Global inequality

Capítulo 6

Globalization has failed for many and the reaction may be violent

Coordinator of the Global Inequality Report says that the 'rush to the cheapest' flattened the middle classes and led to the precariousness of public services

Fernando Canzian

For economist Lucas Chancel, one of the coordinators of the Global Inequality Report, the promises of globalization "failed" many around the world.

In his view, countries need to reorganize global economic integration to avoid "violent reactions" in the future.

Lucas Chancel, co-director of the World Inequality Lab and the World Inequality Database at the Paris School of Economics, Ph.D. in Economics at Ecole des Hautes Etudes en Sciences Sociales - Paris Sciences Lettres

Although the poor are improving because of Asia, the richest are getting richer all over the world, and the middle class is being squeezed. What are the reasons for this?

What we see are the three sides to the story of globalization. The happiest side is Asia's huge growth, which includes China, India, and other countries. Living standards have improved, and this has led to the reduction of inequality between countries. Some have focused on this to say that globalization is optimal and that it needs to be deepened, as global inequality has declined.

But there is another side. Income growth is low among the working classes in North America and some European countries. In the US, the poorest half hasn't had income growth for the past 38 years. This also needs to be understood from the perspective of the third side of globalization, that of the global economic elite.

Wherever we look in the world, in Europe, Latin America, North America or Asia, we see the income of the wealthiest 1% rising dramatically. The growth rates are above 100% or 200% for the top 1% between 1980 and today. In some countries, the rate exceeds four digits.

A well-informed debate on globalization needs to take these three sides into account. You can not just say that the poor are getting better and that this is great. Or that the top people are earning a lot and that this is terrible. What will happen?

The good part is that it all depends on us.

Everything will depend on what policymakers implement. And that will depend, in many countries, on citizens' decisions.

How can individual countries combat inequality if companies today are global and capital is free to migrate, but people are not?

Capital can migrate because we organize globalization in this way. We have signed treaties that allow us to move goods and sometimes workers and, in many cases, capital. But we did not sign agreements harmonizing taxation.

So any kind of entity where there is free trade without fiscal harmonization will be an economic entity that will not work properly and address inequality. Certainly, this is a key issue that needs to be addressed.

In the last 30 years, there has been a "rush to the cheapest" of companies leaving countries in search of cheaper taxes. Every country thinks that if it does not play the game of "rush to the cheapest", it will lose.

But in the end, everyone loses because there are no resources left for public actors who want to finance a good level of education, public transportation, and health.

Basically, policymakers were a bit lazy, and they just said, "Okay, let's play the rush to the cheapest game." But what is the consequence of this game?

Well, there are "mobile" taxpayers, who are multinationals and wealthy citizens, who threaten and blackmail the government on the grounds that "if you raise my taxes, I move."

But there are also "real estate taxpayers," the working class, the middle class, and the taxpayer who simply can not move.

And these people want to maintain good levels of public service.

So who will pay the taxes? If this falls on the middle class, on low-income groups, it will come as no surprise that we have a very violent, brutal reaction.

We already have phenomena like Donald Trump, brexit and populists gaining ground. Will "deglobalization" become more pronounced in this wave?

One of the problems is that the promises of globalization largely fail. It should raise the standard of living in low-income countries, and this happened.

But it should also improve the lives of middle class and working people in rich countries, and this has not happened.

One way to understand the rejection of multilateralism is the very failure of multilateralism.

But one way to try to make it successful is to address the critical question you posed, the flight of capital. It is necessary to organize globalization and to know with more transparency where wealth is and how it moves from one country to another.

This means, for example, that we can not continue to negotiate with tax havens that do not respect the basic rules of transparency. Because countries and governments lose in this game. This justifies the imposition of limits.

In "The Great Leveler," Walter Scheidel argues that inequality is a fact of life. That only declined after extreme events such as wars and pests. What is your opinion?

Yes, it is a fact of life and, to a certain extent, it will always exist, until the end of time.

But the question is to what extent will we accept this level of inequality. There is another fact, not a fact of life, but of human societies, which is the permanent discussion about how wealth should be shared. And this type of discussion is at the heart of the construction of modern democracies.