Inequality in the Dynamics of Development: Post-Globalisation Changes and 21st Century Challenges

Abstract

Following Kuznets’ pioneering works, the growth-inequality nexus was stylised as an inverted U-shaped relation. As per that paradigm, economic inequality initially increases when a nation embarks upon a modern economic development process, but later on, declines as the development process cross a certain threshold. The paradigm roughly bears out the experience of the industrialised countries of Europe and North America from the beginning of the nineteenth century up to the mid-1970s. The inevitability of the pattern came under question when data from a broader range of countries became available by the 1970s. Then the post-globalisation experience of countries around the world virtually negated the falling part of Kuznets inverted U. Most countries which profited from globalisation in the form of upward shifts of their growth trajectories also experienced a rise rather than a decline in economic inequality. The present paper is a survey of the large and interesting literature on the changing nature of inequality before and after globalisation. The survey finds that inequality across countries has actually declined as a result of globalisation whereas inequalities within countries have almost invariably increased. Apart from usual factors such as bequest and skewed distributions of wealth, the new factors that have accentuated post-globalisation inequality are widening wage disparities, inequalities of opportunities, the onslaught of automation and rent-seeking activities of a section of the rich. The survey also notes how inequality has been moderated in some counties through effective taxes and transfer programmes. After summarising the arguments why growing economic inequality cannot be left unattended, the survey concludes with an outline of the policy choices which are being currently discussed in the academic and administrative circles.