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Forget the hype. Capitalism has made the world a more equal place

Posted by on May 15, 2014 in Asian Economies, Capitalism, Economic Theory, GDP, Inequality, Markets, Politics, Socialism | 1 comment

Metropolitan liberals love to be able to criticise Western society. Recently, their lives have been brightened by the extensive discussion on the rise in inequality since the 1970s, especially in the Anglo-Saxon economies. There is a danger that this essentially anti-capitalist narrative will come to dominate the media, paving the way for increased regulation and the sorts of failed statist interventions in the economy which were a consistent theme in British political economy for nearly four decades after the Second World War.

On a global scale, in terms of the degree of inequality which exists between nations, the past 50 years have seen a huge movement towards a much more equal world. And it is precisely the institutional structure of capitalism, of companies motivated, at least in part, by profit, operating in a market-oriented system, which has brought this about. A system which England introduced to the world in the late 18th century with the Industrial Revolution.

Until then, over the whole span of the millennia of organised human society, in terms of difference in living standards between regions, the world had been a very egalitarian place. Most people lived for most of the time on the brink of starvation. A summary measure of inequality which is widely used is the so-called Gini coefficient. In a completely equal society, the Gini coefficient is zero – no inequality – and in a society in which one person has all the income it is 100. So the higher the value, the more unequal the society. For most of human history, the Gini coefficient between regions of the world seems to have been between 10 and 15, a far more equal distribution than currently exists within any individual country.

The dramatic subsequent success of capitalism in certain parts of the world led to a marked widening of the degree of world inequality. Growth did not stand still in, say, Latin America, but it was much faster in Western Europe, North America and Australasia. By the middle of the twentieth century, the world Gini coefficient was just under 50, its peak level. The club of prosperous nations which had formed by 1870 was essentially the same in 1950.

Japan forced its way in, with absolutely spectacular growth in the 1950s and 1960s, closely followed by other East Asian countries such as South Korea and Taiwan. More recently of course, China and, to some extent, India, have adopted capitalist principles of economic organisation and have boomed as a result. In the former Soviet bloc, those countries which oriented themselves to the West and have prospered and others, like Russia itself, have floundered. Even in Africa, which went backwards following independence in the 1960s, there are very encouraging signs of recent progress.

In terms of differences in per capita income levels between countries, the world is now much more equal than it was in 1950, and probably at around the same level that it was in 1850. And it is capitalism which has brought this about.

As published in City AM on Wednesday 14th May 2014

1 Comment

  1. ‘Capitalism’ may have made the world ‘a more equal place’ when the negative externalities are not considered?

    “‘Direct existential threat’ of climate change nears point of no return, warns UN chief
    If we do not change course by 2020, we risk missing the point where we can avoid runaway climate change, with disastrous consequences for people and all the natural systems that sustain us.”

    “The IPCC report that the Paris agreement based its projections on considered over 1,000 possible scenarios. Of those, only 116 (about 10%) limited warming below 2C. Of those, only 6 kept global warming below 2C without using negative emissions. So roughly 1% of the IPCC’s projected scenarios kept warming below 2C without using negative emissions technology like BECCS. And Kevin Anderson, former head of the Tyndall Centre for Climate Change Research, has pointed out that those 6 lone scenarios showed global carbon emissions peaking in 2010. Which obviously hasn’t happened.
    So from the IPCC’s own report in 2014, we basically have a 1% chance of staying below 2C global warming if we now invent time travel and go back to 2010 to peak our global emissions. And again, you have to stop all growth and go into decline to do that. And long term feedbacks the IPCC largely blows off were ongoing back then too.”

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