World Inequality Lab Study by Piketty Traces Persisting North-South Divide to Colonial Servitude

Even small changes can have a big impact. If commodity prices had risen by a modest 20% from 1970 to 2025, Sub-Saharan Africa, one of the world’s poorest regions, would be a larger creditor than East Asia by 2025. If these countries could invest this extra money in human development and developed countries reduced their consumption to make up for their losses, productivity should have converged between poor and rich countries to some extent by now.

These are some of the findings from a recent study published by Gastón Nievas and Thomas Piketty, World Inequality Lab economists. But we know these things never happened. It has been uneven and unequal since the first wave of globalisation in the 19th century. Technological advancements have removed traditional barriers, but the global economy hasn’t become a level playing field for nations.

True, the geography of power centers has shifted over the last two centuries: in the 19th and 20th centuries, the British’s vast global influence and power gave the impression that “the sun never sets” on their empire. But, after World War II, the United States emerged as the undisputed global power. Its hegemony lasted through the Cold War and the collapse of the Soviet-led socialist bloc. However, another significant shift has occurred in recent decades: China’s transformation from a global capitalism sweatshop to an economic powerhouse challenging US dominance.

However, despite these changes in power centers, a major trend persisted—the global North-South divide, or the socioeconomic and political inequalities between the core countries of the global economy, such as North America, Europe, parts of Asia and Oceania, Australia and New Zealand, and the rest of the world. Economists such as Samir Amin argue that in today’s global capitalist economy, this divide is primarily driven by monopoly rents—the super profits of multinational corporations based in core countries that are extracted from peripheral regions.

 

A Divide shaped by Global Imbalances

Nievas and Piketty’s new study builds on previous research on this unequal relationship. They argue that two centuries of inequality between the North and South have been shaped by colonial extraction and unequal exchange. Self-correcting market mechanisms play only a limited role in global economic relations. Instead, they are characterized by persistent imbalances and power dynamics.

Thomas Piketty is well-known for his pioneering empirical research on income and wealth inequality. His influential best-selling book “Capital in the Twenty-First Century” examines centuries of data to demonstrate that the rate of return on capital outpaces economic growth, resulting in wealth concentration. His subsequent works investigate the historical and ideological roots of inequality. This paper is part of the World Inequality Lab’s forthcoming Global Justice Report that partly builds on the findings of Piketty’s Brief History of Equality, transforming them into a more comprehensive global framework.

What distinguishes their work is the massive amount of data they used to tell the story of global disparities, current account balances, and net foreign wealth accumulation over two centuries. This data series also enabled them to look into alternative development paths by creating hypothetical ‘what if’ scenarios like the one mentioned at the start. 

These “counterfactual simulations” not only demonstrate the role of power dynamics and bargaining power in global imbalances but also aid in identifying the collective regulations needed in the international monetary system and global trade rules. They illustrate how small changes in exchange can have a big impact on long-term outcomes.

 

Two Globalisations

Nievas and Piketty used a new database of global trade flows and balance of payments covering 57 core territories from 1800 to 2025 to compare global imbalances between the “first globalisation ” (1880-1914) and “second globalisation ” (1990-2025) periods.

Between 1800 and 1914, Europe’s foreign wealth reached 70% of its GDP, whle the rest of the world had negative foreign asset positions. Europe, a manufacturing superpower, relied heavily on imported primary commodities and exported manufactured goods such as British textiles. These surpluses were far smaller than its deficits in primary commodities. Europe’s current account surpluses were driven by invisible flows, including maritime transport activities and foreign transfers such as tributes and colonial tax revenues.

Between 1914 and 1950, Europe lost its unparalleled dominance in foreign assets. The United States, oil-producing countries, and East Asia eventually took over Europe’s foreign assets, though none reached the levels seen in 1914. By 2025, cross-border foreign positions had recovered to pre-World War I levels, with a different creditor/debtor geography. The two peaks in foreign wealth positions, 1914 and 2025, are distinct but similar, particularly in terms of unequal North-South exchange and power dynamics.

One notable difference is that the 1914 peak in foreign wealth was greater than the 2025 peak. To provide context, East Asia’s foreign assets in 2025 are smaller than those of Europe in 1914 but larger than those of oil-producing nations.

Also, from 1800 to 1914, Europe achieved a significant positive foreign wealth position without trade surpluses, owing primarily to colonial transfers. In contrast, recent positive wealth accumulation, as seen in Japan, China, and oil-producing countries, has been linked to sustained trade surpluses since the 1970s and 1980s. Another distinction is that the current economic powerhouse, the United States, has a negative foreign wealth position in 2025, compared to Britain-led Europe’s positive position in the nineteenth and early twentieth centuries.

