Happy 200th Birthday, Karl Marx!

Most Marxists and anti-Marxists alike probably fail to realise that the highest praise for capitalism is to be found in Marx and Engels, Manifesto of the Communist Party (1848), that readily recognised that the capitalist system promoted urbanisation, industrialisation, technical progress, economic growth and prosperity on an unprecedented scale:  

“The bourgeoisie, during its rule of scarce one hundred years, has created more massive and more colossal productive forces than have all preceding generations together. Subjection of Nature's forces to man, machinery, application of chemistry to industry and agriculture, steam-navigation, railways, electric telegraphs, clearing of whole continents for cultivation, canalisation of rivers, whole populations conjured out of the ground—what earlier century had even a presentiment (of) such productive forces . . . The bourgeoisie, by the rapid improvement of all instruments of production, by the immensely facilitated means of communication, draws all, even the most barbarian, nations into civilisation.”

At the same time Marx viewed capitalism as a form of systematic labour exploitation. Primitive societies were not exploitative because they exchanged goods roughly embodying the same amount of labour. Slavery was less exploitative than it seemed, for slaves’ consumption allowed them to recover some of their own labour that looked entirely unpaid. Feudalism was openly exploitative, for the amount of work performed by labourers for themselves and for their feudal masters was clearly stipulated and visible; whereas capitalism does not look exploitative at all, since all labour is paid for, but workers perform more work than is embodied in their means of consumption and a surplus of unpaid labour is appropriated by capitalists.

 

Marx neglects altogether entrepreneurship, uncertainty and risk and their rewards: on that basis a positive share of profits is sufficient to infer exploitation, without the unnecessary detour of his labour theory of value.

The replacement and growth of fixed capital would be necessary in any mode of production (including socialism, Pareto 1890): exploitation should be restricted at most to capitalists’ consumption. But Marx regarded all profits, consumed or re-invested, as equally exploitative as originating in “primitive accumulation” ultimately rooted in theft, robbery, war, conquest and other forms of violence.

Inequality of wealth and incomes was recognised as a defining feature of capitalism. Its redeeming feature was the financing of investment and growth: “Accumulate, accumulate! This is Moses and the Prophets” (Capital, Vol,I, ch.24).

Marx modelled intersectoral flows and equilibrium conditions for a stationary and a growing economy in his schemes of simple and enlarged reproduction (with two vertically integrated sectors producing consumption and investment goods respectively). However he exaggerated the instability of a capitalist system by assuming that profits necessarily would have to be reinvested in the same sector in which they originated, while in any capitalist economy re-investment is never subject to such an arbitrary restriction (Lange 1970 amplified unreasonably this presumed instability of the system maintaining this undue sectoral restriction in a multi-sector model).

Marx regarded capitalism as a totally chaotic and anarchic system, naturally generating unemployed labour and under-utilisation of other resources, as well as costly fluctuations and economic crises. However he neglected automatic processes of economic adjustment, operating imperfectly, often either too fast or too slowly, but typical of the operation of markets in a capitalist system.

These automatic processes are: in the short-term, for a given level of production, the Walrasian adjustment of prices to any positive or negative excess demand; in the medium-term, when production levels can vary, the Marshallian adjustment of enterprise output to price relatively to its marginal cost; as well as the transmission to other sectors of the inputs requirements corresponding to their output change (activating what Goodwin 1949 calls “the multiplier as matrix”). In the longer term, when productive capacity can vary, there is a gradual adjustment of the actual capital stock to the level desired by enterprises in consideration of the demand level they experience - an upwards adjustment via investment in new capital or downwards through the non-replacement of excess capital. These adjustment processes are rooted in the maximisation of profit on the part of enterprises operating in a system of markets, whose owners appropriate profit to their own advantage. And we need to stress that these adjustment mechanisms auto-regulate production, prices, intersectoral transactions and productive capacity but naturally they do not regulate themselves as institutions (in a process that would amount to “autopoiesis”); thus their creation, regulation and guarantee remain fundamental functions of the state even in a fully de-centralised market economy.

Goodwin (1947, 1951a and 1953) likens the adjustment mechanisms operated by markets to homeostatic mechanisms, such as for instance a thermostat, that records the actual temperature, compares it to a pre-fixed desired temperature and automatically activates heating or cooling systems in order to reduce the difference between actual and desired temperatures (see also Leijonhuvfud 1970).

This kind of logic is less cogent and much more controversial in the case of financial markets. Financial intermediation creates value by modifying the size, time horizon and riskiness of assets demand and supply, but their continuous operation is associated to phenomena of both euphoria and panic. Financial markets contribute to economic growth at the cost of a greater vulnerability and potential instability. Keynes believed that financial investment should be indissoluble like marriage (or better, we should say that investment divorce should be equally costly and traumatic). Derivative products, whose value depends on the value of underlying assets, which they amplify and multiply, can contribute to the increase of total risk instead of its distribution among a large number of agents. This is why Buiter (2009) proposed to reserve derivatives transactions to agents who could justify them on the basis of an underlying insurable interest.

The alternative to markets seen as automatic thermostats is the manual regulation of temperature or of equivalent processes; manual control – in economic terms – corresponds to central planning. The desirability of self-regulating market mechanisms with respect to central planning depends on the speed of reaction of the system, on its tendency to reduce or to amplify the possible divergence between objectives and reality, from the stability or otherwise of such processes. There can be circumstances in which manual control (planning) is preferable to the automatic control (markets). My favourite example, which I used to inflict on my students, is taken from Star Wars: when Luke Skywalker is trying to strike at the heart of the Empire with a single shot, he disactivates the automatic aiming mechanism and choses to do it manually. But he is justified by exceptional circumstances: there is only one target, which he can either hit or miss without intermediate degrees of success, and ... the Force is with him.

The automatic adjustment processes discussed here, built into a market system, in spite of their imperfections have made the capitalist system more flexible, at the same time exposing it to the risk of possible episodes of much greater unemployment, instability and stagnation than would have been the case otherwise.

One of Marx’s main contributions to political economy is an evolutionary theory (“Darwinist”, according to Engels in his Speech on Karl Marx’s Tomb) of modes of production, understood in the modern sense of economic systems, as institutional setups that regulate the production and exchange of economic goods.

For Marx labour acting over nature leads to the development of production forces (natural resources, accumulation of physical and human capital, the state of technical knowledge). This development leads to the emergence of contradictions between the productive potential of society and the prevailing production relations (e.g. rules about ownership, production organisation, etcetera). Production relations then are modified as a result, in such a way as to eliminate such contradictions, realising the “law of the necessary correspondence of production relations to the character of productive forces” (Lange, 1963, ch. 2).

