Nancy Birdsall

Ngozi Okonjo-Iweala

LAGOS – The countries of Sub-Saharan Africa have reached a critical juncture . Strained by a collapse in commodity prices and China ’ s economic slowdown , the region ’ s growth slipped to 3.4 % in 2015 – nearly 50 % lower than the average rate over the previous 15 years . The estimated growth rate for 2016 is lower than the population growth rate of about 2 %, implying a per capita contraction in GDP . Sustained economic growth is essential to maintain progress on reducing poverty , infant mortality , disease , and malnutrition . It is also the only way to create sufficient good jobs for Africa ’ s burgeoning youth population – the fastest growing in the world . As Gerd Müller , Germany ’ s development minister , noted at a recent press conference , “ If the youth of Africa can ’ t find work or a future in their own countries , it won ’ t be hundreds of thousands , but millions that make their way to Europe .” One way to sustain growth and create jobs would be to collaborate on planning and implementing a massive increase in infrastructure investment across Africa . Public infrastructure is particularly important . This includes highways , bridges , and railways linking rural producers in landlocked countries to Africa ’ s urban consumers and external markets ; mass transit and Internet infrastructure to accommodate greater commercial activity ; and electricity transmission lines integrating privately financed power plants and grids . Major regional projects are also needed to knit together Sub-Saharan Africa ’ s many tiny economies . This is the only way to create the economies of scale needed to increase the export potential of African agriculture and industry , as well as to reduce domestic prices of food and manufactured goods . While governments in Africa are spending more on public infrastructure themselves , outside finance is still required , especially for regional projects , which are rarely a top priority for national governments . Yet aid from Africa ’ s traditionally generous foreign donors , including the United States and Europe , is now set to shrink , owing to political and economic constraints . But there may be a solution that helps Africa recover its growth in a way that Western leaders and their constituents

ranko Milanovic has written an outstanding book . Global Inequality : A New Approach for the Age of Globalization is informative , wide-ranging , scholarly , imaginative and commend ably brief . As you would expect from one of the world ’ s leading experts on this topic , Milanovic has added significantly to important recent works by Thomas Piketty , Anthony Atkinson and François Bourguignon .

Compared with Piketty in Capital in the Twenty-First Century ( 2014 ), Milanovic focuses more on global than on national inequality , and also more on income than on wealth . His canvas is broader than that of Atkinson in In equality : What Can Be Done ? ( 2015 ), which concentrates on the UK and goes deeper into policy . The book closest to Global Inequality is Bourguignon ’ s The Globalisation of Inequality ( 2015 ) — unsurprisingly , perhaps , given that the two authors were colleagues at the World Bank . Yet Milanovic ’ s approach is both more historical and more political .

Milanovic , like Bourguignon , stresses one encouraging fact . While inequality is rising within most countries , notably the high-income ones , global inequality of incomes , though huge , has been falling , particularly since 2000 . Yet even that might not continue , once China ’ s incomes per head rise above the global average , as will soon happen . Prospects for further reductions in global inequality will then depend on the rate of progress in other large developing economies , notably India .

Other conclusions are more disturbing . In particular , the influential hypothesis of the Nobel Prize-winning economist Simon Kuznets ( 1901-85 ) that development first increases inequality of incomes within countries , then durably reduces it , has been disproved by events . Instead of such a “ Kuznets curve ”, Milanovic advances the notion of “ Kuznets waves ”: inequality rises , falls and then rises again , perhaps endlessly .

The author , now a senior scholar at the Luxembourg Income Study Center in New York , is celebrated for a chart showing the proportional rise in real incomes per head across the global income distribution between 1988 and 2008 , which is updated here to 2011 . Those at the very bottom have done relatively poorly . The global middle classes have prospered : those between the 45th and 65th global percentiles ( from the bottom ) doubled their real incomes between 1988 and 2011 . A high proportion of these are Chinese . But those between the 80th and 95th percentiles have suffered stagnant real incomes . These are the middle classes of the high-income countries .

Finally , the global top one per cent has done far better than those immediately below it , with real income increases of around 40 per cent . This is a far broader group than the high-income countries ’ top 1 per cent : the top 12 per cent of Americans are in the global top 1 per cent , as are the top 5 per cent of British people . The global top 1 per cent receive about 29 per cent of all income and own about 46 per cent of all wealth : inequality of the latter is always greater than the former .

For much of the 19th and 20th centuries , the rise in average incomes per head in today ’ s highincome countries outpaced that in the rest of the

find acceptable . We call it the “ Big Bond ” – a strategy for leveraging foreign aid funds in international capital markets to generate financing for massive infrastructure investment . Specifically , donors would borrow against future aid flows in capital markets . That way , they could exploit current low interest rates at home , as they generate new resources . With 30-year US Treasury rates of about 3 %, donors would have to securitize only about $ 5 billion to raise $ 100 billion . That money could come from the $ 35 billion in annual official development assistance ( ODA ) to Africa ( which totals about $ 50 billion ) that takes the form of pure grants . Donors would pass on the interest cost to African countries , reducing their own fiscal costs . For African countries , the terms would be better than those provided by Eurobonds . In fact , as audacious as it may sound , passing on the interest costs to recipient countries could actually bolster their debt sustainability . According to a study of eight countries by

world . One ’ s position in the global distribution of income came increasingly to depend not on what one did but on where one did it . Milanovic calls this advantage of being British rather than , say , Kenyan “ citizenship rent ”. In recent times , this rent has fallen , but only a little . Today , one ’ s living standard depends a little more on what one does and a little less on where one does it .

