Social Inequality as the Antagonism of
Humanity
The
intensification of the social inequality in the world creates a fertile ground
for aggressive actions against the existing political order, undermines
democracy and actually stimulates terrorism, extremism, crime, migration, degrades human personality .
The materials
published here reveal such an alarming and shocking picture that they require
urgent and effective actions to limit this antisocial trend and ensure its
reversion, using all the opportunities and achievements provided by the fourth
industrial revolution for this truly humane goal!
The Poverty and Shared Prosperity series
provides a global audience with the latest and most accurate estimates on
trends in global poverty and shared prosperity, as well as in-depth research
into policies and interventions that can make a difference for the world’s
poorest. The 2016 edition takes a close look at the role that inequality
reduction plays in ending extreme poverty and improving the livelihoods of the
poorest in every country. It looks at recent country experiences that have been
successful in reducing inequality, provides key lessons from those experiences,
and synthesizes the rigorous evidence on public policies that can shift
inequality in a way that bolsters poverty reduction and shared prosperity in a
sustainable manner. In doing so, the report addresses some myths about the
global picture of inequality, and what works to
reduce it.
Poverty
1 in 10 people in the world live under
$1.90 a day, and half of the extreme poor live in Sub-Saharan Africa
Global extreme poverty continues to fall rapidly. In 2013, the year for
which the most comprehensive data on global poverty is available, 767 million
people, or 10.7 percent of the population, were estimated to be living below
the international poverty line of $1.90 per person per day. Around 100 million
people moved out of extreme poverty from 2012 to 2013, and since 1990, nearly
1.1 billion people have escaped extreme poverty. The global poor are
predominantly rural, young, poorly educated, are mostly employed in the
agricultural sector, and live in larger households with more children.
Despite progress, extreme poverty remains unacceptably high, especially in
Sub-Saharan Africa. The region now has the largest number of extreme poor in
the world, 389 million, which accounts for half of the total number of extreme
poor in the world, and more than all the other regions combined. The decline in
extreme poverty was largely fueled by the rapid advances in two regions – East
Asia and the Pacific and South Asia –specifically in China, Indonesia, and
India.
Shared Prosperity
In 60 of 83 countries monitored, the
incomes of the poorest 40 percent grew
The larger the growth rate in the income of the bottom 40, the more quickly
prosperity is shared among the poor. Despite the global financial crisis of
2008 and 2009, in 60 of the 83 countries studied, the bottom 40 experienced
positive income growth, representing 67 percent of the world’s population. In
49 countries, the income growth of the poorest 40 percent of people exceeded
that of the top 60. However, in 23 countries, mostly high-income industrialized
ones, the poorest 40 percent saw their incomes actually decline.
East Asia and the Pacific, Latin America and the Caribbean, and South Asia
registered the best average growth performance among the bottom 40 with
annualized rates of 5.0 percent, 4.1 percent, and 3.7 percent, respectively. On
the other hand, the bottom 40 in the industrialized countries experienced an
average contraction of 1 percent of their income.
*Note: an earlier
version of the report erroneously reported inaccurate shared prosperity data
for Israel, which have since been removed.
Inequality
Tackling inequality vital to ending
extreme poverty by 2030
As sluggish growth threatens to roll back the gains of the last 25 years,
tackling income inequality can play an important role in ending extreme
poverty. If countries act strategically to cut inequality, they’ll lift more
people out of poverty faster. If families have vastly different economic
resources, some children in some families will face an unfair start in life and
policies have to make greater efforts to overcome these differences at a later
stage.
Inequality between people in the world has been going down since 1990,
driven by a convergence in average incomes across countries, especially rising
incomes in China and India. And though within-country inequality is higher than
it was 25 years ago, progress since 2008 shows that for every country in which
inequality widened, there were two countries in which inequality narrowed. This
positive news aside, there remains real concern over the share of incomes
controlled by top earners, and it is important to gather more information on
this issue.