Further contradictions arise between the economic basis (or production relations) and the superstructure of society, understood as the social relations and social consciousness (religion, ideology, culture, etc.; Lange gives the example of the support to capitalism implicit in the protestant ethic), which contribute to the legitimation of the existing mode of production. Conflicts and contradictions between the various elements of the system and their resolution guide its evolution, according to the “Law of the necessary correspondence of the superstructure with the economic basis”. Productive forces and production relations define a mode of production, though at any time a mode of production coexists with residuals of former modes and embrios of the superstructure of future societies (Lange, 1963).

In his original approach to the evolution of economic systems, in any case, Marx made three major errors: he believed that: 1) there would be a final point of arrival for such an evolutionary course, i.e. full communism (with prevailing free goods, distribution according to needs, no state, and abundance of economic goods) without classes and therefore non-antagonistic, under which there would no longer be conflicts and contradictions; 2) there would be a linear progression of economic systems, from primitive societies to slavery to feudalism to capitalism (with a possible diversion represented by the Asiatic mode of production), followed by socialism and full communism; 3) that system evolution would be dominated by an extreme form of dialectical materialism, or economic determinism, with an exclusive role for economic factors. On the contrary we know today that full communism has always remained an objective never realised; that in the 1990s socialism was re-transformed back into capitalism, and moreover into an extreme form of hyper-liberal capitalism; and that economic factors are only a part, though important, of the multiple causes of system transformations.

One prediction that Marx did get right was the progressive relative immiserisation of the proletariat: while in absolute terms economic progress has raised living standards immensely and reduced poverty beyond the most optimistic expectations, in relative terms especially in this century the share of income and wealth of the rich has been increasing at unprecedented rates to record levels. According to Oxfam (2016) in 2015 the 62 richest individuals had increased their wealth by 44% with respect to 2010, matching the same total wealth of the poorest 50% of the world population, which on the contrary impoverished itself by 41% in the same period (in 2010 it took the 388 richest individuals to match the wealth of the poorest  50%).  Since 2008, the wealth of the richest 1% has been growing at an average of 6% a year – much faster than the 3% growth in the wealth of the remaining 99% of global population: should that trend continue, by 2030 the top 1% would hold two/thirds of world wealth, $305tn – up from $140tn today (The Guardian, 13/4/2018).

Reports of the death of both Marx and God have been grossly exaggerated.

Be Careful What You Wish For

Note: An Italian translation of this post (not revised by the author) has been published by vocidallestero.it , I am grateful to them and to the many readers who twitted and ri-twitted this post, as well as those who expressed their support on Facebook (where I have an account that I do not manage well). All this gave this post an extraordinary diffusion. Thanks also to all those who offered comments: I would rather readers commented directly on the Blog rather than to me via e-mail, in which case I might post their comments under initials or a made-up pseudonym or ask for their permission to enter their name (DMN) .

Indro Montanelli (1909-2001), the prestigious Italian journalist and writer, on many occasions expressed great contempt for Silvio Berlusconi, his character and politics. Yet in 2001 Montanelli declared in an interview: “I want him to win, I make vows and give pledges to the Madonna for him to win, so that Italians will see who this man is. Berlusconi is a disease that is cured only by vaccination, with a good injection of Berlusconi in government [a Palazzo Chigi]; Berlusconi as President of Italy [al Quirinale], Berlusconi wherever he wants to be, Berlusconi at the Vatican. Only afterwards will we be immune. The immunity that is obtained through vaccination” (La Repubblica, 26 March 2001[1]).

In the 13 May 2001 elections the first part of Montanelli’s wishes came true: Berlusconi and his allies obtained an absolute majority in both Houses of Parliament. 

Montanelli should have been more careful what he wished for. His verdict on the man was correct: the lower and the appeal courts in Milan in 2012 and 2013 convicted Berlusconi of fiscal fraud. The four year sentence was later reduced to one year and three months, which he never served by virtue of being over 70, but deprived him of political rights for two years until 2019. 

"He is the most sincere liar I know, for he is the first to believe in his own lies”, Montanelli had said;  he got away with a gigantic conflict of interest (with the complicity of the Left); Marco Travaglio, B. come Basta, Paperfirst, 2018, recounts how he run the country.

But otherwise Montanelli had been utterly and tragically wrong: the Italian electorate, who had already a short exposure to Berlusconi in 1994-95 and repeated large doses of vaccine with his governments in 2001-05 and 2008-11, still seems inclined to make his coalition the favourite to win the elections of 4 March 2018.

Despite Montanelli's mistaken prognosis and cure, I venture a similar wish, though in different circumstances, with respect to other parties and for different reasons.

At present there is a false, self-styled social-democratic Left, justifying itself by pretending to defend the interests of working people while destroying their life chances with their hyper-liberal, austerian and globalist policies, promoting no-border movements of capital and labour, de-regulation, privatisation, the destruction of the welfare state and unprecedented inequality of income and wealth. 

Inevitably a two steps (at least) process is required to get rid of this false Left and open the Left again to being the representative of working people, of fairness, of the admittance of workers' organisations into governance, of preventing falling wages and mass unemployment, of strengthening the welfare state in all its manifestations, from education to decent health and pensions as well as its current, defective, merely safety-net functions.

If this analysis is correct, Italian socialists and socialdemocrats should vote for the centre-Right, from Noi con Italia-UDC, to Lega, to Forza Italia. They are going to win anyway this time. It is better that they should win well, preventing any attempt by the state to put the country through the repellent mess Napolitano concocted in 2011 and 2013, that has led to five years of illicit and incompetent governance and to the collapse of a proper Left position and Party.

If the Centre-Right governs well then the Left will have breathing space to construct a proper programme, a democratic Party structure, and consolidate its electorate.  They must at least step back from the caricature of the Left of Grasso, Boldrini, and old men like Bersani.  And get rid of all the contemptible collusion in corruption from Rignano sull’Arno and Laterina.  

The Centre-Right might govern well, for many of the programme elements proposed by the current Centre-Right coalition should be in a programme of the Left: lower taxes on earned income; controls on economic immigration into Italy; new relations with the  EU; a revision of Eurozone regulation and management; easing of regulation destructive of providing housing; security at home; defence of Italian interests at international level, etc., etc.  Indeed it is a shame that these issues are not part of the Left manifesto, or indeed of the so-called Lefts' many manifestos. 

