Frequently, discussions on the growth of countries are parallel to those concerning inequality. Does economic growth lead to a more equalitarian society? Do the rich and the poor benefit from prosperity under the same terms? To observe the connection between equality and growth, Milanovic organises his discussion on inequality around the Kuznets curve.
Simon Kuznets, a Nobel prize winner in economic sciences, suggested that, although in the initial phase of industrialisation inequality would increase, with long-term development, income would flow to the middle classes and the growth would result in greater equality. This seemed to be a reasonable description in the mid-20th century when Kuznets formulated it, but not today, at least not in view of the last thirty years, because the upper classes have improved their situation notably in an overall way, but this is not the case of the middle classes in developed countries and, therefore, local inequality has increased.
To explain this change in the relationship between growth and inequality, economic literature has mainly focused on two evolutions: technological change and the opening up of the economy (globalisation). Technology generates inequality because it has made automated employment disappear, in other words, jobs that can be replaced by machines or computers. Automated employments include that of secretaries and many industrial jobs. On the other hand, those that involve problem-solving that cannot be specifically anticipated and that require a certain degree of creativity are not automated. Creativity does not mean that these jobs are necessarily of an intellectual nature. Accounting, looking after the elderly, taking animals for walks or serving at table are all creative activities.
At the same time, as the economy has become globalised, it is simpler for companies to import goods instead of manufacturing them locally. Employees who are most protected from external competition are those in the services sector and those for whom there is no skilled labour, a propitious business environment or infrastructure in other countries.
In perspective, both globalisation and technology are heading in the same direction: towards the replacement of jobs with intermediate remuneration, particularly in the industrial sector, by machines or foreign workers. Historically, industry represented an entry ticket to the middle class for low skilled workers and therefore, the disappearance of this kind of job has turned into a polarisation of the occupations and an increase of inequality.
This diagnosis is worrying because, by suggesting that the increase of inequality is a direct effect of forces —technological improvements and the international division of labour— that are associated to economic growth, it indicates that we are at a new section on the Kuznets curve in which growth would not run on a par with greater equality, which leads Milanovic to talk about Kuznets waves: a return to the section in which the relationship between growth and equality is negative.
Not all countries have undergone the same evolution. The previous explanations were developed by focusing on English-speaking countries. In addition, not all countries are exposed to the same forces and if they sometimes are, they have mechanisms to counteract them. The reader may be wondering about the case of Spain. Julio Carabaña recently published what is probably the most comprehensive synthesis available (Carabaña 2016, Ricos y pobres, Ed. Catarata), in which he reaches the conclusion that the inequality found in 2013 is probably very similar to that of the beginning of the 1990s.