In his book, Capital in the Twenty-First Century, Thomas Piketty establishes a fact that many people have not suspected.
Whereas many suspected the confirmed fact that a gap has opened up after the seventies between the top 10 percent and average income earners, many did not suspect that the gap that has opened up between, say, the top .1 percent and the remainder of the top 10 percent is far larger that the first one. Imagine for example what it would mean if such a substantial gap has effectively opened up in the United States between the top .1 percent of lawyers and the remainder top 10 percent of lawyers.
What are the causes of this surprising phenomenon? Piketty’s argument is centered about the intrinsic tendency in a market economy of capital or wealth to grow at a rate that normally exceeds the economic growth rate. Thus, economies will tend to have ever-increasing ratios of wealth to income, barring huge disturbances like wars and depressions.
Is there a place in this picture for globalization as a significant causal factor? One would think of course first of the greater ability of entrepreneurs to draw on low-cost foreign labor. However, this aspect is more relevant in explaining the first type of gap, namely the one between the top 10 percent and average income earners or less skilled workers.
In his excellent article, Lawrence H Summers, offers another lead for the possible role of globalization in explaining this inequality puzzle:
[T]here is the basic truth that technology and globalization give greater scope to those with extraordinary entrepreneurial ability, luck, or managerial skill. Think about the contrast between George Eastman, who pioneered fundamental innovations in photography, and Steve Jobs. Jobs had an immediate global market, and the immediate capacity to implement his innovations at very low cost, so he was able to capture a far larger share of their value than Eastman. Correspondingly, while Eastman’s innovations and their dissemination through the Eastman Kodak Co. provided a foundation for a prosperous middle class in Rochester for generations, no comparable impact has been created by Jobs’s innovations. This type of scenario is pervasive. Most obviously, the best athletes and entertainers benefit from a worldwide market for their celebrity. But something similar is true for those with extraordinary gifts of any kind. For example, I suspect we will soon see the rise of educator superstars who command audiences of hundreds of thousands for their Internet courses and earn sums way above the traditional dreams of academics.
Are there other unsuspected ways through which globalization plays a role in this inequality puzzle at the top?
