The Great Equalizer

A few days ago, in the presentation of the Economics Note Speaking at the Catalan government's conference on shared prosperity, economist Branko Milanovic recalled an idea that helps explain many of the political tensions we are experiencing in the West. We have been talking for years about polarization, distrust in institutions, and the crisis of liberal democracies. But we often struggle to connect these phenomena with the economic changes that have shaped the world in recent years.

Actually, what Milanovic recounts begins with good news. In recent decades, the world has experienced an unprecedented process of income equalization. Thanks to globalization, hundreds of millions of people—especially in Asia—have risen out of poverty and become part of a new global middle class. Income disparities between countries have narrowed considerably. In historical terms, this is an extraordinary transformation: never before have so many people seen their living conditions improve so drastically in such a short period.

But this story also has another side. The same globalization that has helped reduce inequality between countries has generated new tensions within wealthy nations, like ours. In relative terms, a segment of the middle and lower-middle classes in Europe and the United States have lost ground in the global income rankings. A few decades ago, a household with modest incomes in Italy or Spain would have been very high on the global income scale. Today, millions of people in emerging countries have seen their living standards improve so much that they have surpassed them.

This feeling of relative displacement is one of the keys to the political unease that pervades many Western democracies. For decades, the implicit contract of advanced economies was that economic progress would eventually reach everyone. Not always at the same pace, but with the promise that each generation would live better than the last. When this expectation weakens—when many people perceive that the world is moving forward but their relative position is not improving—trust in institutions also suffers. And this feeling is accentuated when, within countries themselves, growth has been distributed unevenly: while some income segments improve thanks to globalization or certain public policies, a portion of the middle class perceives that its progress has stagnated.

Global equality is one of the best economic developments of our time. But for this progress to be politically sustainable, it must translate into visible improvements within each society. Growth only strengthens democracies when the majority feels they are part of it. If that feeling disappears, prosperity ceases to be a collective project and becomes a political problem.