An economist looks at how improved material wealth coincides with rising inequality and gives special attention to China’s role in the global economy, Andrew Moody reports in London.
Douglas McWilliams believes China is a classic case of the paradox at the heart of the global economy.
Although it has delivered 800 million out of poverty in the past 40 years, the gap between rich and poor has also grown, something the Chinese government is very determined to address.
This, though, is a global phenomenon and one that the well-known British economist addresses in his new book, The Inequality Paradox: How Capitalism Can Work for Everyone, which was officially launched earlier this month.
“China has made the biggest single contribution to the fall in global poverty in human history and progress is still being made,” the 67-year-old says.
China aims to entirely eliminate extreme poverty by the end of next year.
“But within China, as with other countries, inequality has increased as poverty has decreased. This is the paradox.”
Inequality is now a central issue of economic debate. It is a particular problem in the West, where many feel left behind since the global financial crisis of 2008. And this has given rise to increasing disaffection and rising populism.
It was also addressed by the French economist Thomas Piketty in his seminal 2013 book, Capital in the Twenty-first Century. He blamed the problem on the rich seeing a greater rise in the value of their assets than the increase in wages of those who have to work for a living.
McWilliams, who was speaking at the central London office of the Centre for Economics and Business Research, the economics consultancy he founded more than 25 years ago and of which he is executive deputy chairman, thinks Piketty is only partly right.
“What he argues is about 20 percent true. IMF studies that have looked at this carefully do point to people with assets exploiting others being part of the story. I think, though, Piketty’s explanation misses the real driving point,” he says.
McWilliams believes what has driven inequality is globalization-which China has largely benefitted from-and technology with the Fourth Industrial Revolution threatening to destroy jobs in the developing as well as the developed world.
“With globalization, you have had nearly three-quarters of the world’s population suddenly becoming economically active in just a few decades. This is bound to be disruptive. It has created increased inequality in the West, but it has also been associated with a significant reduction of poverty in the East,” he says.
McWilliams insists Donald Trump-style protectionism is no answer to globalization.
“King Canute (the 11th-century English Viking king, who tried to hold back the tide) had similar ideas. But it didn’t work, did it? China, in fact, is one of the best examples of isolationism not working. It looked in on itself after the Ming Dynasty (1368-1644) voyages of Zheng He and hardly developed for several centuries afterwards.”
McWilliams believes such technologies as artificial intelligence and robotics, which will destroy vast swaths of jobs, pose huge challenges to policymakers if societies don’t become more equal.
“It is no longer just about machines replacing people but machines making the machines that replace people,” he says.
“People will just have to find new things to do. In the UK, we have actually had the growth of the lifestyle economy with the number of people claiming to be musicians going up nearly five times and, similarly, writers three times.”
He believes the only solution may be that everyone becomes entitled to a universal basic income and that this might be more imminent than many currently think.
“In some of the oil states in the Middle East, there is already an effective basic income. My maths says the economics in the US start to add up in about 10 years’ time, and in Europe and China is about 20 to 25 years’ time.”
McWilliams was partly brought up in Asia. His father was a civil engineer in Malaysia before McWilliams returned to the UK to attend the Roman Catholic independent school Stonyhurst College in Lancashire before studying economics at Oxford.
He has held a number of prominent jobs, including stints as chief economic adviser to the Confederation of British Industry, the leading US-business organization, and an economic adviser to former UK chancellor of the exchequer George Osborne.
His latest book comes just three years after the success of his first, The Flat White Economy, which looked at how the growth of media, internet and creative businesses was transforming economies.
McWilliams says the issue of inequality is not so important to people when they are being delivered from poverty. It’s only later when people become concerned about disparities in their material wealth.
“When you are starving, you just want food. When you are well off, you start to demand luxury goods. In China, you cannot ignore the fact that life expectancy has gone up as well as nutritional standards, and health has massively improved,” he says.
McWilliams says globalization and technology can have an exponential effect on disparity. In the book, he cities the fact that England soccer player Wayne Rooney earned 53 times more than the legendary Bobby Charlton of an earlier era.
“This was because Rooney played on the global stage, whereas when Bobby Charlton played, even people in the UK couldn’t watch him on the TV since only a very few matches were broadcast live,” he says.
McWilliams believes that one of the ways to reduce inequality is through education, and that is why countries like China are right to place emphasis on this.
“There is no greater determinant of how much people will earn in their lives than their level of education. I was brought up in Asia, and my mother ran a kindergarten. The thing that humbled me is that poor people would pay half their salaries to educate their children. I think we have slightly lost that in the West.”
Unlike Piketty, McWilliams does not believe that taxing the rich is a solution to reducing inequality.
“Piketty argues that if you shoot the rich the problem goes away. I don’t believe that.”
McWilliams’ consultancy earlier this year produced a report on how the Belt and Road Initiative would boost global GDP by 4.2 percent in 2040. It has also produced several other reports on China’s economy.
“I am confident about the China economy because the government has done all that it needs to do to get to the next level, and, therefore, it is unlikely to get stuck in the middle-income trap.”
On the UK, he supported Brexit in the referendum but insists he is not a “head-banger” on the subject and is increasingly frustrated by the uncertainty it is creating.
“My guess now is that whatever happens it is going to be hugely disruptive, and the pain will have been prolonged by the fact the country has taken so long to make up its mind.”
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As for inequality across the world, McWilliams says that after writing the book, which is persuasive and, arguably, easily one of the best on the subject so far, he is pessimistic.
“I think we are going to have to fight, and fight very hard, to prevent the gaps in society from widening,” he says.