With all eyes on the revolving cast of characters heading in and out of the White House, and on the latest developments in the ongoing Brexit saga, it’s important to remember that the rest of the world continues to get on with life.
This week, for example, trade ministers of the Brics (Brazil, Russia, India, China, and South Africa) are meeting in Shanghai, in advance of the group’s ninth annual summit of Presidents and Prime Ministers in September.
One of the goals of China’s presidency of the bloc this year is for the five powers to step up their advocacy for economic globalisation in the face of signals from the Trump administration of rising protectionism.
The timing of this campaign comes at a potentially pivotal moment in the globalisation story. World Bank research indicates that, for the first time in two centuries, overall global income inequality – an important measure of economic inequality but not the only one – appears to be declining.
The Brics have been the key drivers of this movement toward greater overall global income inequality. The collective economic growth and very large populations of India and China, in particular, have lifted hundreds of millions of people out of poverty.
This has helped catalyse what Branko Milanovic, who co-authored the World Bank research with Christoph Lakner, asserts is the “profoundest reshuffle of individual incomes on the global scale since the Industrial Revolution”.
At the same time, however, there is an opposing force: growing income inequality within many countries. This issue has become increasingly politically salient.
Take the United States, for example, where concerns over inequality and stagnant living standards have led to surging support for some populists, including Donald Trump.
These two opposing forces, like tectonic plates, are pushing against each other. While the net global trend for the past 200 years has been towards greater overall income inequality, there is now significant evidence since the turn of the millennium that the positive effect of growing income equality between countries, spurred by the development of the global south, is superseding the negative effect from increasing inequality within nations.
While uncertainties remain about the data, it is undeniable that the overall lot of the south has improved dramatically, as exemplified by the progress of the Brics. The most prominent beneficiaries have been a much heralded new middle class – estimated to now make up a third of the world’s population – disproportionately located in key Asian emerging economies like China and India.
With the current challenges that some Brics are now experiencing, it is unclear whether the development of the global south has enough momentum to keep driving forwards a more equitable world order. This will depend largely on two issues: whether emerging markets generally continue growing robustly, and also whether the trend toward rising income inequality within countries is sustained.
On the first question, the trajectory of the global economy will very likely continue to shift toward the south, and for the foreseeable future many key emerging markets are likely to remain in robust shape. However, the recent remarkable wave of growth of the last generation appears now to be decelerating, and the global transformation it has sparked may not be repeated.
Turning to the second issue, it is not set in stone that ever-growing income inequality within countries will continue, especially if there is political will to address it. However, the debate over what long term reform agenda should be undertaken to tackle this problem is contested by left and right factions across much of the world.
A key danger therefore in the coming years is that income inequality within countries accelerates, and that emerging market growth decelerates faster than anticipated.
This would mean that the fragile process that has driven the movement towards greater global income equality could yet go into reverse.