A reshuffling of voters characterised by these values should be pursued and implemented, which is very different from an unholy Grosse Koalition of opposite approaches and interests held together exclusively by the pursuit of and for the maintenance of political power against democratic processes.

And if the Centre-Right fails to deliver then we return to vote again (which I believe we will) but this time, with the second step, the second consultation of the people, we can hope to have a real Left to vote for.  The 'Progressive' class and national traitors can stand on their own platform, and not as the pretend Left that is all that is on offer this time.

Dixi et salvavi animam meam.

Piketty: “Why have democratic regimes failed to reduce inequality?”

This is the question asked by Thomas Piketty in a recent presentation on “Brahmin Left vs Merchant Right: Rising Inequality and the Changing Structure of Political Conflict - Evidence from France, Britain & the US, 1948-2017 (February 2018). His answer, which is documented by very extensive and useful data, is fairly complex but it could, in a nutshell, be summarised thus: in the '50s and ‘60s the Democratic Party in the US and social democratic parties in Europe were supported by a variety of voters characterised by low education and low income. Globalization (by raising the issue of internal and external inequality) and the expansion of education (creating educational inequalities next to wealth inequalities) have created new multi-dimensional conflicts about inequality and redistribution.

Democratic regimes – answers Piketty – have failed to reduce inequality because "without a strong egalitarian and internationalist platform, it is unlikely that voters by low education and low income will all vote for the same party. The division between racism and nativism is a powerful force that divides the poor in the absence of a strong unifying platform. Politics has never been a simple conflict between the rich and the poor; we need to look more carefully at the content of political cleavages." Piketty argues that since the '70s and' 80s a political system has evolved that pits two transversal coalitions against each other: the intellectual elite of left wing Brahmins against the business elite/merchant right, both sharing the divided support of a working class whose interests are radically different and are not reflected in the parties.

A similar argument, without the massive documentation provided by Piketty but perhaps more fully argued, has been provided by Jan Rovny on the LSE Europpblog on 20 February: “What happened to Europe’s Left?”  I confess that being a left-wing economist I found the argument rather appealing, so I circulated both Piketty’s presentation and Rovny’s paper to a circle of colleagues and friends who I knew would be interested. However one of them, a political scientist whose views on the subject I had specifically solicited, was provoked by those arguments to provide a long critical comment, which I thought deserved to be aired more widely. Therefore I am very glad to post such a Comment below, with the author’s permission on condition of anonymity. DMN

Piketty's enthusiasm for his discovery of political science is heart-warming. You asked me for a view:

i)  to adopt a brush as broad as does Piketty is to empty much of his argument to rest upon historical and particularly statistical data available.

ii)  comparative politics can be useful but arbitrary lumping-together of very different political systems and cultures because of accessibility of chosen data sources leads to incoherence not to affirmation of a thesis.

iii)  the same goes for taking very long data series and arbitrarily cutting them off within his time terms of reference.

So what has he achieved?  He has produced a hypothesis, reflecting journalistic speculation, that the voting behaviours of electorates formerly possible to analyse in economic and class terms have altered across groups; this is causing the collapse of parties of the Left which he views as rooted in common economic and class interests.  Electorates are no longer voting for donkeys wearing a red rosette.  Electors in positions of authority are no longer voting in their economic self-interest.

Neither of these theses are correct; nor does the statistical, behavioural, historical evidence demonstrate that there is any past time in which they were.  Piketty picks and chooses his way through his data to show that they were but the clear association of change brought about by revolution, war, or some socio-economic or other catastrophe, is telling.

iv)  identifying a Piketty-esque Europe as Europe leads to warping of supporting evidence for his thesis; so does using United States data (size, lack of common history, slavery, just for starters; I could go on - that there is no 1945 break for the US as there is for Europe, that the living standards of the US and those of Europe are too far apart for long periods even within Piketty's dates...).  For Piketty Europe is the European Union, and mostly France at that.  Even within this narrowing of the study where is the data on Germany, Italy, the low countries, the East, the far North?  He should drop the US and start considering real Europe, not the EU.  There is a European community of culture, experience, economy and development, although that Europe tends to exclude the second of his data sources, the United Kingdom.

v)  Data series for the UK go back much further than for continental Europe; those on which Piketty relies can be produced from at least the beginning of the eighteenth century and many from the seventeenth and even earlier, both for electoral behaviour and for collections of data on conditions of life, state-organised welfare systems, educational records, health systems, social and work-related housing - the panoply of the modern welfare state is present and recorded.  Its roots make the electoral results of July 1945 the product of victory in war not the poverty of defeat as experienced by continental states, including France despite their pretences.  And as soon as the war economy had served to complete the installation of the redistribution that had been taking place for centuries in the UK, even if overshadowed by the Depression in the ‘20s and ‘30s where it had been fully used and available, nevertheless, the 1951 general election swept the Labour government away. 

The UK returned to something very similar to the redistributions that had been taking place for a long time, shedding the role of the state always associated with authoritarian regimes of Left or Right. The redistributive role of an extensive welfare state was fully accepted by all political groupings, there was no post-War watershed as there was in continental Europe (where populations were widely illiterate, still working the land and often as share-croppers, and urbanisation and modern industrialisation was still to come despite the best efforts of Left and Right).  Labour never recovered, and Margaret Thatcher moved every aspect of the state's role in government on to other ground that socialism or capitalism choices, as Blair's electoral success confirmed.

So, in many ways Piketty's use of UK data is as inappropriate as his use of that of the US.  He wants to tie together some kind of factual link between 'want, disease, ignorance, squalor, and idleness' and voting Right: what the UK data show is not that.  The Five have been tackled and defeated and the people vote Right for aspiration, self-fulfilment, the barring of the Five's reintroduction into their countries via third-world immigration, and a continued growth in their living standards and capacities to learn and achieve.

Yes the decline in voting for Piketty's Left is terminal for electorates have moved on as he and his Left have not. Political parties are re-grouping, that is very clear, but they regrouping to defend the people and their life-styles against out-dated ideologies of deprivation in all its forms.

Tony Judt spoke of 'ideological over-commitment' (although in another context, that of Israel, much of his work on France and the French Left embodies this critique); Piketty would benefit greatly from reading (or re-reading) Tony Judt. Another book he might add to his to read list is: Robert Trelford McKenzie and Allan Silver, Angels in marble; working class Conservatives in urban England, 1968.

