Michael Roberts Blog

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A poisonous concoction
The Fed on the path of sustainable improvement

Kuznets, Piketty, Marx and human development

A new index of human development (HDI) has been created. The
origins of the HDI are found in the annual Development Reports of
the United Nations Development Programme (UNDP). These were
devised and launched by Pakistani economist Mahbub ul Haq in 1990
and had the explicit purpose to shift the focus of development
economics from national income accounting to people-centered
policies.
Human well-being is widely viewed as a multidimensional
phenomenon of which income is only one facet. Human development
defined as a process of enlarging peoples choices (UNDP 1990, p.
10), namely, enjoying a healthy life, acquiring knowledge and
achieving a decent standard of living provides a long-run view of
human well-being.
The Historical Index of Human Development (HIHD) covers up to 157
countries from the mid-19thcentury before large-scale improvements
in health helped by the diffusion of the germ theory of disease and in
primary education began to 2007, the eve of the Great Recession.
Social dimensions have driven human development gains across the
board over the long run. Longevity accounts for the larger share
during the first half of the 20th century. Persistent gains in lower
mortality and higher survival were achieved as infectious disease
gave way to chronic disease, which was experienced in developing
regions from 1920 to the 1960s.
Medical technological change including the diffusion of the germ
theory of disease (1880s), new vaccines (1890s), sulpha drugs to cure
infectious diseases (late 1930s) and antibiotics (1950s) has been a

main force behind the major advancement in longevity and quality of

life. Economic growth also contributed to expanding longevity through
nutrition improvements that strengthened the immune system and
reduced morbidity and public provision of health.
What the index reveals is that there were substantial gains in world
human development from the mid-19 th century as the world economy
industrialised and urbanised, but especially over the period 19131970. The major advance in human development across the board
took place between 1920 and 1950, which resulted from substantial
gains in longevity and education.
According to the index, although the gap between the advanced
capitalist economies and the Third World widened in absolute terms;
in relative terms, there was a narrowing. The Russian revolution from
the 1920s and the Chinese one after 1947 led to fast industrialisation
and a sharp improvement in health and education for hundreds of
millions. The second world war killed and displaced millions, but it
also laid the basis for state intervention and the welfare state that
had to be accepted by capital after the war, during the so-called
Golden Age.
But after 1970, the gap in human development widened once again
with globalisation, rising inequalities and the capitalist neo-liberal
counter-revolution. Only China closed the gap. Since 1970, longevity
gains have slowed down in most emerging economies, except China,
and all the world regions have fallen behind in terms of the longevity
index.
What is significant to me is the parallel connection between economic
growth, narrowing inequality and human development between 19201970 and the reversal of those trends since 1970. Branco Milanovic
has done major work on measuring inequality of income per head
between countries and regions (rather than inequality within an
economy). He confirms the results of the human development index.
He finds that in the 1970s and 1980s, inequality between countries
did not worsen.

It was the benign view of Simon Kuznets that when capitalist

economies take off and industrialise, inequality of incomes will rise,
but eventually, as economies mature, income inequality declines.
Thus we have a bell curve of inequality and human welfare.

But the evidence of modern capitalism in the last 40 years is the

opposite. In the past 25 years, Milanovic finds what he calls twin
peaks, rapid growth in middle-income countries, fast growth in top
income
countries
and
a
slipping
behind
in
low-income
countries. Some claim that this means inequality is narrowing for all.
But the falling inequality between nations that Milanovic finds (and
now lauded by various right-wing economists and even some
Keynesians) is almost entirely due to the stupendous growth of China
which has taken hundreds of millions out of poverty.CHINA PAPER July
2015
China has raised 620 million people out of internationally defined
poverty. Its rate of economic growth may have been matched by
emerging capitalist economies for a while back in the 19th century
when they were taking off. But no country has ever grown so fast and
been so large (with 22% of the worlds population) only India, with
16% of the worlds people, is close. In 2010, 87 countries had a
higher per capita GDP than China, but 83 were lower. Back in the
early 1980s, three-quarters of the worlds people were better off than
the average Chinese. Now only 31% are. This is an achievement

without precedent. Take out China and inequality between the top
income countries and others has widened.
Rising inequality between countries and a worsening human
development index all kicked in from the 1990s onwards as capital
spread its tentacles into emerging economies (globalisation) and
public sector spending on health prevention and care and on
education was cut back (neoliberalism); all to reverse the low levels
of profitability for capital reached globally in the early 1980s.
This connection between growth, human development and inequality
between countries is also confirmed by the change in inequality of
wealth and income within most economies after 1970 that Thomas
Piketty and others have recorded and tried to explain.
As Piketty has shown, there is an inherent tendency for inequality of
wealth to worsen as capitalism expands: Pikettys now famous
formula that r (the rate of profit for capital) will outstrip g (the rate of
growth in output). But sometimes, this tendency is overcome by
counter-tendencies as between 1913-1950, when g rose faster than r
and inequality fell.
The idea of an inherent tendency with counter-tendencies smacks of
the dialectical method of analysis that Marx adopted for his own laws
of motion of capitalism. Piketty misunderstood or dismissed Marxs
laws and provided his own, but at least he recognised the method
nowtrashed by our modern Marxian economists.
What Piketty finds is the opposite of Kuznets bell curve a U-shape
as the decline in inequality of wealth for the brief inter-war and early
post-war period gives way to a degree of inequality not seen since the
late 19th century and according to the human development index,
the end of catching up of the most of the world in health, longevity
and education.

Economic growth, higher incomes and wealth, development in health

and education: all are key to human progress. The evidence shows
that in the last 30 years or so, progress has slowed significantly and
the gap between the very top (whether measured by country or top
1% within a country) and the rest has widened, not narrowed.

Piketty and Marx are refuting Kuznets and the apologists of capital.