Country Perspectives
In the past decade
many low- and middle-income countries have successfully cut their levels of
poverty and income inequality. These countries have shown that it’s possible to
reduce inequality under widely different circumstances and contextual factors
not under their control have played a substantial role in enabling their
progress against inequality. The countries analyzed are – Brazil, Cambodia,
Mali, Peru, and Tanzania.
·
Brazil’s rising minimum wage and expanding safety net programs have accounted
for 80 percent of the decline in inequality.
·
Before the outbreak of conflict, Mali’s high cereal production helped raise
farm production and off-farm labor income resulting in reduced inequality.
·
Boosted by prudent macroeconomic policies and high commodity prices, Peru’s
labor market, which closed the wage gap between formal and inform workers and
provided higher participation rates, was the main driver for the country translating
higher growth into reducing inequality and poverty.
·
Cambodia’s diversification of the economy from agriculture into light
manufacturing opened labor opportunities for the poor.
·
Tanzania’s commitment to policies explicitly aimed at rendering income
distribution more equitable and a surge in retail trade and manufacturing,
which has allowed the inclusion of less well skilled workers into the economy,
have contributed to the progress in reducing poverty.
When we analyze the
drivers of inequality reduction, we find several constants including strong
growth, good macroeconomic management, and well-functioning labor markets that
create jobs and enable the poorest to take advantage of the available
opportunities.
Policy Perspectives
Many effective policy
options exist for countries that decide to tackle inequality. Evidence points
to six high-impact strategies that have helped reduce inequality and poverty,
and so have contributed to better opportunities and stronger growth in a number
of contexts.
·
Early childhood development and nutrition interventions
·
Universal health coverage
·
Universal access to quality education
·
Cash transfers to poor families
·
Rural infrastructure – especially roads and electrification
·
Progressive taxation
Some of these measures
can rapidly affect income inequality while others deliver benefits more
gradually. However, these policies have worked repeatedly in different settings
around the world and credible versions of some are within the financial and
technical reach of virtually all countries.
OECD Income Distribution Database (IDD): Gini,
poverty, income, Methods and Concepts
24 November 2016: Release of OECD
Inequality Update 2016 "Income inequality remains high in the face of weak
recovery" : http://www.oecd.org/social/OECD2016-Income-Inequality-Update.pdf
To benchmark and monitor income
inequality and poverty across countries, the OECD relies on a database based on
national sources (household surveys and administrative records) and on common
definitions. Indicators are based on the concept of “equivalised household
disposable income”, i.e. the total market income received by all household
members (gross earnings, self-employment income, capital income), plus the
current cash transfers they receive, less income and wealth taxes, social
security contributions and current transfers that they pay to other households.
Household income is adjusted with an equivalence scale that divides total
household income by the square root of household size. Standard concepts and
definitions of household incomes are provided by the Canberra Group Handbook on
Household Income Statistics (United Nations, 2011).
In 2015, the OECD changed its standard
definition of household income. The revision goes in the direction of
bringing the OECD income definition closer to the “operational definition”
recommended by the 2011 Canberra Group Handbook. Key changes in the new
definition include: i) the inclusion of the value of goods produced by
households for their own consumption, as an element of self-employed income;
and ii) the deduction of current transfers paid by households to non-profit
institutions and other households (e.g. alimonies). As a result, current
transfers paid by households now distinguish among: i) taxes on income and
wealth and social security contributions paid by workers; ii) contributions to
employment-related occupational schemes; and iii) current transfers paid by
households to non-profit institutions and other households.
In addition, a more detailed breakdown of
current transfers received by households was implemented. This distinguishes
among transfers received from: i) social security schemes; ii)
employment-related occupational schemes; and iii) other households and
non-profit institutions. This change allows more fine-grained measures of
redistribution by distinguishing between “primary income” (income from work and
capital and net transfers from other households), “market income”( primary
income plus transfers received from employment-related schemes), “gross income”
(market income, plus transfers received from social security schemes, less
transfers paid to employment-related occupational schemes) and “disposable
income” (gross income less taxes and other current transfers paid). Current
transfers paid by households to non-profit institutions and other households,
which were previously included in “capital income”, are now separately
identified as a component of “current transfers paid by households”.
