Why Soccer Inequality is Both Rising and Falling

♠ Posted by Emmanuel in , at 4/13/2010 12:05:00 AM
Claiming no great comparative advantage in terms of football insight, I was somewhat surprised by the reception received by a post I made recently on how financially dodgy English football powerhouse Manchester United can improve its footing by studying the example of what is probably the finest club extant, the comparatively solvent FC Barcelona. I figure, if people want more football, then I'll give them more football--albeit with an IPE twist. (If this continues, I'm even tempted to give up IPE blogging in favour of football blogging even if there are jillions of other blogs covering football.)

Anyway, that post jogged my memory of a journal article published by global inequality authority Branko Milanovic of the World Bank in the Review of International Political Economy. In his research, Milanovic observes two things. First, inequality of clubs playing in European leagues is rising as the wealthier clubs are able to scour the world for the best talent. The concentration (Gini coefficient) of clubs qualifying for play in the European Champions League--the top teams from national European leagues--has gone up significantly. However, his second observation is that, because talented players from wherever they may be in the world are able to compete against world-class opposition on a regular basis, the standard of play by national teams is increasing as a result. That is, best practices in top-flight competition are being transferred to lesser-known national squads via expatriate players' experience. This outcome is evidenced by shrinking goal differentials in World Cup competition between elite national teams and all the rest. Since national teams cannot scalp the best of other countries in the World Cup--usually--the result is greater parity.

Here is the abstract from the ungated version of Milanovic's paper:
Soccer (football in the non-American terminology) is the most globalized sport. Free circulation of players has markedly increased during the last ten to fifteen years as limits on the number of foreign players in the European leagues have been lifted, and clubs have become more commercially-minded. On the other hand, the rules governing national team competition have remained restrictive: players can play only for the country where they were born. We show that, in a model where there is free circulation of labor, increasing returns to scale, and endogeneity of skills, this produces on the one hand, higher overall quality of the game and increasing inequality of results among clubs, and on the other hand, lower inequality in the national teams’ performances. The empirical examples from the history of the European Champions’ League and the World Cup support the implications of the model. We argue in the conclusions, that soccer’s global rules allow poor countries to capture some of their “leg drain”, that is the improved skills which their players have acquired playing for better foreign clubs. This provides an example as how forces of efficiency but also inequality unleashed by globalization can be harnessed by the existence of global institutions to help improve the outcome for the poor countries.
And here is the goal-scoring difference chart mentioned above [click for larger image]:

Do read the entire paper--the concluding section where he suggests ways of learning from soccer's example to lessen global income inequality is of particular interest. Those of you with university library subscriptions will naturally want the RIPE version.

For many reasons, I believe that Branko Milanovic is the authority in the highly disputed field of inequality research. One of my foundational posts on whether global income inequality is rising or falling covered his book Worlds Apart, which I still believe provides the most user-friendly overview of this topic. More recently, the World Bank revised the purchasing power parity weights for several large countries like China and India based on updated data that greatly increases cost of living estimates there. In turn, estimates of their GDP on a PPP basis have fallen significantly (since it is more expensive than thought to buy a basket of goods). Obviously, these changes have implications for measuring global inequality. I plan to make a follow-up post as the newer PPP weights have once again resulted in competing opinions on whether income inequality is rising or falling.

Columbia's Xavier Sala-i-Martin is still exceedingly optimistic and believes evidence of falling inequality is now more clear-cut. Branko Milanovic, however, points out that fundamental flaws in Sala-i-Martin's work remain unaddressed. I'll have more on this debate soon, but suffice to say that I come down firmly in Milanovic's camp. Since I don't really earn anything from blogging, it's a bit on the back burner for now while I complete a few other things! Patience, friends, patience.