Professor Branko Milanović, a leading Serbian-American economist and Senior Scholar at the Stone Center for Socio-economic Inequality at the City university of New York delivered an online lecture as part of the Futures Leaders Program on recent changes in the world's income distribution and the political consequences in the context of current international affairs. Among the attendees were students from Serbian universities and the region, as well as esteemed institutions like Harvard, Columbia, LSE, Sorbonne, LMU, and many others.
This lecture, moderated by the CIRSD President Mr. Vuk Jeremić, provided an opportunity for students to actively participate and to learn from a world-renowned expert in the field of economics. Professor Milanović led this insightful discussion on income inequality between and within nations, tracing the history of income inequality throughout the world from the industrial revolution to today. Additionally, Professor Milanović provided an extensive contextual explanation of more recent observations, notably the increase in global inequality and its detrimental impacts on between-country inequality.
The Professor also drew the audiences' attention to the development of Asian economies, the rise of the global middle class, and globalization as factors in historical periods of heightened income inequality and their relevance to recent politics, including the efforts of individual populist leaders to "change the rules of globalization".
In further specifying the political dimension of economic analyses, the Professor noted that many wealthier countries today often consider two alternatives to maintain political legitimacy by appealing to the so-called 'losers' of globalization. "There, you have two options: one option is that you can try to change the rules of globalization, and this is what Trump tried to do, and essentially you direct your animus towards China...And the alternative that, in my opinion, is much more superior but was more difficult politically, and was not really done was to look at the point C [higher class strata represented by the infamous Elephant Curve] and say that the problem was that the very top people in rich countries had the ability to change the rules of the game including on taxation, ability to outsource, ability to not to pay taxes on their capital income and so on, while the middle class did not. The alternative would be to focus on within-national redistribution. That is why the [Elephant Curve] graph illustrates the political dilemma that states have faced".
"But", Milanović continues, "things have changed in the period between 2008 and 2013".
After analyzing some of the most recent changes in the quantitative data on global income inequality between classes, Professor Milanović narrated his theory on "the greater reshuffle of global income positions since the Industrial Revolution", after the financial crisis (2008) and until 2018, and its significance for a nation. Milanović discussed the economic relevance of income inequality in regional economies across Western Europe and the Western Balkans, such as Croatia and Serbia, as compared to Asian countries whose contributions to global GDP remain on the rise. Such commentary offered significant insight for our young participants by shedding light on continued experiences of declining income distribution in both Serbia and Croatia, in terms of relative country positions, highlighting the significance of income inequality for the economic position of a nation.
Professor Milanović concluded with his own commentary on "the present", including the economic period from 2020 to today, and a series of global events which have already begun carrying economic, and therefore political consequences on global income distributions today. Such events included Covid-19 and associated social transfers; the impact of the U.S.-China trade war on global value chains, and destruction and sanctions following the onset of the Russia-Ukraine war - all of which continue to foreshadow nearly unpredictable, but undoubtedly consequential results which will render global poverty and income inequality evermore tentative, rendering human agency an increasingly important role in political and economic events.
Firstly, Milanović noted the "enormous shock" that Covid-19 caused on a global scale. "What happened also was that there were very large social programs in many Western countries. U.S. income inequality went significantly down because of social transfers which occurred in 2020…and the result was a decline in U.S. income inequality. Is this going to continue? It is very doubtful because it was one event, but it made the effect of Covid very different in different countries…These effects are diverse and are not well known. What is known is that you have a stop in the convergence of between country incomes which has been going on for several decades".
"The second big shock was the China-Trade War…It has been disruptive for China, for the U.S., probably for the EU as well, and again we do not know what the effects will be overall…This is really a political shock and the effects are difficult to predict."
"The third shock is the Russian-Ukraine war, which will affect both countries tremendously, with destruction in Ukraine and the sanctions in Russia, which will affect the country for years and possibly for decades to come…"The third shock might actually lead to a world war… if it does not lead to a global war, nuclear war, or nuclear winter, it will likely and has already led to increase in prices in food or energy. Food and energy, especially for poor people, often represent ¾ of their total expenditures. So the increase in prices of these large products is going to impact especially poor people and poor countries. Now we have very clearly the largest challenge to global poverty and inequality reduction since World War 2 and that makes any forecast for the future extremely tentative because we are dealing with exogenous, non-economic shocks."
Professor Milanović then closed with a broader conclusion: "We are in an essentially unique position right now where politics takes over and economics can just sit back and wait for the fall-out of the political changes to show themselves in economics - at least as it is seen here through the prism of the global economic income distribution."
Mr. Jeremić opened the room for dialog with his own notes on the unexpected consequences of recent political events by sharing the following: "It is obvious that we live in an era of geopolitical upheaval and geopolitical recession when rivalries rise and there are all kinds of consequences in the political-economic world, but that's going to stay with us." He then commented on the objective lack of multilateral cooperation throughout the broader international community, not just on the prospects of peace, but also on addressing other important issues impacting our societies today, such as climate change.
After students directed their own questions to the Professor, Mr. Jeremić presented his inquiry to the Professor, regarding the prospects of facing another global recession considering recent projections. The Professor replied that his own projections suggested a higher likelihood of economic trends resembling those of "stagflation" in the 1970s, featuring positive inflation and stabilized real growth. Mr. Jeremić also continued discussion on the capacity for China to play an increasingly important role in assuming its own assets which are currently kept in Washington, especially considering the U.S. handling of Russian assets in the wake of the Russia-Ukraine war.
We welcome new applicants to the Future Leaders Program and encourage them to stay tuned for upcoming insightful events.
