Branko Milanovic — The greatest reshuffle of individual incomes since the Industrial Revolution

The effects of of globalisation on income distributions in rich countries have been studied extensively. This column takes a different approach by looking at developments in global incomes from 1988 to 2008. Large real income gains have been made by people around the median of the global income distribution and by those in the global top 1%. However, there has been an absence of real income growth for people around the 80-85th percentiles of the global distribution, a group consisting of people in ‘old rich’ OECD countries who are in the lower halves of their countries’ income distributions.

Formerly Lead Economist in the World Bank's research department, Branko Milanovic gets that today doing macroeconomic properly in a connected world of open economies that the only closed economy is the world economy, and it is the proper study of macroeconomics. What passes for macroeconomics conventionally is based on the study of national economies which openness is often an afterthought. This is the study of mesoeconomics rather than actual macroeconomics.

In this scheme, micro-economic is the study of aspects of national economies; meso-economics is the study of national economies, and macro-economics is the study of the global economy as a closed system inclusive of its subsystems. Micro, meso, and macro must of course mesh since they are the whole and its parts. As a complete system these aspects are complimentary and influence each others through the web of relationships that constitutes the global system's intricate network. This system is dynamic and it is also a complex adaptive system characterized by reflexivity and emergence.

It must be further noticed and acknowledged that the global economic system is an aspect the world system, which includes social, political, and economic aspects that are intimately connected so that isolating aspects of them risks oversimplification and distortion.

The challenge is not only to progress but to progress in a way that harmonizes the social, political and economic aspects of the system. Otherwise, not only imbalances but also conflict will be the likely result, owing to winners and losers.

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The greatest reshuffle of individual incomes since the Industrial Revolution
Branko Milanovic | Visiting Presidential Professor, Graduate Center, University of New York and Senior Scholar, Luxembourg Income Center