Growth, Inequality and Globalization: Theory, History and Policy

Published by EH.NET (July 1, 2000)

Philippe Aghion and Jeffrey C. Williamson, Growth, Inequality and

Globalization: Theory, History and Policy. New York and Cambridge:

Cambridge University Press, 1999. viii + 207, $49.95 (cloth), ISBN:

0-521-65070-4; $17.95 (paperback), ISBN: 0-521-65910-8

Reviewed for EH.NET by John R. Hanson, Department of Economics, Texas A&M

University.

This volume contains the formal versions of the 1997 Raffaele Mattioli

Lectures delivered on consecutive days in November 1997 by Philippe Aghion and

Jeffrey Williamson. The sponsors asked these renowned scholars to “question the

conventional wisdom on inequality and growth.” Aghion performs this task from a

theoretician’s point of view and Williamson from an economic historian’s, but

they jointly introduce their individual contributions by describing the

influential Kuznets Curve — shorthand for the conventional wisdom — as a

starting point for studying the causes and consequences of income inequality.

They pose several new questions, addressing some in their lectures. Cognoscenti

will recognize these as elegant but relatively non-technical summaries of

previously published research on income inequality by each of them. The clarity

for the non-specialist enhances both presentations.

Although the oral lectures must have been memorable occasions, their joint

publication is not one. Overlapping interests to the contrary notwithstanding,

these academic celebrities should have a small common audience because of their

divergent styles. They are as much alike as Placido Domingo and Garth Brooks.

Half of this volume is therefore likely to be irrelevant to the needs of the

potential purchaser, who still may consider the price fair given the excellence

of the scholarship contained in each contribution. For reviewing purposes the

two halves of the volume must be treated separately. I shall emphasize

Williamson, the more interesting scholar to the expected reader of this review,

and comment briefly on Aghion at the end.

Williamson

Jeffrey Williamson’s three chapters interpret pre-World War I income

convergence in what he calls the Atlantic economy — today’s OECD — in terms

of the economic globalization occurring during what normally is called the

“long” nineteenth century, but especially between 1850 and 1914. Williamson

begins by demonstrating that convergence in real wages occurred in the Atlantic

economy and then postulates four possible causes, of which he analyzes only

two, international trade and mass migration. He reaches the conclusion that

both types of globalization contributed to convergence, but that migration’s

contribution swamped trade’s. The final chapter explains that another effect of

convergence-through-globalization was income redistribution in the Atlantic

countries, provoking a sequence of political backlash, deglobalization, and the

collapse of convergence between 1914 and 1950. He concludes with a warning

about potential future backlash, but he allows that a recurrence of

convergence-through-migration is unlikely today. This belies his introductory

chastisement of those who ignore the lessons of history for modern

globalization.

The rare economic historian who is not aware of Williamson’s views or wants a

non-technical summary of them will find it here. Williamson’s cliometric

virtuosity distinguishes him from most previous writers on these subjects and

gives his opinions weight, but here he concentrates on historical substance.

Even without the technical esoterica the presentation is meaty, challenging,

and accessible mainly to professionals.

The core of the lecture is a persuasive analysis of international migration and

its effects. This is also the most original component of the grand project

Williamson and his associates have pursued in recent years. It advances

knowledge of the pre-World War I international economy considerably while

providing food for future research and deservedly ranks high among recent

contributions to economic scholarship. Yet other parts of these lectures

violate the intended iconoclastic spirit of the Mattioli lectures.

Williamson, for one thing, shows himself to be an avatar of orthodoxy

concerning the shape and evolution of the nineteenth-century global economy. He

tacitly accepts and promotes, for example, the depiction of a “long” nineteenth

century ending at World War I. A case could be made, however, for a “short”

nineteenth century ending in 1896 and a “long” twentieth century beginning at

the same time. The so-called Great Depression (1873-96) gave way to a global

boom that continued until World War I, a sequence Williamson knows well but

omits to mention. How to handle the post-1896 appendage to the “short”

nineteenth century is a non-issue to the economic history profession, which,

one is tempted to conjecture, finds World War I an aesthetically pleasing point

of closure. Williamson, for his part, simply elides a rich diversity of

experience between 1850 and 1914 into Globalization Rampant.