The overall picture , then , is one of modestly falling global inequality and rising inequality within countries , notably high-income ones . Since most politics is national , periods of rising inequality within countries inevitably have political implications . Not least , Milanovic notes , “ very high inequality eventually becomes unsustainable ”.

This partly explains the period of falling inequality within the high-income countries that preceded the more recent increases in inequality . During much of the 20th century , the middle and lower classes of high-income countries benefited not only from the growth of these economies , but also from marked reductions in the very high inequality of the 19th century .

Yet it was not only benign forces — rising demand for labour , improved education and the creation of welfare states — but also malign ones — wars and depressions — that drove this mid-20th-century decline in inequality . The malign forces , Milanovic stresses , were not accidents but consequences of high inequality . Unequal societies are inclined to be bellicose : world wars were an outcome . Similarly ,

the African Development Bank ’ s Policy Innovation Lab , a 3 % interest rate in US dollar terms would be lower than the marginal cost of commercial borrowings undertaken by several African countries over the last five years . Moreover , far longer maturities and grace periods , compared to market finance , would ease growing pressure on foreignexchange reserves . Frontloading aid in this way is not new . Doing so in the early 2000s to finance vaccines saved millions of lives in the developing world . Big Bond resources , managed by the African Development Bank , could be used to help guarantee financing for major regional infrastructure projects that have long been stuck on the back burner , such as the East Africa Railway connecting Tanzania , Rwanda , and Burundi , and a highway stretching from Nigeria to Côte d ’ Ivoire . Such projects could also be co-financed by private investors . Moreover , the Big Bond could help to reinvigorate the relationship between donors

the financial development characteristic of unequal capitalist societies has tended naturally towards crises .

The more recent rise in inequality in nearly all high-income countries also has economic and political causes and consequences . Globalisation , technological progress , the rising importance of finance and the emergence of winner-takes-all markets are the economic forces . Plutocracy then emerges and reinforces the tendency towards in equality . Evidence from the US shows , for example , that politicians routinely ignore the concerns of the lower- and middle-income groups .

“ Today , one ’ s living standard depends a little more on what one does and a little less on where one does it ”

It seems unlikely , argues Milanovic , that the forces driving rising inequality inside nearly all economies will reverse in the foreseeable future . On this , he is a little more optimistic about China than about the US . As the growth of China ’ s labour force slows , real wages are starting to rise strongly . Moreover , political pressures from below and the need for a consumption-led economy might force the government to shift incomes towards the middle and bottom .

In the case of the US and other high-income countries , the forces behind rising inequality are powerful . The redistributive policies of the mid-20th century would also now be difficult to implement because it is harder to tax mobile capital and people . If the benign forces look weak , what about the malign ones ? In the high-income countries , we are witnessing movements towards not only plutocracy but also nationalist populism . Indeed , the two go together . We do not yet know how this will end . Milanovic even asks whether democratic capitalism will endure .

If globalisation is making the world more equal and most countries , especially the high-income ones , rather less so , should we regard this as a beneficial development ? Milanovic favours the cosmopolitan yardstick : if the world ’ s poor and middle classes are doing relatively well , that is good . At the same time , he is understandably concerned about what is happening within highincome countries .

One argument for this is that globalisation might not be politically sustain able . This applies particularly to migr ation . Free movement of people may be viewed as a natural corollary of free movement of goods , services and capital . In practice , the result is a reaction against globalisation . The popularity of Donald Trump and Marine Le Pen shows that the less successful will fight for their citizenship rent .

The era of globalisation has produced beneficial outcomes . But it has also created huge challenges . If ever-rising inequality within countries is to be avoided , redistribution of the income from capital , or of wealth , seems to be an inescapable part of the answer . Is this politically possible ? Probably not — in which case , the political future of the west looks bleak . Ever-rising inequality looks a highly unlikely combination with any genuine democracy . It is to the credit of Milanovic ’ s book that it brings out these dangers so clearly , along with the important global successes of the past few decades .

and African countries . And , as it supports investments with important country-level benefits , it could serve as an incentive for African countries to pursue reforms that increase their absorptive capacity , in terms of choosing and executing public infrastructure investments . The Big Bond approach represents a muchneeded update to the ODA framework – one that supports higher and more sustainable growth in recipient countries , while lowering the burden on donor countries . At a time when aid is under political pressure , perhaps such a bold approach to maximizing the efficiency of donor resources is exactly what the world needs .

Nancy Birdsall is President Emeritus and a senior fellow at the Center for Global Development .

Ngozi Okonjo-Iweala , is a former finance minister of Nigeria and managing director of the World Bank , is a distinguished visiting fellow at the Center for Global Development . © Project Syndicate