While the new income definition implies a
break in OECD historical series (data based on both the old and new definition
are shown separately in OECD.Stat), data are available for at least one
common year (typically either 2011 or 2012) based on both definitions. The
pre-2011 data described in this brief have been corrected for this break. The
corrected values proved to be significantly different from original values only
in a handful of countries (notably Chile and Israel) and very limited or
insignificant in the others. The inclusion of the value of goods produced by
households for own consumption provides the basis for the progressive
integration in the OECD database of estimates for selected middle-income
countries, where subsistence agriculture accounts for a significant share of
household economic resources. In most OECD countries for which information is
available, the value of goods produced by households for own consumption is
generally below 1% of household income but much higher in Mexico, where it
accounts for 4% of household income (see Table 1). This income item is also
more important for low-income households. The inclusion of goods produced by
households for their own consumption lowers both income inequality and the
proportion of people falling below the poverty-threshold. In Mexico, the ratio
between the income received by people in the highest quintile to that received
by those in the lowest one decreases from 13.7 to 11.5 in 2012; the Gini
coefficient for disposable income falls from 0.482 to 0.457 and the share of
people below the poverty line, from 21.4% to 18.9% (although these changes also
reflect methodological changes introduced by the statistical office to measure
income at the bottom of the income scale). The effect on inequality and poverty
measures is smaller in all other countries.
7 Importance of goods produced by households
for their own consumption among the entire population and the lowest quintile
of the income distribution
( Percentage of household
disposable income)
Database managers:
Benoit.Arnaud@oecd.org, Maxime.Ladaique@oecd.org and Elena.Tosetto@oecd.org.
Gini
coefficient of disposable income inequality in 2014 (or latest year), 2010
and 2007, total population
|
Real disposable income growth between 2007 and 2014 (or latest year) by
income group, total population, OECD
average
|
Panel A. Real labour income growth 2007-2014, by income group, OECD
average
|
Panel B. Annual average real labour income growth, 2010-2014, by income
group
|
Inequality before and after redistribution though transfers and taxes,
respectively, 2007=100, working-age population, OECD average
|
Percentage reduction of market income inequality due to taxes and
transfers, 2007 – 2014
|
Change in market and disposable incomes, public cash transfers and taxes
(real terms), 2007=100, working-age population, OECD average
|
Percentage of household disposable income
|
Billionaire fortunes grew by $2.5 billion
a day last year as poorest saw their wealth fall
public-good-private-wealth-210119-summary:
Global MPI 2018
The United Nations
development Programme (UNDP) and the Oxford Poverty and Human Development
Initiative (OPHI) developed a new version of the global Multidimensional
Poverty Index (MPI). The global MPI covers 105 countries in total, which are
home to 77 per cent of the world’s population, or 5.7 billion people. Of this
proportion, 23 per cent of people (1.3 billion) are identified as
multidimensionally poor.
For the 2018 global MPI,
five of the ten indicators have been revised jointly by OPHI and UNDP to align
the MPI with the 2030 Agenda. This is in response to the Agenda’s call for a
better measure of progress toward Sustainable Development Goal (SDG) 1 – “to
end poverty in all its forms” – and to help achieve the principle of leaving no
one behind.
Our analysis of 2018
global multidimensional poverty offer both a global headline and fine-grained
analysis for children, rural areas, 1127 subnational regions across 88
countries, 640 districts in India, and other critical subgroups. The purpose is
only in part to inform and at times alarm: more fundamentally, the purpose is
to empower and incite action that ends acute poverty across many dimensions.
On this page, you can
read the Global
MPI 2018 Report, key
findings that include global, regional and subgroups
highlights, the latest MPI
Methodological Note (No. 46) and download the data
tables of this update of the global MPI. You can also
access the detailed algorithms (Stata
do-files) underlying the global MPI 2018 for each country. OPHI
Working Paper 121, by Sabina Alkire and Selim Jahan, gives an
overview of the structure of the global MPI 2018.
Do visit
our new Interactive
Databank to explore the data intuitively.
If you are interested and
download in individual countries, we have Country
Briefings for each of the 105 countries that make up the global
MPI 2018.
