Growth, Inequality and Globalization

Review: John Hanson on Philippe Aghion and Jeffrey Williamson

Philippe Aghion and Jeffrey C. Williamson, Growth, Inequality and Globalization: Theory, History and Policy. New York and Cambridge: Cambridge University Press, 1999. viii + 207, $49.95 (cloth), ISBN: 0-521-65070-4; $17.95 (paperback), ISBN: 0-521-65910-8

Reviewed for EH.NET by John R. Hanson, Department of Economics, Texas A and M University.
Published by EH.Net, July 2000.

This volume contains the formal versions of the 1997 Raffaele Mattioli Lectures delivered on consecutive days in November 1997 by Philippe Aghion and Jeffrey Williamson. The sponsors asked these renowned scholars to "question the conventional wisdom on inequality and growth." Aghion performs this task from a theoretician's point of view and Williamson from an economic historian's, but they jointly introduce their individual contributions by describing the influential Kuznets Curve -- shorthand for the conventional wisdom -- as a starting point for studying the causes and consequences of income inequality. They pose several new questions, addressing some in their lectures. Cognoscenti will recognize these as elegant but relatively non-technical summaries of previously published research on income inequality by each of them. The clarity for the non-specialist enhances both presentations.

Although the oral lectures must have been memorable occasions, their joint publication is not one. Overlapping interests to the contrary notwithstanding, these academic celebrities should have a small common audience because of their divergent styles. They are as much alike as Placido Domingo and Garth Brooks. Half of this volume is therefore likely to be irrelevant to the needs of the potential purchaser, who still may consider the price fair given the excellence of the scholarship contained in each contribution. For reviewing purposes the two halves of the volume must be treated separately. I shall emphasize Williamson, the more interesting scholar to the expected reader of this review, and comment briefly on Aghion at the end.


Jeffrey Williamson's three chapters interpret pre-World War I income convergence in what he calls the Atlantic economy -- today's OECD -- in terms of the economic globalization occurring during what normally is called the "long" nineteenth century, but especially between 1850 and 1914. Williamson begins by demonstrating that convergence in real wages occurred in the Atlantic economy and then postulates four possible causes, of which he analyzes only two, international trade and mass migration. He reaches the conclusion that both types of globalization contributed to convergence, but that migration's contribution swamped trade's. The final chapter explains that another effect of convergence-through-globalization was income redistribution in the Atlantic countries, provoking a sequence of political backlash, deglobalization, and the collapse of convergence between 1914 and 1950. He concludes with a warning about potential future backlash, but he allows that a recurrence of convergence-through-migration is unlikely today. This belies his introductory chastisement of those who ignore the lessons of history for modern globalization.

The rare economic historian who is not aware of Williamson's views or wants a non-technical summary of them will find it here. Williamson's cliometric virtuosity distinguishes him from most previous writers on these subjects and gives his opinions weight, but here he concentrates on historical substance. Even without the technical esoterica the presentation is meaty, challenging, and accessible mainly to professionals.

The core of the lecture is a persuasive analysis of international migration and its effects. This is also the most original component of the grand project Williamson and his associates have pursued in recent years. It advances knowledge of the pre-World War I international economy considerably while providing food for future research and deservedly ranks high among recent contributions to economic scholarship. Yet other parts of these lectures violate the intended iconoclastic spirit of the Mattioli lectures.

Williamson, for one thing, shows himself to be an avatar of orthodoxy concerning the shape and evolution of the nineteenth-century global economy. He tacitly accepts and promotes, for example, the depiction of a "long" nineteenth century ending at World War I. A case could be made, however, for a "short" nineteenth century ending in 1896 and a "long" twentieth century beginning at the same time. The so-called Great Depression (1873-96) gave way to a global boom that continued until World War I, a sequence Williamson knows well but omits to mention. How to handle the post-1896 appendage to the "short" nineteenth century is a non-issue to the economic history profession, which, one is tempted to conjecture, finds World War I an aesthetically pleasing point of closure. Williamson, for his part, simply elides a rich diversity of experience between 1850 and 1914 into Globalization Rampant.