Rovny is ponced-up Piketty.  There is a flat refusal to accept the role of Conservative working people in the construction of organisations, in institutions, in governance that has been present always (i.e. since records in the Piketty form) have been available.  It is the securing of decent wages, the legitimising of trades unions, the achievement of access to health care, the educating of every child to competent literacy and numeracy, the universal suffrage, pension support in old age, insurance, ... all the stuff the Left claims - it is all the product of skilled working people and the arrangements and agreements they have set in place over the centuries yes, centuries in the case of the UK.

The ideological Left cannot cope with the truth of this.  Their function has been to create revolutionary, i.e. war-like shocks that disrupt so much there must be destruction and then a settlement.  If the Left cannot produce a revolution then the Conservative working class can manage much better without them.  And often better than with them frankly.  There has to be technical backwardness, widespread illiteracy, gross deprivation of democratic governance, low life expectancy, and the general presence of the Five before revolution and the Left is required.  

Europe has been revolutionised and warred into what the UK did with working class conservatism (admittedly after the 17th century revolutions as a start-up shock, but that is a very long time ago) since capitalist industrialisation and urbanisation.  Even the localist organisations listed by Rovny are the result of municipal conservatism – why do you think it's modern Labour that individualises the social consumption of social provision, or closes pools, libraries, parks, evening classes etc. etc?

The Left is ineffective and very ugly.  Unless there's a revolution or a war to be raged.

Ths Rise and Fall of Socialism

The DOC (Dialogue Of Civilisations) Research Institute, Berlin, has funded a research project led by Vladimir Popov on “Inequality: Economic Models and Russian October 1917 Revolution in Historical Perspective”. The project (an earlier full draft of which is here) seeks to examine why capitalism was successful for several centuries, why it failed in the XX century and was replaced by socialism in about one third of the world, and why socialist societies did not succeed and eventually made a transition back to capitalism.

The project’s key hypothesis is that the income inequalities associated with capitalism initially raised savings and investment promoting economic growth, but later their negative implications dominated.  Soviet-type socialism failed, but rising inequalities of capitalism today are bound to generate rising social tensions eventually becoming unbearable and leading to a costly social revolution. A better alternative is the successful establishment of a “new socialism” “that will not necessarily mean a total elimination of markets and private property, but is likely to limit both substantially for the sake of achieving lower income inequality” - with the pursuit of redistributive policies, more regulation and taxation, more public property. The introduction of such “new” socialism in a few countries in a capitalist world would make them more competitive and drive their less enlightened competitors “out of business”.  Thus Popov stands “socialism in one country” on its head, turning it from a handicap into a competitive advantage.

Vladimir Popov, a distinguished Russian economist known to this Blog’s readers from several guest posts already published, was brave enough to assign to me a paper on “The rise and fall of socialism”, and I was unwise enough to take on such a daunting task for presentation at the Berlin conference of 23-24 October. 

My Berlin Conference PPT Presentation is available HERE. Comments welcome. 

Vladimir Popov: EU – Nationalism and Inequalities

I am grateful to Vladimir Popov of TsEMI, the Central Economics and Mathematics Institute of the Russian Academy of Sciences, Moscow, for contributing this guest post to our Blog as an extended comment on my previous post on Seismic Faults in the European Union.

Vladimir Popov on: EU – Nationalism and Inequalities

             “Imagine there's no countries ... And the world will be one.

             It may happen, if the current rise in inequalities is reversed.

Mario Nuti predicts new difficulties for the EU and believes Lenin was right, when stated that United States of Europe are either impossible or reactionary (post of January 8, 2017).  He may well be right, as he has been so many times, but I wish he wasn’t.

In the EU for the first time in history member countries voluntarily decided to eliminate borders – a dream of many since ancient times. It was by the way also one of the staples of the communist ideology – nations eventually, after the full victory of communism, will merge, borders will disappear, a brotherhood of men will share the whole world.  As the best poet of Soviet era Vladimir Mayakovsky put it,

“For we want this world to be a common earth

Without Latvias and without Russias”.

Many of those born and raised in the USSR cherish this dream and admire the EU that seemed to have been able to achieve this goal without coercion and violence. It would be most regretful, if EU project will not succeed.

This is the moral argument in favor of the EU that does not prove, of course, that Mario is wrong. Many inevitable trends may be undesirable for large groups of people. Below, however, are some “hard core, material” arguments, why current centrifugal forces in the EU and the world may be only a temporary phenomenon.

Nationalism and inequalities

Conservative politicians all over the world have recently spoken against globalization. As former French Prime Minister Dominique De Villepin put it recently, ”globalization, on the one hand, promotes cooperation, on the other hand, brought new mutual exclusion, isolation and radicalization”. And Donald Trump wants “Americanism, not globalism”.

It would be wrong, however, to blame globalization for all the disasters and misfortunes, from non-growing real incomes to the rise of nationalism. History does not repeat itself, but it rhymes. Those who blame globalization today for economic and social misfortunes are similar to the luddites of the XIX century that believed that the use of machines leads to the rising unemployment and falling wages. 

There are cases when globalization works leading to rising incomes of the masses. Theoretically greater international flows of goods, ideas and technology, capital and labor should increase productivity, but in reality this happens only if these flows are carefully managed (Popov, 2014, Chapter 5)..

Why in some countries greater economic interaction with the world was accompanied in recent several decades by rising income and its relatively even distribution (China and other East Asian countries), whereas in other countries modest growth of income coupled with rising inequalities left large masses of  population worse off (many Western countries, including the US, Eastern Europe and former Soviet Union)? The answer is that policy matters a great deal and many good policies that allow gaining from globalization are often non-orthodox and counterintuitive (Polterovich, Popov, 2005). If globalization is accompanied by the increase in income and wealth inequalities within countries, so that gains from globalization are appropriated by the few better off, whereas the masses get nothing or very little, it is only too easy for the interested political forces to blame globalization for the negative developments.

The central argument of this post is that the reversal of the previous trend towards the decline in income inequalities in the last three decades in most countries created favorable grounds for the rise of nationalist and anti-globalization feelings (Popov, 2016). Lindert and Williamson (2016) claim that income inequalities breed populism and attribute the rise of inequalities to globalization (especially in the two periods of American history – Gilded Age of the late 1800 and recent three decades since the 1980s). My argument is that income inequalities indeed contribute to the rise of populism and nationalism, but that globalization does not necessarily lead to the rise in inequalities.

Trends in nationalism are explained, among other factors, by both between the countries and within the countries inequalities. If the gains from globalization are distributed evenly, the public is willing to embrace it, but if the gains are appropriated by few, it is easy for nationalist political forces to turn the public against globalization.