This animation provides
an overview of the global MPI 2018.
An
End in Itself and a Means to Good Ends:
Why
Income Equality is Important
Arthur MacEwan[1]
March
2009 : http://scholarworks.umb.edu/csp_pubs/25/
“The social system is not an unchangeable
order beyond human control but a pattern of human action.”—John Rawls
(1971, p. 102)
In recent years “poverty reduction” has
become the watchword in development agencies, in international lending
institutions, and among development economists generally. The focus on poverty reduction reached a high
point perhaps with the articulation of the Millennium Development Goals (MDGs)
and with the extensive analytic work that has accompanied the MDGs.[2] Yet, much of the discussion of poverty
reduction and economic development in low and middle income countries has
either ignored the issue of income distribution or has tended to view income
distribution only in terms of its impact on economic growth.
Poverty and inequality, however, are
intimately bound up with one another.[3] Both as an analytic issue and as a policy
issue, there are severe limitations in attempting to deal with poverty – or,
more broadly, with economic well-being – without also examining income
inequality. Indeed, it is questionable
that we can even define poverty independently of income distribution.
In this essay, I want to develop the
argument that economists and economic policy-makers should focus much greater
attention on inequality as measured by the distribution of income (and
wealth). The traditional focus simply on
absolute levels of income as a measure of poverty and economic well-being is
fundamentally flawed. My argument here
has thee parts:
·
Poverty or, more generally, economic well-being
cannot be effectively defined as distinct from income distribution.
·
Income distribution is fundamental to our
understanding of justice (fairness) and human rights, and relative economic
equality has intrinsic value. Especially
important, the dichotomy commonly drawn in discussions of societal values
between “equality of opportunity” and “equality of outcome” is largely
non-existent.
·
Greater equality of income distribution tends to
bring about other desirable social outcomes – for example, in the realms of
health and crime.
The following
sections will take up each of these parts of the argument.[4]
Although relative equality is a widely
shared value, policies that would engender greater equality are often opposed
on the grounds that they would violate liberty or undermine economic growth or
both. I will comment on these objections
in the conclusion.
A
point of clarification: When I assert
that income inequality is a problem and that equalization of the income
distribution is desirable, my concern is with a direction of change, not with a
particular outcome. In most parts of the
world today – to say nothing of the world as a whole – income is very unequally
distributed. For reasons I will explain
this is highly undesirable. That does
not mean, however, that equality in some absolute sense, either in terms of
people’s incomes or capabilities, should be the goal of societies. To argue for significantly less inequality
leaves open the question of what degree of inequality, if any, should be the
social goal. (I will sometimes use the
term “relative equality” to indicate this direction of change, meaning relative
to the widespread high degree of inequality that widely exists.)
The Meaning of Poverty[5]
“Poverty is not a certain amount of goods,
nor is it just a relation between means and ends; above all it is a relation
among people. Poverty is a social
status.”— Marshall Sahlins (1974, p. 37)
“At the risk of
oversimplification, I would like to say that poverty
is an absolute notion in the space of capabilities but very often it will take
a relative form in the space of commodities…”—Amartya Sen (1983, p 161)
In recent years, as I have noted, there
has been an increasing concern among economists and policy makers with poverty
in the sense that poverty itself is seen as an important focus of policy. This is true with regard to low-income
countries, and it has also been an issue at various times in the relatively
high-income countries.
It has not always been this way. With the burgeoning of development economics
in the era of decolonization after World War II, attention was almost
exclusively focused on economic growth.
This approach was based on the assumption that economic growth would –
at least in the long run – improve everyone’s position, the position of the
poor as well as the position of the rich.
As it became increasingly clear, however, that economic growth, when it
took place, was not relieving the material deprivation of huge numbers of
people – or at least not doing so with sufficient speed – it began to become
apparent that it would be necessary to address poverty more directly.[6]
As attention then shifted directly to
poverty, it became necessary to specify just what poverty meant – or, more
generally, what economic well-being meant.