The two periods also have certain similarities too. East Asian powers in the 1970–2025 period and European powers in the 1800–1914 period both saw surpluses in manufactured goods and trade deficits in primary commodities.

 

Counterfactual Simulations

It is this rich data set spanning a vast expanse of history that makes it possible to construct counterfactual simulations, or “what if” scenarios as they are commonly known. These simulations show that small changes in bargaining power and terms of exchange can reverse global wealth positions.

For example, without colonial transfers, Europe would have been a net debtor in 1914, while South and Southeast Asia and Latin America would have accumulated significant foreign wealth. A 20% increase in commodity prices would have further shifted the balance, making these regions major creditors.

Similarly, Sub-Saharan Africa would surpass East Asia in terms of foreign wealth by 2025 if primary commodity prices increased by 20% between 1970 and 2025. This effect exceeds the current “exorbitant privilege” that wealthy nations enjoy. The term “exorbitant privilege” describes the difference in returns on foreign assets and liabilities that benefits wealthy countries—especially the US—while harming less developed ones.

Additionally, productivity convergence with rich countries could take place if impoverished nations invested this excess revenue in human capital. Since unequal exchange is associated with unequal comparative development, this pattern may be changed by alternative trade regulations.

Surely, these counterfactual simulations can help us imagine a better world. But is this world possible beyond academic simulations? The authors of this study do have a few policy recommendations on structural reforms required to create a more inclusive and equitable global economic system. It includes pegged exchange rates, a centralized credit/debit system, and a tax on excessive surpluses. And they believe that these simulations will help to steer the discussions in that direction.

 

Policy Prescriptions sans Politics

The main problem with studies like this is that they become policy prescriptions without a clear action plan. Solutions to any significant social or economic issue are always political. Nievas and Piketty noted in the study that “small changes in bargaining power and terms of exchange can lead to radically different patterns of foreign wealth and comparative development.” The question then becomes how countries in the Global South can gain bargaining power to influence global trade and other policies in their favor.

The US, the largest economy in the world, no longer believes in multilateralism. The rise of China as an economic superpower, combined with America’s fear of losing dominance, is fragmenting the world by the day. Contemporary world politics is marked by the decline of U.S. hegemony and Washington’s attempts to reverse this decline. A world order based on institutions and multilateral discussions is rapidly becoming obsolete. This significantly reduces the chances of poorer countries achieving a level playing field. In fact, for the poorer nations, obtaining the “small changes in bargaining power” that the authors suggest is not an easy task. This requires a fundamental change in global political dynamics from the ground up. Despite global power shifts, poorer countries currently lack a collective voice to achieve this now.

During the first wave of globalisation, that was not the case. Widespread anti-colonial struggles in Asia, Africa, and Latin America, fuelled by nationalism and economic exploitation, challenged imperial rule. The oppressive presence of imperial powers and their representatives in the daily life of people in colonies was direct and immediate. This made it easier for anti-imperialist movements to take hold. For example, one of the most militant peasant movements in colonial India, the Indigo Revolt, was motivated by European planters’ exploitative practices. They knew who they were fighting. 

So when nationalist intellectual leaders like Dadabhai Naoroji launched their critique of colonialism in nineteenth-century India, it felt like more than just a theoretical argument. This critique, popularized in various media, became the focal point of nationalist agitation.

Economic critique of imperialism was an integral part of the communists seeking socialist alternatives to the global capitalist order too. Lenin observed that “Capitalism has grown into a world system of colonial oppression and of the financial strangulation of the overwhelming majority of the population of the world by a handful of ‘advanced’ countries.” Both these formidable movements, anti-colonial struggles and socialist experiments, made significant contributions to shifting global power dynamics. It was a moment in history when political practice, as well as economic theory, seamlessly informed one another.

The current global economy is a different beast. The Global North’s dominance in the second globalisation is concealed behind a complex maze of economic relationships and power structures: oligopolistic MNCs, financialization of all aspects of life, labor arbitrage, neoliberal states that deregulate and privatize everything, including the commons, and so on. Even though exploitation and depravity exist in this system, the exploiter remains invisible. This renders resistance to the current order feeble and fragmented. 

This also makes theories and analytical models that critique the existing economic order often sound abstract. They fail to connect with the messy, complex, and frequently unpredictable lives of ordinary men and women in the Global South.

Nievas and Piketty ignore (or refuse to recognize) the interdependence of politics and economics. Instead, they chose to model their discipline after natural science—objective, evidence-based, and, above all, “neutral.” While being objective and evidence-based are admirable goals, remaining neutral entails maintaining the status quo. So deprived of political direction, their solutions struggle to find an existence outside simulations.