From The Retreat of Western Liberalism (Edward Luce, 2017) p31-5
The world’s most informative graph is the Elephant Chart. Devised by Branko Milanovic, a former World Bank staffer, this statistical pachyderm has many virtues. It is intuitively simple and tells you pretty much everything you need to know about the era of high globalisation since the fall of the Berlin Wall. It shows the distribution of more than two decades of growth between different percentiles of the global economy. The global median – the emerging middle classes of China, Vietnam, India and so on – enjoyed income growth of more than 80 per cent in those years. Even the bottom deciles, in Africa and South Asia, saw growth of up to 50 per cent. The key part of the elephant for the Western middle classes is where its trunk slopes downwards between the seventy-fifth and ninetieth percentiles of the world’s population. These account for the majority of the West’s people. At their mid-point, incomes grew by a grand total of 1 per cent over the last three decades. The original chart ended in 2008. In that short period since the ‘global’ recession, China’s urban incomes had already doubled. The bulging frame of the elephant only includes some of the developing world. Many other regions, including most of Africa, Bangladesh, Central Asia and corners of Andean South America, have yet to contribute noticeably to the elephant’s bulk. Their absorption is a matter of time. In much the same way that Western investment helped bring China into the global system, Chinese investment is now doing the same for Africa and elsewhere. As China’s wages rise, its demand for cheaper labour grows. The Western worker is painfully familiar with the story. The long-term portents for Western standards of living are disturbing. If this wave of globalization is holding back the income growth of the rich world’s middle classes, what will be the result of the next wave, involving ever-poorer and more populous countries, such as Bangladesh, Burma, and Ethiopia? asks Milanovic.
The last part of the elephant is the tip of its trunk, which shoots straight upwards in a suitably celebratory posture. That is the global top 1 per cent. Their incomes have jumped by more than two-thirds over the same period. But as Milanovic shows, that would be dramatically to understate the bonanza the global 1 per cent who are still mostly to be found in the West have reaped since the start of the Great Convergence, The top 1 per cent’s share of the global economy is 15.7 per cent. But if you measure their net wealth, and provide reasonable estimates of what they have salted away in hidden corners, such as the offshore financial havens of the Caribbean and elsewhere, their share jumps to almost a third of global wealth. The nearer the snout you get, the sharper the growth. The world’s wealthiest subset – the 1426 richest individuals on the planet – are worth $5.4 trillion, which is roughly twice the size of the entire British economy and more than the combined assets of the 250 million least wealthy Americans. The asset value of the world’s leading billionaires has risen five-fold since 1988. What one could do with all that money is a parlour game we all enjoy: ‘Suppose now that you inherited either $1 million or $1 billion, and that you spent $1000 every day. It would take you less than three years to run through your inheritance in the first case, and more than 2700 years (that is, the time that separates us from Homer’s Iliad) to blow your inheritance in the second case,’ says Milanovic of the richest group. Meanwhile, between a quarter and a third of people in the West have negative or zero net wealth. They face penurious retirements. As I say, if you want an economic chart that stops you from sleeping you should start with the elephant.
Now, recall what came before the elephant. That was what we now refer to as the Golden Age of Western middle-class growth between the late 1940s and the early 1970s, or what the French call les Trente Glorieuses of rising incomes for the bulk of society. The annual gains were almost metronomic. Then something went wrong. It can be corrected, we tell ourselves. The West somehow managed to step off the natural escalator that assured annual income growth of a to 3 per cent, which roughly doubled our standard of living every generation or faster. We had faith that by the end of their lives our children would be three to four times better off than we are. For brief moments, such as during the internet boom of the 1990s, that age looked like it had returned. But the growth vanished almost as quickly as it came. We are still awaiting the productivity gains we were assured would result from the digital economy. With the exception of most of the 1990s, productivity growth has never recaptured the rates it achieved in the post-war decades. ‘You can see the computer age everywhere but in the productivity statistics,’ said Robert Solow, the Nobel Prize-winning economist. Peter Thiel, the Silicon Valley billionaire, who has controversially backed Donald Trump, put it more vividly: ‘We wanted flying cars, instead we got 140 characters [Twitter]! That may be about to change, with the acceleration of the robot revolution and the spread of artificial intelligence. But we should be careful what we wish for. The squeeze is already uncomfortable enough.
I am nearing fifty. My generation – those born in the mid- to -late 1960s and the 1970s – straddled the transition from the golden years to the new normal, though we did not wake up to it until we were into our thirties. We grew up with the lofty expectations of our parents, but with the waning hope they would come to pass. The same is even more harshly true of our downgraded retirement prospects. To be clear: the West’s souring mood is about the psychology of dashed expectations rather than the decline in material comforts. A few years ago a New Yorker cartoon caught the essence of how we feel about things. It showed a Chinese mother finger-wagging at her daughter’s uneaten dinner: ‘Eat your rice, Han Ling, don’t you know there are children in West Virginia who are starving? Nevertheless, most Westerners of almost any age group, and in almost any income bracket, are still considerably better off than most of their counterparts in China, India and other swathes of the emerging world though those gaps are narrowing. (China’s urban per-capita income is approaching half of the level of America’s per-capita income. A generation ago it was a sixth.) We are also unimaginably luckier than any generation before us. Queen Victoria would envy the medical care that is now free at point of access to even the most socially excluded UK citizen. Andrew Carnegie would marvel at the electronic library that is just a thumbprint away from all but the most disconnected Americans.
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