Mooting an Elephant


When economist Branko Milanović first published his now-famous chart showing changes in global income distribution between 1988 and 2008 he furnished the world with a neat explanation for the various anti-establishment types now rocking the boat of Western politics: sandwiched between the Asian middle class and an increasingly bloated 1% – the winners from twenty years of ‘high’ globalisation – the middle class of the rich world had been left behind and was voting in the rabblerousers. He also furnished it with a serviceable metaphor. From memory, it was Toby Nangle who first noticed that the chart resembled an elephant, and his inspired little graffito (below) twittered across the world in a flash. Journalists needed no further prompting. The chart was the elephant in the room … No: It was a sleeping elephant that threatened to wake up and destroy the joint … No: It was the eponymous pachyderm in the Indian parable of the blind men and the elephant – a beast the nature and significance of which depended on which bit of it you happened to be feeling … And so on and so on.

inequality-elephantNow the metaphor-making has entered a new phase. Responding to a report by the Resolution Foundation that seems to cast doubt on Milanović’s data, or some of the interpretations of it, some commentators have declared the ‘elephant chart’ irrelevant. Once called ‘the most important chart for understanding politics today’ – the one gif you need in order to make sense of the current intersection of domestic politics and macroeconomic trends – it is now a liability, a statistical howler. Scribblers in the conservative sheets were especially keen to ventilate the report’s findings and the presses ran hot with their picturesque efforts. The elephant had been shot, no, tamed …No: It had wandered off from the herd and gone in search of the elephant graveyard … It had packed its trunk and said goodbye to the circus. (Okay I made that last one up; but surely it’s only a matter of time …)

The report was written by Adam Corlett and does indeed cast new light on Milanović’s chart, or one interpretation of it, namely that the era of high globalisation has been bad for the Western middle class. The horizontal axis of the original chart shows global income distribution – the poorest are on the left and the richest on the right – while the vertical axis shows any rise in real income in the two decades leading up to the GFC. Roughly speaking – very roughly speaking – the ‘hump’ represents the Asian middle class and the down-curve the Western working and middle classes. However – and this is Corlett’s key point – since Milanović is studying global income levels, as opposed to national income levels, the composition of the percentiles changes over time. In particular, the chart takes no account of massive population growth in China or the spectacular collapse of wages in Russia after the fall of communism. The point is that if you want to draw general conclusions about the relative incomes of East versus West, North versus South, US versus China, you can’t really do it accurately with a chart that takes no account of such distinctions. So Corlett has crunched the numbers again and found that, actually, the Western middle class hasn’t done as badly as originally thought. Globalisation has benefited all – some more than others, obviously.

Cue the conservative bumptiousness. Neoliberals have never liked Milanović’s chart, not because they doubted its legitimacy but because it seemed to give the lie to the neoliberal proposition that a rising tide will lift all boats – that off-shoring, deregulation and fiscal austerity will be good for everyone. Now they can strut their stuff again, or at any rate they feel they can. ‘Where’s Milton Friedman when you need him?’ asked William McGurn in The Wall Street Journal, as the Adam Smith Institute declared September ‘a good month for neoliberalism’. Allister Heath, in The Telegraph, reflected on how naïve we’d been to question globalisation in the first place. ‘Geeks love this sort of stuff,’ he wrote of Milanović’s work on global inequality; ‘and the chart reinforced their left-wing prejudices.’ (I think he wrote geeks, not Greeks, but I’d have to check my notes.)

Thus is a crude story about globalisation being built – with cheap foreign labour no doubt – on the ruins of a crude story about globalisation. Get ready for a lot, lot, more of this …

Actually the key takeaway from Corlett’s research is that the squeeze on middleclass living standards in the rich world has as much to do with domestic policy as it does with the dynamics of globalisation; it is the policies pursued within the countries where inequality is growing fastest – developed countries, more or less – that accounts for much of that inequality. In the past few days Resolution’s director Torsten Bell has made this point a number of times: that to blame globalisation for your declining living standards is to let politicians off the hook. Whether neoliberals will follow Bell’s reasoning beyond this point and start advocating for greater redistribution through higher minimum wages, welfare payments, cheaper housing, fairer taxation and unionisation I doubt very much.

The point is that it’s globalisation, not neoliberalism, that’s at issue here. No, the two can’t be neatly separated, but the massive enrichment of the 1% – another key feature of Milanović’s chart: note the sharp uptick on the right-hand side – is the result of the latter thing, not the former, and is far more likely to explode the economy than it is to generate economic growth. Neoliberalism was a political project as much as an economic one, and was about much more than trade liberalisation. Those wanting to argue that the uber-wealthy elite – what Milanović calls ‘the global plutocracy’ – is in some sense essential to the poor world’s emergence from the worst depravations of poverty and the slow equalisation of East and West still have all their work ahead of them.

Clearly that global plutocracy does benefit from globalisation, such that the Resolution Foundation’s suggestion that we refocus our political attentions on distributional arrangements in the domestic sphere is easier said than done. Financialisation and capital mobility mean that to a great extent the super-rich float free from domestic politics; money can be moved to Panama with less effort than it takes to unwrap a stick of gum. Meanwhile multinational corporations employ base erosion and profit shifting in order to deny trillions of dollars in tax to the jurisdictions in which they make and sell their products. It’s all very well for Bell and Corlett to say that we need to think locally, but the state is increasingly unable to act as the ‘board of management’ to the economy, as a whole supranational apparatus of trade agreements and binding treaties is now in place in order to circumvent that contingency. (What do recent events in Europe denote if not the clash of neoliberal economics and the clamour for self-determination?) The question of whether ‘globalisation’ is a good thing or a bad thing is moot; we have to ask what kind of globalisation four decades of neoliberalism has given us and whether/how it can be reformed.

Finally, and speaking as a left-wing geek with all of the requisite prejudices, let me say that all sensible socialists are well aware of capitalism’s ability to pull poor populations out of poverty, have long preferred free trade to protectionism, and are pro-globalisation, not anti-it. What we deplore is less ‘global inequality’ (disgusting though it is) than the system that makes inequality inevitable – no, to which inequality is foundational: the system in which wealth is created socially and appropriated privately. The thing to which we object, in short, is not globalisation but capitalism, which, we maintain, with all due modesty, is unlikely to be history’s final word. So have your fun while you can, neoliberals: trash a left-wing meme or two! One day – one day quite soon, I hope – you’ll find out you’ve been feeling up the wrong end of the elephant and that your version of reality is arse about face.


First published at 3 Quarks Daily.