Home / Columns / Mobility: a solution to inequality?
Man giving presentation in lecture hall at university.
π Economics

Mobility: a solution to inequality?

Philippe Aghion
Philippe Aghion
Professor at College de France and London School of Economics

A large por­tion of the world’s pop­u­la­tion has been lift­ed out of pover­ty by the com­bined effect of advance­ments in knowl­edge, and the growth and glob­al­i­sa­tion of trade. Accord­ing to the World Bank, in 1981 close to 40% of the world’s pop­u­la­tion was liv­ing under the pover­ty line (on less than a dol­lar a day). By 2008, this fig­ure had fall­en to 14%. While in 1988, 40% of India’s urban pop­u­la­tion was liv­ing in pover­ty, the num­ber dropped to 12% just eleven years lat­er, due to rapid growth, with the aver­age annu­al growth rate ris­ing from 0.77% in the 1970s to 3.9% in the 1980s.

The glob­al reduc­tion in inequal­i­ty is not only a mat­ter of income, but also health. Between 1940 and 1980, the aver­age life expectan­cy in devel­op­ing coun­tries rose by near­ly 20 years, from 44.5 to 64.3 years of age. In devel­oped coun­tries, this fig­ure rose by just nine years over the same period.

Since the ear­ly 1980s, rapid eco­nom­ic growth in Chi­na and India has enabled over two bil­lion peo­ple to escape pover­ty. At the same time, this growth has gen­er­at­ed new inequal­i­ties between these coun­tries and oth­er economies, par­tic­u­lar­ly those in African states, which have not expe­ri­enced the same growth. Last­ly, growth in India and Chi­na has increased inter­nal inequal­i­ties: only lim­it­ed sec­tions of the Indi­an and Chi­nese pop­u­la­tions have become pros­per­ous, or rich, even though pover­ty rates have dropped sharply in both coun­tries since the 1970s.

The same phe­nom­e­non of grow­ing “intra-coun­try” inequal­i­ty can also be observed in oth­er coun­tries. In the West­ern world, there are those who have inno­vat­ed and adapt­ed to best take advan­tage of tech­no­log­i­cal rev­o­lu­tions (ITC, AI, etc.), and those who have been left behind. Should we be con­cerned about ris­ing inequal­i­ties with­in our borders?

Growth in India and Chi­na has increased inter­nal inequal­i­ties in these countries.

Fighting poverty and increasing social mobility

Inequal­i­ty can be mea­sured in sev­er­al ways. We could look at the top rich­est 1% with­in a country’s income; at a more glob­al mea­sure of inequal­i­ty, such as the Gini coef­fi­cient, which mea­sures the dis­tance from per­fect equal­i­ty for the entire pop­u­la­tion; or at social mobil­i­ty mea­sures and the pover­ty traps that hin­der social mobility.

In my view, if we want to encour­age growth through inno­va­tion while lim­it­ing inequal­i­ty, we must fight pover­ty and increase social mobil­i­ty. Inter­est­ing­ly, greater social mobil­i­ty tends to be asso­ci­at­ed with low­er over­all inequal­i­ty (a phe­nom­e­non known as the Great Gats­by curve). By focus­ing on social mobil­i­ty, we could kill two birds with one stone.

In that case, must we sim­ply ignore the rich­est 1 or 0.1%? The answer is no, since the rich can use their resources to block new inno­va­tions and reforms aimed at open­ing up access to edu­ca­tion and health: those who suc­ceed­ed yes­ter­day may wish to stop oth­ers from doing the same today, and thus pre­vent competition.

There­fore, in order to pro­mote tru­ly inclu­sive growth through inno­va­tion, we must estab­lish an eco­nom­ic and social mod­el that: (1) stim­u­lates social mobil­i­ty through high qual­i­ty edu­ca­tion, train­ing and health for all; (2) pro­tects peo­ple and pre­vents them from falling into pover­ty by shield­ing them against the risks asso­ci­at­ed with job loss and career change; (3) encour­ages tech­no­log­i­cal advance­ments and inno­va­tion as sources of wealth cre­ation, while estab­lish­ing safe­guards (relat­ing to tax­es, com­pe­ti­tion, cor­rup­tion laws, etc.) to pre­vent yesterday’s inno­va­tors from block­ing the paths of oth­ers to pros­per­i­ty and freedom.

This col­umn is the repost of an arti­cle that was orig­i­nal­ly pub­lished in the Paris Inno­va­tion Review on 02/01/2018.

Contributors

Philippe Aghion

Philippe Aghion

Professor at College de France and London School of Economics

Phillipe Aghions’ research focuses on the economics of growth. With Peter Howitt, he pioneered the so-called Schumpeterian Growth paradigm which was subsequently used to analyse the design of growth policies and the role of the state in the growth process. In 2001, Philippe Aghion received the Yrjo Jahnsson Award of the best European economist under age 45, in 2009 he received the John Von Neumann Award and in 2016 he received the Global Entrepreneurship Award.