We need a thorough historical analysis of wealth creation and distribution since the industrial revolution to establish which are their determinants in different periods. Prof. Piketty’s recent book offers a great starting point for this review, since he has compiled one of the most comprehensive datasets on this topic.
We also need to consider the effects of the industrial revolution of wealth, to understand how technological progress combined with a specific set of policies (trade openness, relatively low intervention of the government in the markets, etc.) can influence growth. The results from the former analysis could then be compared to global wealth creation in the period between 1950 and 2000, which is characterized by a transition from manufacturing to services in more developed countries but also, in the emergence of new global player in Southeast Asia and Latin America that have not followed the same process of wealth creation as the richer countries. It is also important to take into account the different model of wealth creation that was followed by the Scandinavian countries (Finland, Norway, Sweden, and Denmark) that has lead to a surge in the overall levels of wealth creation but also holds the world’s lowest levels of income inequality.
If any lesson from the last recession can be obtained it is that the world is highly unpredictable. The amount of complex linkages at global level makes it very difficult to predict with certainty any scenario. At best, we can analyse the trends and understand how a specific problem in one part of the global network can create a cascading effect in other remote part of the network.
I believe that the policy makers from around the world will have to look at the problems of wealth creation and wealth inequality in a more systemic way, with the use, for example, of a complexity framework. Currently, wealth creation has been frequently analysed only on a case-by-case basis, with the objective of creating more sound policies for each specific country or, at best, for a cross-national region (like the Euro Zone). Nevertheless, we know that wealth in a specific country can be affected by global events that are complex in their nature, for example, the global financial crisis that started in a specific country but then quickly disseminated to other countries and other industries that were not even directly linked to finance. In a globalized and complex world, policies cannot be country-specific. Policies need to be coordinated, and policy makers need to embrace the concept of complexity and act accordingly.
In the context of the rise of inequality in the world, a potential solution is the one proposed by Michael Porter in his Shared Value concept. According to his view, capitalism needs to rethink the way it approaches its role in society. It is not enough to produce with high efficiency and then redistribute some of the leftovers via corporate social responsibility programmes that usually mean charitable or philanthropic giving. The Shared Value idea is to integrate the societal improvement into the economic value itself. Some analysts have dubbed this strategy ‘the next stage of capitalism’.
I believe that the option of looking at wealth creation under a complexity framework is an area that could have a larger impact in the long term. However, as this implies that policy makers need to adopt a new paradigm, I believe that in the next 5 to 10 years the most plausible and realistic approach to deal with the issue of global inequality will be the one of Shared Value. I think this allows us to address some of the critiques of capitalism and avoid the costly experiments that are not based on the market system (that are starting to arise as a result of the discontent with traditional capitalism).