan, the three of them are half a billion people. Lower parts of the income distribution of these three countries are 250 million people. And if you look at their rate of growth over that period, it was a low rate of growth. And to some extent, originally that graph was published in 2013, I think became more popular by 2016 and so on. And to everybody, you would actually just show this graph, they would...
I would say, well, that's exactly what Trump would play on, and I don't think he ever saw the graph, but that was the essential story: the story is that Asia is kind of making the life of my middle class more difficult. Now, a different way to read it is to say, I did not want to redistribute money from my top 1% to help my middle class, and that was, I think, that was the explanation of the fork in the road. Whom do you blame for this? One way to blame is you say globalization was always biased against the United States, or China really stole intellectual property, they did this or that. Or the alternative is you say, okay, I could have had, or I should have, much more redistributive policies within my country and reduce the gap between the rich and the poor and the dissatisfaction of the middle class. So in some sense it really did capture the reality of the time and to some extent even of today, although things have changed in the meantime. I have to say, you know, the top 1% has not grown at the rates which it did during the high globalization. It was affected, particularly in the US, by the global financial crisis and then the COVID came and so on. So the things are not exactly the same as they were. But if you want to have a very sort of a summary picture, I think you can still go with that story because that story does explain, or not explain, but it's not inconsistent with the political developments.
Okay. So there are many factors that are causing inequality in our societies in the West. So part of them has to do with companies investing elsewhere where labor is skilled but cheaper. The regulatory environment might be different. And so that's one aspect you're saying. And so that would lead to people saying, well, we should never have opened up, or we should never have admitted China to the WTO, World Trade Organization. Respond. The other, though, as you're saying, is that our governments embraced policies which themselves accentuated inequality in our own societies, lowering taxes on income at the highest levels, other deregulation and so on and so forth. So that brings me to another question to ask, which is when we think historically about what decreases inequality. In your writing, you talk about two sets of big historical forces. So ones that are, as you describe them, malign, they're bad. War tends to decrease inequality in a society. So happened during the interwar period in Europe. Catastrophes, natural catastrophes and epidemics. So even during COVID, we saw a decline in measured inequality of income again, and sometimes even wealth because the stock markets did badly initially, right, within these countries. So those are malign forces. The second are benign. And if you think again in the, yes, the period where inequalities decline in our societies is after World War II, which is the peak of global inequality. Really striking. I mean, in Branko's work, it's really striking. I mean, it was very vivid. Having been to South Africa last year just for a few months, that the level of inequality in the world after World War II is equivalent to, or it resembles, or even more than apartheid South Africa, just as how unequal the world was in 1950. But that period in the West, we say, is the golden age of capitalism. That those are three decades where we have high employment, wage growth, social mobility, and inequality declines. And one of the main sets of reasons are labor mobilization, strong trade unions, the creation of a welfare state, social transfers, all backed by progressive taxation. So the highest rates of tax are very, very high, even in the United States, let alone Sweden and so on. So if you think of these two sets of forces, when does inequality decline? One is social catastrophe. So we want to avoid that, just war and epidemics and so on. But then there are these more benign forces. So that leads to a second question. If we're thinking about tackling inequality today, what benign forces are most important to support? What are the prospects of changing our tax codes, to investing in more quality education, providing a stronger safety net, investing in workers' skills so that they're able to retrain and move when industries they work in are no longer competitive, and so on and so forth? If you're looking at this, this is the period we're in now. We have a lot of parties throughout Western Europe, United States, you know, a lot of voters are so fearful and resentful of what has happened that they're willing to elect people who have populist policies that they say will solve this. And we have to wait and see how that plays out. But right now, of course, we're dealing with a lot of chaos that's been unleashed, certainly by the second Trump administration. So what policies are important now, given this pattern you've talked about, to try to tackle this inequality? Let's start with within our societies first.
Okay, let me, before I answer that, let me just do one broader point, which I really hope to convey in most of my talks. It's the ambiguity or the difficulty of, how should I say, of stating or believing certain things to be good or bad. Let me give you concrete examples. If I were to ask before the talk today here, what is the majority opinion? Is it really good that Asian countries are becoming richer and that they are actually catching up technologically, economically and so on with rich countries? I think the majority of people would say yes. But that also has led, without any doubt, to the geopolitical conflict between China and the United States. So in other words, what seems to be a good development and is actually a good development, that actually countries that used to be poor are now becoming richer, produces a geopolitical conflict. Further and even more, I think, striking from the individual point of view. If I were to ask the corollary of the first question, if I were to ask, is it good that many more people are now having more similar incomes than they had 30 years ago? People would say yes, it is actually a very good thing. However, if you tell them, well, that means also that your global position is going, as I was saying before, for many Western countries and the, you know, middle classes of the Western countries to go down, then the situation becomes a little bit different. I give generally a very nice example of Italy, which has not grown in 25 years, and then the Italian lower parts of the income distribution were the 70th percentile worldwide because Italy was, is a rich country and still a rich country, but because it has not grown up, and not so much because inequality within Italy has become worse, but simply because Italy has not grown, they have gone down in the global pecking order from the 70th percentile to the 55th percentile. And if it will continue, they would go further down. So then you can say, well, I love this equality in the world, but I don't like to go down. And that's where actually the issue becomes political, because this is ordinal ranking. So you cannot remain at the 70th percentile if other people who are poorer than you grow faster and overtake you. So that's why this ambivalence or difficulty comes from. Now, going to the question, of course, there are one set of desirable, quote-unquote, policies for global inequality, and there is a different