Inequality and climate change are both global problems that cannot be solved by a single country. Yet we are stuck with the political limitations of the nation-state.



There are obvious and (to some people) surprising similarities between climate change and inequality. First, both are obviously global problems. Neither can be solved by a single country, group or individual. In both cases, there are significant externalities and, consequently, coordination problems. Both issues are even formally linked (that is, not only conceptually): On average, carbon emissions increase at the same rate as economic activity grows. This means not only that if a person’s (or country’s) income increases by 10 percent, emissions will also increase by 10 percent, but that the distribution of emitters mimics the distribution of income. Since in the global income distribution the top decile receives at least 50 percent of global income, it is also responsible for at least one half of all emissions.


But there are also significant differences. The effects of global inequality are in part the product of high within-country inequalities that obviously have to be dealt with at the level of nation-states. There are only two parts of rising inequality that are truly global. The first is that high global inequality also means high global poverty; the second is that high global inequality is to a significant extent the result of high inequality between countries’ incomes, which in turn fuels migration.


The issue of global poverty is an ethical issue for all those who are not poor, but does not otherwise affect those who are not poor in their daily lives. Moreover, since the non-poor do not share the same space with the global poor, they tend to ignore them in their daily lives.


Migration is thus the only concrete manifestation of global inequality that affects people in rich countries. The benefits and costs of migration are unevenly distributed within the populations of rich countries. Some groups, for instance employers and workers with complementary skills, gain from migration, while others who compete with migrants lose.


Global climate change is different, in the sense that its effects are mostly more remote in time and uncertain—its not clear who the winners and losers will be. Combating climate change requires individuals and countries to adjust their behavior (reduce their “footprint”) in order to forestall effects that lie in the future. The benefits of this adjustment are not always clear, however, while the costs of adjustment are obvious and present. Individual adjustment, while entailing often significant monetary or convenience cost for the person who does it, has close to zero effect on climate change and is therefore irrational to undertake from a purely personal perspective. Changing the behavior of larger groups, induced by taxation of especially “bad” activities, can produce effects, but the distribution of benefits from these adjustments is unknown. Even if the benefits were somehow equally distributed, a group that adjusted its behavior would receive a very small share of all benefits. It is a typical externality problem.


This implies that no group of people and no individual country has an incentive to do anything to combat climate change by itself: they have to be roped into an international framework where everyone is compelled to reduce emissions and where, in the case of success, net benefits would most likely be distributed unequally. Indeed, this is what happened with the Kyoto and Paris accords, in which nearly every country in the world committed itself to explicit targets of reducing emissions.


Nation-states are not the best units to combat climate change, because the emitters who should be targeted are the rich, regardless of where they live. A much more appropriate approach would be an international (global) taxation of goods and services consumed by the rich.

Nation-states are not the best units to combat climate change, because the emitters who should be targeted are the rich, regardless of where they live. A much more appropriate approach would be an international (global) taxation of goods and services consumed by the rich. But for that, one would need to have an international authority that would be allowed to tax citizens of different countries and collect revenues globally. Given the current global governance structure, such an agency is extremely unlikely to be created, since it would involve nation-states giving up a part of their monopoly on taxation of their citizens.


As I mentioned above, there is a formal equivalence between global inequality and climate change. Migration, which to some is the strongest “negative” effect of global inequality, also requires international coordination. For example, the increased migration of Africans into Europe cannot be solved by any individual country alone—it can only be “solved,” or rather managed, by a joint action (distribution of quotas) involving both the emitting and receiving countries.


Yet unlike climate change, which is basically considered an overall “bad,” migration is not an overall “bad” but rather an overall global good that reduces global inequality and global poverty, even if it may in some cases produce negative effects. Because of these real or putative negative effects (economic and social), we need rules that would assuage some people’s fears, lest these people stop and wreck the whole process of migration. This is where the idea of “circular migration” and differentiation between job-related rights (equal for all) and civic rights (not available to migrants) comes from (I discuss both in my book Global Inequality, as well as in my forthcoming book Capitalism, Alone). In the case of climate change, we are dealing with something that is essentially a “bad”, but we have trouble forcing those who are generating the bulk of this “bad” to pay for it and change their behavior.


Thus, in one case (inequality) we cannot fully benefit from what is globally good (migration) because of the political power of some groups that are opposed to migration at the level of recipient nation-states. In the case of climate change, we cannot efficiently fight this “bad” because nation-states are unwilling to share their power of taxation with anybody else.  In both cases, we are thus left trying to devise what may be called “second-best” solutions, mostly because of a political limitation called the nation-state.


Branko Milanovic is the author of Global Inequality: A New Approach for the Age of Globalization and of the forthcoming Capitalism, Alone, both published by Harvard University Press. He is senior scholar at the Stone Center on Socio-Economic Inequality at the Graduate Center, City University of New York. An earlier version of this post has previously appeared in Milanovic’s blog.


Disclaimer: The ProMarket blog is dedicated to discussing how competition tends to be subverted by special interests. The posts represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty. For more information, please visit ProMarket Blog Policy