Similarly, Williamson waxes eloquent about the transportation and communication

revolution of the nineteenth century, especially post-1860 when, as many

scholars have documented, the long-run decline in transportation costs

accelerated sharply because of technological improvements in international

shipping, the opening of the Suez Canal, and so on. The professional tradition

in which Williamson writes ascribes nearly magical trade-creating powers to

this market-integrating revolution. Against such a background, Williamson’s

finding of trade’s meager contribution to wage convergence in the Atlantic

economy seems more surprising and original than it really is.

Here are some contrary facts. ? During the Great Depression, as is well known,

the rate of growth of world trade was lower than at almost any time in either

the “short” or “long” nineteenth century. It also was a great deal lower than

after World War II. ? An expert on the economic history of Thailand, James

Ingram, questions whether the transportation revolution helped Thailand’s rice

exports very much. ? If the conventional wisdom is valid, why was growth in

British imports or consumption of such notable foreign products as coffee,

rice, silk, cotton, and wheat negligible or even negative between 1880 and

1900? Williamson’s analysis of Victorian commerce unfortunately homogenizes

questions of this sort away. It is germane to recall that until Robert Fogel

came along the indispensability of the railroad to American economic growth was

a professional article of faith. International transportation history likewise

has been treated too long as a canonical tale. Furthermore, perhaps it is

simply true, as the late Irving Kravis proposed about three decades ago, that

international trade is inherently a “handmaiden of growth,” not an “engine of

growth,” for developing countries. This downgrading of trade’s role has found

many adherents, making Williamson’s analysis of trade an expert but nonetheless

roundabout way to reach a common historical judgment. His analysis, to be sure,

is a valuable addition to the literature, but it seems a pity to expend so much

energy revisiting an uncontroversial hypothesis.

In sum, the central theme of Williamson’s lectures is a major contribution to

our understanding of the consequences of international migration before World

War I. It honors and fulfills the responsibility to question conventional

wisdom on income inequality. Yet Williamson’s fealty to the economic

historian’s catechism in this prestigious forum delays the complete liberation

of the subject of nineteenth-century economic globalization from the

procrustean bed in which it has rested for so long. Time also will tell whether

new research requires Williamson’s claims about migration and backlash to be

modified.

Aghion

Philippe Aghion, unlike Williamson, trumpets his iconoclasm on the relation

between income inequality and economic growth. The conventional wisdom, he

declares, cannot explain empirical evidence appearing in a number of recent

studies. Staying within the traditional neoclassical framework, he nevertheless

introduces a host of new factors into the analysis, including credit-market

imperfections, moral hazard, non-neutral technical and organizational change,

labor-market institutions, and international trade. His goal is to paint a more

complex and realistic picture of the growth-inequality relation, which is a

reciprocal one. In the first half of his presentation he discusses the effect

of inequality on a nation’s economic growth; in the second half he analyzes the

effect of growth on inequality. He organizes the discussion around the recent

upsurge in wage and income inequality in developed countries, evaluating

candidate explanations from a purely theoretical perspective. He particularly

favors technological change as the most likely causal factor in recent

inequality trends.

Aghion is more pertinent than Williamson to contemporary debates over the

causes and consequences of income inequality and the proper policy responses.

Aghion speaks to immediate contemporary concerns, whereas Williamson teaches a

tangential historical lesson. Aghion, moreover, covers all the relevant topics

in sufficient depth to escape any suspicion of reductiveness, at least as far

as I am concerned. He reveals so many ramifications of the issue of income

inequality and discusses these so cogently and rigorously that reading him

would be an enriching experience for someone with a theoretical bent.

Still, there is a debatable subtext to Aghion’s tour de force. Economic theory

is nothing more than informed speculation, much as many theorists would like to

claim otherwise. Aghion’s conclusions and recommendations are not backed up by

empirical research of his own; he likes to cite empirical research by others of

which he approves. He also makes frequent use of the concept of market failure,

a staple of liberal politics and economics. The Kuznets Curve is conservative

in that it suggests that in the early stages of economic development high

income inequality promotes saving and investment. Aghion, despite his

restrained academic tone, appears to be a committed egalitarian and

redistributionist. Perhaps the political coloration of his lecture is

accidental, but it is hard to overlook the congruity of his theoretical

exegesis with a familiar political posture in the contemporary scene. But this

does not change the fact that his clear, thorough, and, for theory,

entertaining account of many key issues surrounding income inequality deserves

attention.

John R. Hanson II is Professor of Economics at Texas A and M University. His

article “Culture Shock and Direct Investment in Poor Countries,” appeared in

the Journal of Economic History in March 1999.