Usually, poverty has been defined in terms of some absolute standard,
the amount of income needed to provide basic needs. In the United States, for example, the
poverty line in 2008 for a family of four was $21,200. For low-income countries, a similar absolute
standard, though at a very different level, is generally used. The World Bank’s definition, which is widely
accepted (though also widely criticized), is set at $2/day, in terms of 1990
purchasing power parity. Dollar
inflation since 1990 would make this figure about $3.25 in 2008 prices, or
$4,745 annually for a family of four.
The Bank defines “extreme poverty” as half of this, or $2,372.50 for a
family of four. While there is a great
deal of controversy over these numbers and how they are calculated – especially
over how the number of people “in poverty” has changed over time – there is
little dispute about the idea that poverty, or well-being, is defined in terms
of some amount of goods and services, the basic needs – or the money it takes
to meet those basic needs.[7]
Yet there are
several problems with this definition.
As Amartya Sen has argued, basic needs are best understood as
capabilities, and not all capabilities can be achieved simply with money. The capability to be free from disease, for
example, depends upon a broad set of social conditions; the capability to
travel depends in part on the public good of a transportation infrastructure;
and the capability to be educated also relies heavily on public goods. Sen sees poverty as absolute in terms of
these capabilities, but in terms of commodities (income) poverty becomes
relative, determined by the standards of the particular society.[8]
The concept of basic needs – the concept
generally used to define poverty – when expressed in terms of commodities, is
highly socially contingent. This social
contingency is clear, for example, in the dramatic difference between the
$21,200 that marks the poverty line in the United States and the $4,745 that
defines the line in the low-income countries of the world. People’s standards, their concept of basic
needs, depend on the societies in which they live.
Furthermore, the definition and extent
of poverty will depend not only on the level of a society’s income, but also on
the distribution of income. It seems
reasonable to assume that a society’s standards, the norm of what is needed,
are largely determined by the standard of living of those people in the
middle. Then, if we consider two
societies in which the bottom segments, say the bottom quintiles, have the same
level of income, poverty will be greater in the society where income is more
unequally distributed. In the more
unequal society, the bottom quintile will be further from the middle and thus
further from meeting the standards of that society; the greater the inequality,
the less the group at the bottom will be able to meet society’s socially determined
needs and thus the more will the members of this group be in poverty.
All this is very well, but even in this
relative concept of poverty, people’s condition, their poverty, is defined as a
relation between people and things (the quantity of things represented by the
level of income). Yet implicit in the
relative concept of poverty is that poverty is a social condition, a relation
among people – as stated in the quotation above from Marshall Sahlins. In making his point, Sahlins (1974, p. 37) argues,
“The world’s most primitive people have few possessions, but they are not
poor.” When a whole society –
hunter-gatherer societies, are the case in point – has few possessions, there
is no segment of that society that is considered poor. It is only when these peoples are
incorporated into larger societies, conceptually and practically, that they
become “poor” – failing to meet the standards of basic needs in that larger
society. Thus it is their social status,
their relation to others in society, that places them in poverty.[9]
The
point here is not that people’s absolute deprivation is irrelevant to their
material well-being. The point is simply
that people’s relative position is also not irrelevant to their material
well-being. We cannot eliminate poverty
while the distribution of income remains highly unequal.
Justice, Fairness and Inequality
The Intrinsic Value of Equality
“Why is equality a value?... the basic reason it matters to us is
because we believe that there is something valuable about human relationships
that are – in certain crucial respects at least – unstructured by differences
of rank, power, or status.”—Samuel Scheffler (2005, p. 17)
Material
equality, or at least the absence of extreme inequality, has intrinsic value
and is in some sense a human right.
There is a variety of rationales behind this assertion. One follows directly from the observation
that basic needs are socially contingent (as argued in the previous
section). Andrei Marmor (2003), for
example, argues from the assumption that people have a fundamental right to
meet their basic needs and that basic needs are socially determined. Therefore
with greater inequality the larger will be the group of people who cannot meet
those needs, who are being denied by the economic structure this fundamental
right. Then, since there is intrinsic
value in people having their fundamental rights and, in particular, this right
of meeting their basic needs, material equality (at least a good degree of
material equality) becomes of intrinsic value.
