Class analyst

• Author: Chris Wellisz
• Position: Staff of Finance & Development
• Pages: 31-33

March 2019 | FINANCE & DEVELOPMENT 31 March 2019 | FINANCE & DEVELOPMENT 31

PEOPLE IN ECONOMICS

A

s a child growing up in Commun ist

Yugoslavia, Branko Milanovic

witnessed the protests of 1968,

when students occupied the

campus of the University of

Belgrade and hoisted banners reading “Down

with the Red bourgeoisie!”

Milanovic, who now teaches economics at t he City

University of New York, recalls wondering whether

his own family be longed to that maligned group. His

father was a government official, and un like many

Yugoslav kids at the time, Mila novic had his very

own bedroom—a sign of privi lege in a nominally

classless societ y. Mostly he remembers a sense of

excitement as he and his friends loitered around

the edge of the campus t hat summer, watching the

students sporting red Ka rl Marx badges.

“I think that the social and political a spects of

the protests became clea rer to me later,” Milanovic

says in an intervie w. Even so, “1968 was, in ma ny

ways, a watershed year” in an i ntellectual journey

that has seen him emerge a s a leading scholar of

inequality. Decades before it became a f ashion in

economics, inequality would be t he subject of his

doctoral disser tation at the University of Belgrade.

Today, Milanovic is best k nown for a break-

through study of global income inequality from

1988 to 2008, roughly spanning the period f rom

the fall of the Berlin Wall—which spelled the

beginning of the end of Communi sm in Europe—

to the global financia l crisis.

e 2013 article, cowritten with Christoph

Lakner, delineated what bec ame known as the

“elephant curve” because of its shape (see cha rt).

It shows that over the 20 years that Mi lanovic calls

the period of “high globa lization,” huge increases in

wealth were unevenly dis tributed across the world.

e middle classes in developing ec onomies—

mainly in Asia —enjoyed a dramatic increase in

incomes. So did the top 1 percent of earners world-

wide, or the “global plutocrats.” Meanwhile, the

lower middle classes in adva nced economies saw

their earnings stagnate.

e elephant curve’s power lies in its simplicity. It

elegantly summa rizes the source of so much middle-

class discontent in advanced economies, discontent

that has turboc harged the careers of populists from

both extremes of the politica l spectrum and spurred

calls for trade ba rriers and limits on immigration.

“Branko had a deep influence on globa l inequal-

ity research, par ticularly with hi s findings on the

elephant curve, which ha s set the tone for future

research,” says omas Piketty, author of the best-

selling Capital in the Twenty-First Century. Pike tty

and his collaborators confir med the findings in a

2018 study, which found that the top 1 percent

globally captured t wice as much of total growth as

the bottom 50 percent from 1980 to 2016.

Milanovic’s findings “appear to be even more spec-

tacular th an what was initially suggested ,” Piketty

says. “e elephant looks more like a ma mmoth.”

Economists long disdai ned the study of inequal-

ity. Many lived in a theoretical world populated

by a mythical fig ure known as homo economicus,

or rational man, whose only attribute was a drive

to maximiz e his well-being. Differences a mong

people, or groups, were irrelevant. Variety was

irrelevant. Only averages mat tered.

In this world of identical rational ac tors, the

forces of supply and demand worked their magic

to determine prices and quantities of good s, capital,

and labor in a way that ma ximized welfare for

society as a whole. e distribution of wealth or

income didn’t fit into the picture. It was simply a

by-product of market forces.

“e market solves everything,” Milanovic

says. “So the topic really was not—sti ll is not—

totally mainstream.”

en came the global financial crisis of 2008,

and with it “the rise of the reali zation that the top

1 percent or the top 5 percent have really vastly

outstripped, in income growth, the m iddle class,”

he says.

e study of inequality a lso got a boost from the

explosion of data that can be mi ned with evermore

powerful computers, mak ing it easier to divide the

anonymous masses of consumers a nd workers into

groups with common characteri stics. Big data,

he says, “enables the study of heterogeneity, and

inequality is by defin ition heterogenous.”

Data has always been one of Milanovic’s pas-

sions, alongside his interest in socia l classes, which

flourished during his hig h school years in Brussels,

where his economist father was poste d as Yugoslav

envoy to the then–European Ec onomic Community.

“High school in Belgium— and I think it was

the same in France—was very Mar xist,” he says.

His classmates were div ided between leftist kids,

influenced by the student movements of the late

1960s and early 1970s, and “bourgeois” kids. As

the privileged son of a diplomat representing an

ostensibly workers’ government, young Branko