set of policies desirable, quote-unquote, for national inequality. For global inequality, for example, migration would be very good. Actually, for global inequality, probably one of the strongest forces would be just unimpeded, like open migration. Is this politically likely to happen? No. Is this necessarily good even for individual countries? Not totally. Because it could be that actually wages would be driven down, inequality might increase in the countries with totally open migration. So we obviously, when we come to the national level, to the level of national state, we start actually fiddling with finding some solutions that satisfy differing criteria. When we also talk now within nation state, you have mentioned many of these things. They're quite well known. People have written about them. You know, it is education is simply very important, and education that is very expensive and getting more expensive in Western societies is essentially a way of discrimination. In other words, what a very expensive education does, and there are very nice books actually about meritocracy in the US that show that it's really creating a monopoly for the children of the rich people. I mean, imagine that the education at the top university becomes one million per year per kid. You know, 99% of, well, more than 99% would not be actually able at all to afford it. But it is actually excellent for the rich people because it enables their kids to actually have education that then gives them access to the best jobs. So really, the high cost of education is not bad for everybody. It's actually for many people a good thing. Moreover, that very high level of cost of education necessitates, requires very high wage inequality because if you really have to pay so much for education, and let's suppose that the wage inequality was zero, why would you do that? Why would you do it? That would be like simply taking money and throwing it away. Nobody throws this money away. And that's why actually I think we should put these two things together: high cost of education, high wage inequality, which then of course leads also to high overall inequality. And we can, I think it's a mistake to discuss them as separate compartments. You know, there were so many papers, actually I'm critical in my vision of inequality about the education premium in the United States, hundreds of papers and technological developments and then work here, skilled workers working with heavy capital and so on. But one of the issues was a very simple economic issue. If you don't have high wage inequality, it really is crazy to have high cost of education. Nobody would have it. And people sometimes deny either explicitly or implicitly. And likewise, they deny, for example, the importance of political contributions. I had actually people writing articles. Oh yes, the rich people really don't get anything from this. They just like to give money to politicians. But you know, that would be, that's like against economics, you know, 101. You are not, they are not, they have not become rich by throwing the money away. So if they give you money, they give you money for some reason. And likewise, they give money for the kids' education because they expect in return to get very highly paid jobs. And they give money to the politicians because they expect in return to get regulation that they like. It's very simple, but I think one has to keep these two things together and not to discuss them independently as if they were independent.
Okay. So you brought up the question of migration, immigration, which I want to get to. Before that, I want to ask just one question. So standard way of dealing with inequality is through redistributive measures, through taxing, right, and then spending on various kinds of social transfers. You, in your work, say this is important and you support it, but you think it's more important, particularly in the 21st century, to focus on what some scholars describe as predistribution. And predistribution means you equalize the endowments that individuals have in terms of capital, in terms of access to the same type of education and training and skills. And there are various policies that you could pursue: high inheritance taxes, giving workers ownership shares in the companies that they work for, legalizing the assets that those who are relatively poor already have, but it's not recognized by law. Why is predistribution more important in this century today, in the year 2025, than classic redistributive policies, which is what typically left-center parties will promote, right? That we need to tax and spend in order to reduce this inequality.
I think it's more important because I think we are all tired of taxation. I think that people are much more skeptical about further increases in taxes than they were, you know, at the inception of the welfare state. That solving every problem through taxation is not really going to get popular support. I'm not against it, actually. I think actually, for example, the inheritance taxation, which is not popular, I think it is a good way of equalizing chances. So I think it's a good thing to do. I think also possibly higher taxation of capital versus labor would be good, but I'm not in favor of like seeing every problem as solvable through taxation. And that's why I believe that putting greater emphasis on, for example, accessible, very good, accessible public education, ability of people and workers to have shares in the companies and to have actually other sources of income than wages. There are pluses and minuses, but I would say on average there is actually an endowment that you receive and inheritance taxation are, I think, a set of policies that seems to me to equalize chances and to reduce inequality, if you will, in the natural way, in the sense that it is not that inequality appears and then you simply sort of slap taxes on it. You reduce what is called actually market income inequality, which means inequality which is generated by the market because the endowments of people are more similar. I mean, technically speaking, let's suppose that all endowments of people, everybody had the same or more or less the same level of education, everybody started with the same amount of capital, similar amount of capital, the market would not generate vastly different outcomes. They would generate some difference in outcomes, but not vastly different. And we do actually have countries, actually interestingly, Taiwan is one of them, with fairly equal endowments. And these endowments actually, I think I use Canada and Taiwan in one paper or a book as examples where they end up with overall inequality which is the same, but Taiwan redistributes, let's suppose, well, 10 or 15% of GDP, and Canada redistributes 50% of GDP. Why? Because Canadian endowments are much more unequal, and for Canada to come to a reasonable level of disposable income inequality, it has to redistribute a lot. But Taiwan, which is, as I said, an interesting case and goes historically to, you know, Japanese occupation, all the other things for redistribution, they don't need to redistribute that much because the endowments are more similar. So technically, you could have a situation where the redistribution can be relatively small if the endowments in education and capital that you have are similar. I mean, in the extreme case, just sort of to extreme case, assume that everybody has the same endowments, you don't even need taxation. I'm not saying that's reasonable. I'm just saying one should actually think of the fact that there is a trade-off, that there are two instruments. One instrument is taxation, and the other instrument is greater equality in endowments.