Within
the realm of modern philosophy, it is perhaps the ideas of John Rawls (1971)
that are most strongly associated with the concept that a just or fair society
is one of relative equality. Rawls
argues that reasonable people choosing a social order from behind a “veil of
ignorance” – that is, ignorance about where they themselves would be situated
in that society – would choose a society with a high degree of material
equality. From his basic postulates
about fairness, justice, human behavior and needs, he defines his “difference
principle” as the guide for judging social policy and social change: “The
intuitive idea [of the difference principle] is that the social order is not to
establish and secure the more attractive prospects of those better off unless
dong so is to the advantage of those less fortunate.”(p. 75).
Yet
Rawls is not arguing for equality of outcome (or condition) but stays within
the realm of advocating equality of opportunity. He avows (p. 100): “…in order to treat all
persons equally, to provide genuine equal opportunity, society must give more
attention to those with fewer native assets and to those born into the less
favorable social positions.” And Rawls takes a relatively broad view of “native
assets,” arguing that there is no good reason why people with less natural
skills, intelligence, or innate characteristics of personality that would often
(in most circumstance of the real world) contribute to economic success should
be consigned to a lower economic condition because of these traits. He argues that society should provide redress
for these traits, and thus rejects the idea of what he calls a “callous
meritocratic society.” In this sense,
the thing of intrinsic value for Rawls is not so much equality itself as
fairness or equality of opportunity. Yet
the outcome, given his rejection of “callous” meritocracy, would be relative
equality of outcome.[10]
There
are several other philosophers whose work is associated with valuing equality
who develop their argument from postulating the intrinsic value of equality of
opportunity – for example, Ronald Dworkin (1981), G.A. Cohen (1989) and John
Roemer (1998). These authors, and Rawls,
have various outlooks on what constitutes “native assets,” some adopting a broader
view (e.g., including tastes or personality traits) and some adopting a
narrower view (e.g., rejecting the idea that tastes or personality traits are
part of an individual’s “native assets”).
Nonetheless, they – and many other liberal egalitarians – argue from the position that equality of
opportunity means that inequalities of outcome are not legitimate if they arise
from characteristics for which people themselves are not responsible. Indeed, one might go so far as to argue that
conservatives, who give greater emphasis to the difference between equality of
opportunity and equality of outcome, differ from the liberals largely in terms
of what they view as the individual’s responsibility.[11] Conservatives (at least modern conservatives)
would tend to include only such characteristics as race, ethnicity and gender
as traits for which the individual is not responsible. Conservatives, however, would tend not to
advocate redress for these characteristics, but simply advocate that society
not use them as a basis for discrimination.
The issue of the connection between equality of opportunity and equality
of outcome will be given more attention shortly.
The
argument, however, that equality of outcome – or, at least, the absence of
extreme inequalities – derives from the intrinsic value of equality of
opportunity is not the same as claiming that equality of outcome itself has
intrinsic value. Fairness as embodied in
equal opportunity is good, but it is not all that is good in relation to
economic equality. Even leaving aside
the argument (noted above) that follows from defining economic well-being and
basic needs in relative terms, there are strong reasons to view equality of
outcome as having intrinsic value.
This
intrinsic value of equality of outcome is well captured in the Sheffler
quotation above, that “there is something valuable about human relationships
that are …unstructured by differences of rank, power, or status.” Sheffler is not directly addressing differences
of income and wealth. Yet, while it is
conceptually possible to have differences of income and wealth that are not
accompanied by differences of “rank, power, or status,” this seems highly
unlikely, to say the least, in the real world.
A similar idea
is expressed by Erik Olin Wright (2000, p. 145): “…income inequality …
fractures community, generates envy and resentment, and makes social solidarity
more precarious.” The pernicious impacts
of income inequality that concern Wright depend at least in part on the origins
and degree of the inequality. If, for
example, the inequality is largely based on race or ethnicity or gender, as is
so often the case, then it will be generally perceived as unfair (except,
perhaps, by those at top) and generate considerable resentment. Similarly, when inequalities are seen as
arising from family privilege, they will tend to be viewed by many people as
illegitimate and unfair. Income
inequalities that are seen as arising from differences in skills or efforts are
less likely to be viewed as illegitimate (the views of Rawls and some other
liberal egalitarians notwithstanding).