Hence, there are several globalization models, depending on the trend in inter and intra- country inequalities in recent three decades:

·        Great gains from globalization for the country as a whole and relatively small rise in within the country inequalities (Japan, China, SEA, Scandinavian countries, the Netherlands);

·       Small gains from globalization for the country as a whole, but decline in domestic inequalities (some LA countries, including Brazil);

·       Large gains from globalization for the country as a whole, but increase in domestic inequalities (Britain and some continental European countries);

·       Small gains from globalization for the country as a whole and increase in domestic inequalities (US, Russia in the 1990s).

The worst conditions for the rise of nationalism would be in the first group of countries, the best – in the last, fourth group, with the 2^nd and 3^rd group falling in between.

The rise of nationalism in recent decades in the EU and many other countries seems to be associated with the increase in within the country income inequalities. In some countries income inequalities did not increase and nationalist and anti-globalist feelings are more related to the slowdown of growth and other reasons, but in most countries there was an increase in income and wealth inequalities since the 1980s – a reversal of the trend of over 50 years that created a fertile ground for rise of nationalism (Popov, 2016).

Recent trends in income inequalities in EU

The fall of the Berlin Wall, collapse of the USSR and the conversion of Eastern Europe and former Soviet republics to capitalism, added additional push to the growing income inequalities trend due to both – the disappearance of “socialist counterbalance” for the Western capitalism and the rise in inequalities in the transition countries of Eastern Europe and former Soviet Union themselves (Jomo, Popov, 2016).

In most European countries income inequalities increased since the beginning of the 1980s – the reversal of the trend that predominated since early 20^th century (fig. 1). This increase in inequalities may be the single most important reason for the rise of nationalism. In Eastern Europe there was a transformational recession of the 1990s associated with the transition to the market economy – output fell by 20-50% in the course of 2-5 years (Popov, 2000), which certainly contributed to the rise of nationalism. But in Western Europe there was no major recession (except for Greece). Even though economic growth was not very strong, it was  rather stable, recessions of 1993 (per capita GDP fell by 0.4%), 2009 (-4,7%) and 2012-13 (-0.4%) were overcome and average incomes, unlike in the US,  by 2016 were way higher than in the 1980s. However, the progressing unevenness in income distribution undermined real incomes and social status of large groups of European population making them an easy target for the nationalist politicians.

Britain may be the case in point. The rise in nationalism is often explained by unfairness and humiliation experienced by the whole nation (for instance, Germany after the First World War or developing countries where costs of globalization are often higher than benefits).  In Britain, however, the recent rise of nationalism did coincide with the relatively successful economic development and with the improvement of its economic positions versus the major competitors. Britain was falling behind continental Western Europe in terms of its per capita income and this trend was reversed only a decade after Britain entered the EU (fig. 2).

However. only a minority of the population benefited from the acceleration of economic growth since the early 1980s – income inequalities increased (fig. 1) and so did wealth inequalities (fig. 3).

From the point of view of economic efficiency and future growth, Brexit is bad for the EU and especially bad for Britain. But the majority of British voters apparently blamed economic difficulties not on policies that allowed inequalities to increase, but on the European integration and globalization.

Future

There may be at least two scenarios for the EU and the world. First, if the rise of income inequalities would continue, social tensions in some countries will become unbearable and will produce a social turmoil and anti-globalisation, nationalist sentiments. And the rise of nationalism may lead to conflicts, if not wars, between countries, with the collapse of the international trade and capital flows, like in the 1930s. Then the world may once again get into the familiar 20^th century historical track and there may be a pause in or even the reversal of globalization, like during the Great Depression, when the outburst of protectionism led to the decline of the international trade and capital movements. This is the worst scenario: the world degrading into social and national conflicts.

Second, countries that carry out successful policies of limiting inequalities would become more competitive, driving other countries “out of anti-globalisation business”. Even small countries, if they are successful, may create a counterbalance through the demonstration effect to the tendency of unconstrained capitalism to cut welfare programs and increase inequalities. These countries may regulate the functioning of the market mechanisms through direct interventions and high progressive taxation to reduce bubbles and windfall profits. Besides, the crucial way of lowering inequalities is public and collective property, so it could be expected that state enterprises, non-profit institutions, labour managed enterprises and coops, operating not for profits, but for public good would become more common. Such a more optimistic scenario implies that social upheavals within countries and national conflicts between countries could be largely avoided. EU in this case would have a bright future.

References

Facundo Alvaredo, Anthony B Atkinson, and Salvatore Morelli (2016). Top wealth shares in the UK over more than a century, Working Papers Department of Economics Ca’ Foscari University of Venice No. 01 /WP/20.

Alvaredo, Facundo, Anthony B. Atkinson, Thomas Piketty and Emmanuel Saez (2012). ‘The World Top Incomes Database’, http://www.wid.world/#Introduction

Jomo, K.S., V. Popov (2016). Income Inequalities in Perspective. Develoipment, No. 2, 2016.

Lindert, P. and Jeffrey Williamson (2016). Unequal Gains: American Growth and Inequality since 1700. Princeton University Press, 2016.

Maddison project (2013). http://www.ggdc.net/maddison/maddison-project/home.htm, 2013 version.

Polterovich, V., Popov, V. (2005). Appropriate Economic Policies at Different Stages of Development. NES, 2005 - http://www.nes.ru/english/research/pdf/2005/PopovPolterovich.pdf.

Popov, V. (2000). Shock Therapy versus Gradualism: The End of the Debate (Explaining the Magnitude of the Transformational Recession) – Comparative Economic Studies, Vol. 42, No. 1, Spring 2000, pp. 1-57 (http://www.nes.ru/%7Evpopov/documents/TR-REC-full.pdf);

Popov, V. (2014). Mixed Fortunes: An Economic History of China, Russia and the West. Oxford University Press, April 2014.

Popov, V. (2016). Is Globalisation Coming to an End Due to Increase of Income Inequalities? -  MPRA paper №73094 , August 2016.

World Wealth and Income Database. http://www.wid.world/#Database:

Mario Nuti’s reply:

I agree with Vladimir that a world without borders would be very attractive, as a realisation of both human freedom and economic efficiency. However it is no accident that it was part of communist utopia only after the expected universal diffusion of communism. For a world without borders involves - as I pointed out in my previous post - global communism in access to national social capital (however defined, whether as physical infrastructure, social cohesion and trust, or welfare state institutions and provisions). This is neither feasible nor desirable nor sustainable in a world where private ownership is globally prevailing and fully protected. I take it that Vladimir would not support unrestricted full communism – in the sense of abolition of both private and national social property – on a global scale or even in a single country or just in the European Union. I regard Vladimir’s unconditional endorsement of the Schengen Area abolition of internal borders (and neglect of external ones) not as a cogent argument in favour of a world without borders but merely as evidence of his generous nature.

