Addressing Durable Inequalities: Borders, Capital, and Social Policy

This podcast episode, featuring Branko Milanovic and Arjun Jayadev, delves into the multifaceted nature of durable inequalities, focusing on policy solutions at both global and national levels. The discussion begins with the paradoxical role of borders in global inequality, arguing that open borders could significantly reduce global poverty and inequality while boosting GDP. However, the speakers acknowledge the societal resistance to labor mobility, contrasting it with the accepted movement of capital. Milanovic proposes a compromise solution: a system of flexible migration where migrants do not share the full 'citizenship rent' (the bundle of advantages citizens of rich countries enjoy), allowing host countries to choose a point on a trade-off curve between migrant numbers and shared rights, moving away from a binary concept of citizenship.

The conversation then shifts to domestic inequalities, particularly the 'secession of the rich' and the concentration of capital. The speakers highlight how the wealthy increasingly opt for private provision of essential services like education and healthcare, eroding the universalism of the welfare state and creating a vicious cycle where the rich have no incentive to fund public services they don't use. This process, termed 'third-worldization' of rich countries, exacerbates divisions. A core argument is that capital ownership is highly concentrated, leading to an 'automatic transmission' from a rising capital share of income to increased interpersonal inequality, a phenomenon dubbed the 'curse of wealth'.

To counteract these trends, several policy recommendations are put forth. For capital de-concentration, proposals include higher taxation on capital and inheritance, making financial capital ownership more appealing to the middle class through insured small investments, and promoting employee stock ownership plans (ESOPs). Macroeconomic policies are also crucial, with a strong emphasis on running economies with higher aggregate demand to tighten labor markets, increase wages, and boost the labor share of income, challenging the historical tendency of monetary policymakers to suppress wage growth due to 'phantom inflation' fears.

Finally, the discussion addresses the intergenerational transmission of advantages and categorical inequalities. High inheritance taxes are advocated to reduce the transfer of financial and housing capital, though the speakers acknowledge the difficulty in legislating against the transfer of social connections and information. For education, the need for a high-quality, accessible public school system is stressed to diminish the 'wage premium' associated with expensive, exclusive institutions that disproportionately benefit the rich. Regarding gender inequality, policies like universal childcare, paid parental leave (including paternity leave), and wage transparency are proposed to address unpaid work burdens and labor market discrimination, emphasizing that discrimination is not only unjust but also economically irrational.