Similarly, Williamson waxes eloquent about the transportation and communication revolution of the nineteenth century, especially post-1860 when, as many scholars have documented, the long-run decline in transportation costs accelerated sharply because of technological improvements in international shipping, the opening of the Suez Canal, and so on. The professional tradition in which Williamson writes ascribes nearly magical trade-creating powers to this market-integrating revolution. Against such a background, Williamson's finding of trade's meager contribution to wage convergence in the Atlantic economy seems more surprising and original than it really is.

Here are some contrary facts.

  • During the Great Depression, as is well known, the rate of growth of world trade was lower than at almost any time in either the "short" or "long" nineteenth century. It also was a great deal lower than after World War II.
  • An expert on the economic history of Thailand, James Ingram, questions whether the transportation revolution helped Thailand's rice exports very much.
  • If the conventional wisdom is valid, why was growth in British imports or consumption of such notable foreign products as coffee, rice, silk, cotton, and wheat negligible or even negative between 1880 and 1900?

Williamson's analysis of Victorian commerce unfortunately homogenizes questions of this sort away. It is germane to recall that until Robert Fogel came along the indispensability of the railroad to American economic growth was a professional article of faith. International transportation history likewise has been treated too long as a canonical tale. Furthermore, perhaps it is simply true, as the late Irving Kravis proposed about three decades ago, that international trade is inherently a "handmaiden of growth," not an "engine of growth," for developing countries. This downgrading of trade's role has found many adherents, making Williamson's analysis of trade an expert but nonetheless roundabout way to reach a common historical judgment. His analysis, to be sure, is a valuable addition to the literature, but it seems a pity to expend so much energy revisiting an uncontroversial hypothesis.

In sum, the central theme of Williamson's lectures is a major contribution to our understanding of the consequences of international migration before World War I. It honors and fulfills the responsibility to question conventional wisdom on income inequality. Yet Williamson's fealty to the economic historian's catechism in this prestigious forum delays the complete liberation of the subject of nineteenth-century economic globalization from the procrustean bed in which it has rested for so long. Time also will tell whether new research requires Williamson's claims about migration and backlash to be modified.


Philippe Aghion, unlike Williamson, trumpets his iconoclasm on the relation between income inequality and economic growth. The conventional wisdom, he declares, cannot explain empirical evidence appearing in a number of recent studies. Staying within the traditional neoclassical framework, he nevertheless introduces a host of new factors into the analysis, including credit-market imperfections, moral hazard, non-neutral technical and organizational change, labor-market institutions, and international trade. His goal is to paint a more complex and realistic picture of the growth-inequality relation, which is a reciprocal one. In the first half of his presentation he discusses the effect of inequality on a nation's economic growth; in the second half he analyzes the effect of growth on inequality. He organizes the discussion around the recent upsurge in wage and income inequality in developed countries, evaluating candidate explanations from a purely theoretical perspective. He particularly favors technological change as the most likely causal factor in recent inequality trends.

Aghion is more pertinent than Williamson to contemporary debates over the causes and consequences of income inequality and the proper policy responses. Aghion speaks to immediate contemporary concerns, whereas Williamson teaches a tangential historical lesson. Aghion, moreover, covers all the relevant topics in sufficient depth to escape any suspicion of reductiveness, at least as far as I am concerned. He reveals so many ramifications of the issue of income inequality and discusses these so cogently and rigorously that reading him would be an enriching experience for someone with a theoretical bent.

Still, there is a debatable subtext to Aghion's tour de force. Economic theory is nothing more than informed speculation, much as many theorists would like to claim otherwise. Aghion's conclusions and recommendations are not backed up by empirical research of his own; he likes to cite empirical research by others of which he approves. He also makes frequent use of the concept of market failure, a staple of liberal politics and economics. The Kuznets Curve is conservative in that it suggests that in the early stages of economic development high income inequality promotes saving and investment. Aghion, despite his restrained academic tone, appears to be a committed egalitarian and redistributionist. Perhaps the political coloration of his lecture is accidental, but it is hard to overlook the congruity of his theoretical exegesis with a familiar political posture in the contemporary scene. But this does not change the fact that his clear, thorough, and, for theory, entertaining account of many key issues surrounding income inequality deserves attention.

John R. Hanson II is Professor of Economics at Texas A and M University. His article "Culture Shock and Direct Investment in Poor Countries," appeared in the Journal of Economic History in March 1999.

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Posted: 18 July 2000