I particularly like Vladimir’s characterisation of the relationship between globalisation and inequality, with his four country cases: (a) large gains, small rise of inequality; (b) small gains, inequality decline; (c) large gains, [significant] rise of inequality; (d) small gains, inequality increase. The first case would make people approve of globalisation; the last case would be associated with strongly nationalistic, anti-globalisation feelings and policies; while the two intermediate cases also would be somewhat nationalistic and anti-globalist but to a lesser extent. And at the global level, I would add even more positively and forcefully than Vladimir, globalisation has halved the incidence of poverty in the last twenty years – lifting hundreds of millions of Chinese from starvation to obesity – and achieved the reduction of inequality among the citizens of the world.  

However, globalisation, including migrations, does not lead to “gains … appropriated by the few better off, whereas the masses get nothing or very little benefit”, as Vladimir conjectures. It does yield net benefits, as I readily recognised, but it actually makes a non-negligible number of people worse off. In theory we can imagine a redistribution of gross gains to gross losers so as to make everybody better off - which is how Vladimir would be able to achieve a win-win situation. But such Paretian redistribution is not possible, because it would have to be international and/or regressive. International redistribution is presently impossible for lack of political globalisation, i.e. global governance by institutions capable of global taxation and expenditure. Regressive redistribution from gainers who tend to be poorer to losers who tend to be richer would be undesirable, as I trust Vladimir would agree.  

And even if everybody gained from globalisation, inequality in the distribution of gains would legitimise some opposition to unrestricted, raw globalisation. Vladimir’s comparison with the Luddites is very apt, but with opposite implications with respect to the one he draws: technical progress in the early 19^th century (and today’s automation) also yields net benefits but makes some people worse off, just like globalisation and migrations, therefore justifying – unless there was compensatory income redistribution from gainers to losers – resistance and even forceful opposition by the losers.

The dividing line between populism and democracy is very thin. It is no accident that today we talk of right wing and left wing populism. "The accusation of populism can easily become an instrument to maintain and extend the power of oligarchies, and their influence on public life and decisions, reducing any protest attempt from below to irrationality or intellectual or moral laziness.  Anti-populism therefore can become a weapon in the hands of the élite, a weapon that jeopardizes the essence of democratic coexistence. While populism, if properly articulated, may be useful to democracy" (my translation from Lorenzo Del Savio e Matteo Mameli, "Il populismo è democratico: Machiavelli e gli appetiti delle élite" 2014), whose conclusions are based on a recent debate on Machiavelli's theses in his Discorsi sopra la prima deca di Tito Livio. http://ilrasoiodioccam-micromega.blogautore.espresso.repubblica.it/files/2014/02/machiavelli-populismo.pdf.  Though growing support for populist parties is also due to non-economic factors, such as the feeling of marginalisation, of a falling standing in society, of having lost control over one’s condition, determined by the establishment élite; there are also cultural, ethnic and religious diversities coming into play. When these factors determine electoral choice there is no reason to dismiss the results as expression of populism instead of an integral part and parcel of a democratic system.

Vladimir offers two alternative visions of the future. A pessimistic scenario involves rising inequalities and anti-globalist policies, the rise of nationalisms with possible commercial or even hot conflicts, a pause or even reversal of globalisation. An optimistic vision, favoured by Vladimir, involves the containment of inequality, the restoration of the welfare state funded by progressive taxation, the build-up of public and collective enterprises (including self-managed non-profit cooperatives). “The EU in this case would have a bright future” – he writes. Unfortunately there are other fault lines in the EU today, which I tried to spell out in my post and are left unscathed by Vladimir’s reflections, which do not alter my fundamental pessimism.  

Inequality and the Global Crisis

This is a Guest Post contributed by Branko Milanovic, a Lead economist in the World Bank's research department. Branko - at present a Visiting Fellow of All Souls College, Oxford - spent over a quarter century working on poverty and inequality and made original, pioneering contributions to this subject, including: Worlds Apart. Measuring International and Global Inequality, 2005, Princeton/Oxford; The Haves and the Have-Nots: A Short and Idiosyncratic History of Global Inequality, 2011, Basic Books (DMN)


The current financial crisis is generally blamed on feckless bankers, financial deregulation, crony capitalism and the like. While all of these elements may be true, this purely financial explanation of the crisis overlooks its fundamental reasons. They lie in the real sector, and more exactly in the distribution of income across individuals and social classes. Deregulation, by helping irresponsible behavior, just exacerbated the crisis; it did not create it.

To go to the origins of the crisis, one needs to go to rising income inequality within practically all countries in the world, and the United States in particular, over the last thirty years. In the United States, the top 1 percent of the population doubled its share in national income from around 8 percent in the mid-1970s to almost 16 percent in the early 2000s. That eerily replicated the situation that existed just prior to the crash of 1929, when the top 1 percent share reached its previous high watermark American income inequality over the last hundred years thus basically charted a gigantic U, going down from its 1929 peak all the way to the late 1970s, and then rising again for thirty years.

What did the increase mean? Such enormous wealth could not be used for consumption only. There is a limit to the number of Dom Pérignons and Armani suits one can drink or wear. And, of course, it was not reasonable either to “invest” solely in conspicuous consumption when wealth could be further increased by judicious investment. So, a huge pool of available financial capital—the product of increased income inequality—went in search of profitable opportunities into which to invest.

But the richest people and the hundreds of thousands somewhat less rich, could not invest the money themselves. They needed intermediaries, the financial sector. Overwhelmed with such an amount of funds, and short of good opportunities to invest the capital as well as enticed by large fees attending each transaction, the financial sector became more and more reckless, basically throwing money at anyone who would take it. While one cannot prove that investible resources eventually exceeded the number of safe and profitable investment opportunities (since nobody knows a priori how many and where there are good investment opportunities), this is strongly suggested by the increasing riskiness of investments that the financiers had to undertake.

