Globalization, Economic Development and Inequality

Globalization, Economic Development and Inequality

An Alternative Perspective

New Horizons in Institutional and Evolutionary Economics series

Edited by Erik S. Reinert

The expert contributors gathered here approach underdevelopment and inequality from different evolutionary perspectives. It is argued that the Schumpeterian processes of ‘creative destruction’ may take the form of wealth creation in one part of the globe and wealth destruction in another. Case studies explore and analyse the successful 19th century policies that allowed Germany and the United States to catch up with the UK and these are contrasted with two other case studies exploring the deindustrialization and falling real wages in Peru and Mongolia during the 1990s. The case studies and thematic papers together explore, identify and explain the mechanisms which cause economic inequality. Some papers point to why the present form of globalization increases poverty in many Third World nations.

Chapter 8: Income Inequality in Changing Techno-economic Paradigms

Chris Freeman

Subjects: economics and finance, evolutionary economics, welfare economics


Chris Freeman This chapter discusses the relationships among technical change, economic growth and income distribution. The first section of the chapter concentrates on technical change and unemployment; it is fairly clear that the prevalence of mass unemployment will tend to aggravate inequalities in income distribution. The second section of the chapter discusses the effects of technical change on the earnings of those who are employed. Both in relation to unemployment and in relation to the earnings of those who are employed, the chapter argues that waves of technical change have profound long-term effects on income distribution. Formal growth theory and growth models (Romer 1986, Grossman and Helpman 1990) have at last begun to recognize that the combination of technical change and increasing returns to scale, which Antonio Serra first explored (Reinert 1996, 1999), are at the heart of the process of economic growth. However, most formal models still ignore the cyclical aspects of growth. This chapter therefore first of all argues that the study of long cycles is essential to an understanding of the relationship between technical change, economic growth and income distribution. 1. UNEMPLOYMENT AND TECHNOLOGY At the simplest level, it is obvious that the standard of living for all of us depends on the achievements of science and technology. Since Adam Smith’s Wealth of Nations and Alfred Marshall’s comments on Knowledge as the Chief Engine of Production, the role of technical change in economic growth has been universally accepted by all schools of economists. The socalled...

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