In Economics, Geopolitical Economy, Imperialism, Inequality, Myth Industry, Pluralism

This paper, whose title comes from Pritchett’s landmark 1995 paper Divergence, Big Time, uses recently-available, but authoritative and comprehensive data series, dating back to 1950, to study the long-term evolution in inequality between nations, defined, following Kuznets, as the ratio of GDP per capita of the two groups conventionally called ‘The North’ and ‘The South’.

With the exception of China, inequality has risen for most of the past seventy years and is now twice as bad as in 1950. Divergence, so defined, is a long-term general trend. These findings contradict mainstream trade and development theory which predict that the incomes of nations should converge over time. In line with the principle of data pluralism, which informs the GERG data project, we explore a variety of measures of income and output, and show they lead to the same conclusion, which is therefore robust, that is to say, it does not depend on how inequality is measured.

The facts also contradict claims that Divergence has ceased or reversed or that international inequality is an ignorable problem. This suggests that data providers have paid inadequate attention to the use, classification, and interpretation of their own data. It also suggests that commentators, including critics of mainstream theory, have placed unjustified trust in the data providers.

By placing both our results and the underlying data at the disposal of the public, we provide critical thinkers with the means to study the facts for themselves.

We study two exceptions. China, which has broken decisively from Divergence, is a a classic example of an exception that confirms the rule: the Divergent trend in the remaining South is even stronger if China is excluded.

We then study the steep reversal of the general trend which started in 2002 but peaked in 2012 at a worse level than 1980. Both exceptions offer critical insights into the prospects for a permanent solution.

North-South inequality dominates, by an order of magnitude, over all domestic differentiation, offering a critical perspective on the household inequality approach of the World Bank’s PovCal project, and the World Inequality project of Piketty and his colleagues.

The report studies a range of explanations for these facts and concludes that Divergence, contrary to mainstream predictions, is a product of the world market itself. However, it can be counteracted, or re-enforced, by the political actions of states. The world economy is therefore best understood as a competitive struggle organised by the interaction between these national states and the world market.

In line with Desai’s theory of Geopolitical Economy, we note that the dominant material interests of the North seek to use their states to maintain a competitive advantage over the South by strengthening the market forces that produce Divergence. Resistance from within the Southern nations, when realised in policies that counteract or override the effects of the world market, reduce inequality. Economic competition is thus elevated to the highest political levels, including military conflict.

Conflict is reaching a peak with the prolonged economic depression in the North, the decline of the dollar, the rise of China and the growing trend for the nation states in the South to act in concert to defend their interests. It is exacerbated by. The current ‘multipolar moment’ therefore opens up the greatest prospects for a permanent reversal of Divergence, accompanied by great dangers

An adequate, fact-based approach to understanding the causes, counteracting forces and current stage of Divergence is therefore of the greatest importance.

Cite as: Freeman, A. 2019 Geopolitical Economy Research Group Data Project Working Paper #2, March 2019.

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