But this is only one part of the equation: how and why large amounts of investable money went in a search of a return on that money. The second part of the equation explains who borrowed that money. There again we go back to the rising inequality. The increased wealth at the top was combined with an absence of real economic growth in the middle. Real median wage in the United States has been stagnant for twenty five years, despite an almost doubling of GDP per capita. About one-half of all real income gains between 1976 and 2006 accrued to the richest 5 percent of households. The new “gilded age” was understandably not very popular among the middle classes that saw their purchasing power not budge for years. Middle class income stagnation became a recurrent theme in the American political life, and an insoluble political problem for both Democrats and Republicans. Politicians obviously had an interest to make their constituents happy for otherwise they may not vote for them. Yet they could not just raise their wages. A way to make it seem that the middle class was earning more than it did was to increase its purchasing power through broader and more accessible credit. People began to live by accumulating ever rising debts on their credit cards, taking on more car debts or higher mortgages. President George W. Bush famously promised that every American family, implicitly regardless of its income, will be able to own a home. Thus was born the great American consumption binge which saw the household debt increase from 48 percent of GDP in the early 1980s to 100 percent of GDP before the crisis.

The interests of several large groups of people became closely aligned. High net-worth individuals and the financial sector were, as we have seen, keen to find new lending opportunities. Politicians were eager to “solve” the irritable problem of middle class income stagnation. The middle class and those poorer than them were happy to see their tight budget constraint removed as if by magic wand, consume all the fine things purchased by the rich, and partake in the longest US post World War II economic expansion. Suddenly, the middle class too felt like the winners.

This is what more than two centuries ago, the great French philosopher Montesquieu mocked when he described the mechanism used by the creators of paper money in France (an experiment that eventually crumbled with a thud): ‘People of Baetica”, wrote Montesquieu, “do you want to be rich? Imagine that I am very much so, and that you are very rich also; every morning tell yourself that your fortune has doubled during the night; and if you have creditors, go pay them with what you have imagined, and tell them to imagine it in their turn”.

The credit-fueled system was further helped by the ability of the US to run large current account deficits; that is, to have several percentage points of its consumption financed by foreigners. The consumption binge also took the edge off class conflict and maintained the American dream of a rising tide that lifts all the boats. But it was not sustainable. Once the middle class began defaulting on its debts, it collapsed.

We should not focus on the superficial aspects of the crisis, on the arcane of how “derivatives” work. If “derivatives” they were, they were the “derivatives” of the model of growth pursued over the last quarter a century. The root cause of the crisis is not to be found in hedge funds and bankers who simply behaved with the greed to which they are accustomed (and for which economists used to praise them). The real cause of the crisis lies in huge inequalities in income distribution which generated much larger investable funds than could be profitably employed. The political problem of insufficient economic growth of the middle class was then “solved” by opening the floodgates of the cheap credit. And the opening of the credit floodgates, to placate the middle class, was needed because in a democratic system, an excessively unequal model of development cannot coexist with political stability.

Could it have worked out differently? Yes, without thirty years of rising inequality, and with the same overall national income, income of the middle class would have been greater. People with middling incomes have many more priority needs to satisfy before they become preoccupied with the best investment opportunities for their excess money. Thus, the structure of consumption would have been different: probably more money would have been spent on home-cooked meals than on restaurants, on near-home vacations than on exotic destinations, on kids’ clothes than on designer apparel. More equitable development would have removed the need for the politicians to look around in order to find palliatives with which to assuage the anger of the middle-class constituents. In other words, there would have been more equitable and stable development which would have spared the United States, and increasingly the world, an unnecessary crisis.

Markets can be expensive

In Central Eastern Europe and the Former Soviet Union the transition to an open market economy was accompanied by the rise and persistence of unemployment, the rise of inequality and of poverty. These phenomena were particularly serious because they meant a drastic reversal of earlier conditions of full employment, greater equality and low poverty incidence. Moreover higher inequality could not be justified as the reward for efficiency, as in normal market economies, but – particularly in Russia – was mostly the result of unrestrained pillage by privileged operators.

Before the Fall

The traditional, pre-Transition, Soviet-type system was characterized by full employment of labour, indeed by over-full employment: excess demand for labour at the prevailing wage rate. While full employment was obviously desirable, it was not the result of a specific policy but the by-product of persistent repressed inflation, i.e. excess demand for commodities at artificially low prices below equilibrium, which translated into excess demand for labour. Of course there was nothing positive about over-full employment, which was only a cause of high labour turnover and inflationary wage drift, which in turn contributed to the perpetuation of a state of excess demand for goods.

Wealth was almost entirely in public hands (in Albania even private ownership of cars was forbidden); the little that remained private was a source of direct satisfaction rather than income. By itself, this made distribution of income among the population more equal than in a market economy where income is derived also from private wealth (which is always more unequally distributed than labour incomes). There were also factors making for greater equality across Soviet republics and countries within the bloc: the emphasis on industrial development in every country, regardless of efficiency considerations; the socialization of enterprise profits and their re-distribution via the state budget; large scale subsidies via the All-Union Soviet budget, and via the under-pricing of raw materials and oil within the USSR and Comecon.

By World Bank standards of poverty – equivalent to $2.15 per head per day at 1996 Purchasing Power – in the socialist countries of Europe and Central Asia in 1988 on average fewer than 4% of the population lived in such absolute poverty.[1]

Unemployment

The initial prolonged recession of the early 1990s was naturally accompanied by shrinking employment and the rapid emergence of labour unemployment, converging to similar average values and dispersion typical of European Union countries. The many queues for goods typical of the old, typical shortage economy were replaced by a single but much longer queue for jobs. In the CIS, however, there were lower rates of job loss and limited job creation, leading to an increase in under-employment and reductions in real wages.[2]

Table 1 provides data for unemployment rates and employment ratios for 1998–2006. While unemployment remained high in Central and Eastern Europe, it tended to decrease in the rest of the area. Employment ratios did not have a clear trend, with several countries remaining under 60% and only a few being close to the Lisbon target of 70% for the EU member states. Employment rates tended to be higher in the CIS countries than in CEE countries, but this partly reflect higher under-employment and lower unemployment benefits.
The global economic crisis of 2008–2009 has already raised unemployment and reduced demand for migrant labour.

Table 1. Unemployment rates and employment ratios in CEE/CIS


Source: UNICEF (2006), TransMONEE data bank, updated 2009, Florence.
Note: Results from national Labour Force Surveys, except for Albania, Belarus, Armenia, Azerbaijan, Kazakhstan (2004 and 2005), Kyrgyzstan, Tajikistan and Uzbekistan, which are official data. The different sources may use different criteria, for example for registering unemployment, working activities in the informal sectors, temporary jobs.

Inequality


Egalitarian ideals associated with socialist ideology should not be exaggerated. First, there was significant residual real inequality due not so much to monetary income differentials but to privileged access to goods for the Party nomenklatura: this was no small matter, as it affected access to housing, motorcars, holiday facilities, health and education, foreign travel, imported and luxury goods as well as simple items of daily consumption which were in scarce supply for the ordinary citizen. Second, in 1931 Josef Stalin in person had condemned the “leftist leveling of wages” (uravnilovka), and urged the introduction of sharp wages differentials between skilled and unskilled and between difficult and easy jobs. And there were prizes for managers for plan-fulfilment and over-fulfilment, discretionary prizes for workers, money to be made by mediators (tolkach) in the informal semi-legal exchange of materials among enterprises, in the black and grey markets among consumers, the reliance on "pull" (blat’) through "acquaintances" (znakomstvo) to obtain scarce goods and services; a few legal markets, such as kolkhozian food markets and flea markets (barakholki). Bribes and large gifts (prinoshenie) were also common. All these factors distorted the significance of the degree of inequality as measured through official monetary incomes.



Subject to these qualifications, pre-transition measures of inequality, such as the Gini coefficient (=0 for absolute equality; 1 for absolute inequality, a situation in which one subject takes all) were impressively low in the Soviet Union and Central Eastern Europe, about 0.25-0.30. From 1989 to 2004 Gini coefficients increased significantly nearly everywhere in the transition, to around 0.35-0.40. Indeed, in many countries especially in the CIS they soon surpassed the degree of income inequality normally found in western market economies. The exceptions are the Czech Republic, where the Gini coefficient was and still is lower, though rising from 0.198 to 0.235; Belarus, with a similar trend; and Slovenia where it fell slightly from 0.265 to 0.243 between 1991 and 2004 (see UNICEF 2006).

“In recent years inequality has either increased at a much slower rate, or – in some cases – even declined. For example, in those CIS countries, where levels shot up in the mid-to-late 1990s, there have been signs of reductions; while in the Central European countries, where levels increased less dramatically in the 1990s, rates of increase have continued to be slow but steady. However, in most of the region, levels of inequality have remained high in the period of economic recovery, suggesting that growth has not always been inclusive in nature” (UNICEF, 2009).


An apparently similar degree of income inequality – Russia in 2007 had a Gini coefficient of 42%, i.e. a more equal income distribution than China’s 47% – can conceal a profound diversity. In China, and in “normal” capitalism, income inequality depends mostly on entrepreneurial success and is the price to be paid for efficiency; in Russia it depends primarily on the pillage of national resources during the transition and therefore it is a form of inefficient inequality.

Table 2. Trends in disposable income inequality, selected countries, 1989-2006

Figure 1. Gini coefficient of income distribution in China and Russia, 1978-2006[3]
Source: Popov (2009).

Poverty

Post-socialist transition, by itself and together with the associated deep and protracted recession, brought about a drastic increase in poverty. By 1998 it was estimated that, in the transition countries of Europe and Central Asia, one out of every five people survived on less than $2.15 per day (at 1996 Purchasing Power), whereas a decade earlier “fewer than one out of twenty-five lived in such absolute poverty” (World Bank, 2000). “There is little doubt that poverty has increased dramatically in the region. Moreover, the increase in poverty is much larger and more persistent than many would have expected at the start of the process.” By 1998 the people living in poverty had reached 20%. Poverty began to fall after 1998, with the generalized resumption of economic growth; by 2003 the poor represented only 12% of the population.[4]

With respect to the predicament of the poor in developing countries, the material hardship associated with poverty in the transition was made much worse by the drop from earlier achieved levels and expectations, and the loss of security. Sudden large scale unemployment, prolonged nonpayment of salaries, unpaid or decimated pensions, hyperinflation and loss of savings, the loss of free or subsidized social services “made people feel unusually vulnerable, powerless, and unable to plan for the future.” For most of the new poor, transition brought “the destruction of "normal" life and accustomed social patterns.”[5]

“The highest levels of absolute poverty are in poor countries of Central Asia”: Tajikistan (70 percent), and the South Caucasus (with Georgia with a poverty rate of 50 percent in 2003). “Yet most of the poor and vulnerable in the transition countries of the Region are in large middle-income countries such as Kazakhstan, Poland, Russia, and Ukraine.” Those most at risk are “the young, residents in rural areas and in secondary cities. The unemployed, people with little education, and those belonging to underprivileged minorities, such as the Roma are also at great risk. Most of the poor are working poor”.[6]

Russian $-Billionaires

Conversely, in the early 2000s Russia saw a spectacular increase in the number of dollar billionaires. In the Soviet era there might have been, at most, a dozen dollar-millionaires in the shadow economy. In 1995 there were no billionaires in Russia. In 2007, according to Forbes, Russia had 53 dollar-billionaires, in third place after the US (415) and Germany (55), but in second place in terms of their wealth, which in Russia totaled $282 billion ($37 billion more than Germany’s billionaires). In 2008 the number of billionaires in Russia increased to 86, with a total wealth of over $500 billion, corresponding to one third of a year’s GDP. Russia’s “primitive accumulation” took the form of privileged access to natural resources at prices lower than in the world market, to subsidized credit and to privatized assets also on privileged terms.


Trends in the current recession


In a recession such as that of 2008-2009 it is plausible to conjecture that initially inequality falls – because the rich lose proportionally more than those who have less to lose – and poverty rises because the poor cannot afford to lose what they have (viceversa in a boom). This is probably what has been happening in transition economies, though it is too early to tell. If the crisis lasts, losses among the poor – primarily through unemployment – become more substantial, and inequality as well as poverty may increase.

Lack of markets can be expensive. But so can the operation of markets. Is this an integral part of the human condition?

[1] World Bank (2000), Making Transition Work for Everyone: Poverty and Inequality in Europe and Central Asia, Washington D.C.
[2] UNICEF (2009), Innocenti Social Monitor 2009, Florence.
[3] Popov Vladimir (2009), “The long road to normalcy: where Russia now stands”, Conference Paper, UNU-WIDER, Helsinki, 18-19 September 2009.
[4] Alam Asad, Mamta Murthi, Ruslan Yemtsov, Edmundo Murrugarra, Nora Dudwick, Ellen Hamilton, and Erwin Tiongson (2005), Growth, poverty and inequality – Eastern Europe and the FSU, World Bank, Washington.
[5] World Bank 2000.
[6] Alam et al., 2005.