Nonetheless, if inequality is large as it is in much of the world today,
it is likely to be viewed as unfair – and thereby undermine social solidarity –
because few people would view legitimate bases of inequality (e.g., differences
in effort) as generating large inequalities.[12]
Thus
the intrinsic value of relative economic equality (of outcome) exists because
it is a foundation for the type of social relations that we consider desirable
– relations of solidarity, trust, and amiability. In this sense, the value of relative equality
can be seen in terms of its role in creating and being part of a democratic
social order. The connection between
relative equality and the social relations of a democratic social order is so
intimate that the equality is really part of those relations, not an instrument
that generates their existence. (As we
shall see, however, equality and the social relations that go with it are an
important instrument for a set of positive social outcomes. Also, but beyond my scope here, they are an
instrument as well for the effective operation of political democracy.)
Equality of Opportunity and Equality of Outcome
“…more effort should be directed specifically towards exploring the
hypothesis that, within the class structure of industrial societies, inequality
of opportunity will be the greater, the greater the inequality of condition –
as a derivative, that is, of the argument that members of more advantaged and
powerful classes will seek to use their superior resources to preserve their
own and their families’ positions.”—Robert Erikson and John Goldthorpe
(1992, p. 396)
“A society with highly unequal results is, more of
less inevitably, a society with highly unequal opportunity, too”—Paul Krugman (2007, p. 249)
Yet
there remains the continuing dispute over whether we should value equality of
opportunity or equality of outcome.
Having finally recognized that equity is an issue, the World Bank (2006)
has been adamant in arguing (p. 3) that the focus in economic development
should be on equality of opportunity and that “the policy aim is not equality
in outcomes.” The Bank does
include in its concept of equity, along with equal opportunity, “that
individuals should…be spared from extreme deprivation in outcomes.” (p. 2) Yet this seems a very limited qualification of
its rejection of equality of outcomes and is far from a push towards economic
equality. The problem is that equality
of opportunity for one generation is to a large degree dependent on equality of
condition (outcome) in the previous generation.
That
is, there are strong reasons to believe that there is a large degree of
dependence of equal opportunity for generation X on the equality of condition
for generation X-1, which is to say that equal opportunity within generation X
depends largely on the conditions under which members of generation X spend
their childhood. The point can be stated
in the most narrow terms of human capital formation. Children’s schooling and their healthcare in
virtually all societies are highly dependent on the social position and income
level of their families. This dependence
is somewhat attenuated by the spread of public education and by the existence
of national healthcare programs in many advanced industrial countries. But public schools are highly unequal in a
way that is associated with income inequality, and, where public schools are
less unequal, the upper classes tend to send their children to private
schools. Moreover, neither school
outcomes nor healthcare outcomes are determined simply by the formal systems of
education and healthcare, but also by a broad array of social conditions – inside
and outside the family – that are more advantageous for the progeny of the
wealthy than for those of the poor.[13] Yet if there is not equality in the formation
of these basic aspects of human capital, there can hardly be equality of
opportunity. And we might well stretch
the argument to point out that economically important aspects of personality –
most notably self-confidence and expectations – are affected to a significant
extent by one’s childhood social status and thus reinforce the dependence of
opportunity upon condition.[14]
Jonathan
Schwabish et al (2004) have examined the way these processes operate in the
connection between income inequality and social expenditures in a set of
fourteen relatively high-income countries (including observations on several of
those countries at different times).
They work from the hypothesis “that high levels of income inequality
reduce public support for redistributive social spending” and summarize their
findings as follows: “The results suggest that as the ‘rich’ become more
distant from the middle and lower classes, they find it easier to opt out of
public programs and to either self insure or to buy substitutes in the private
market… The conclusion is that higher economic inequality produces lower levels
of those publicly shared goods which foster greater equality of opportunity,
income insurance and greater upward mobility.” (pp. 32-33).[15]
The power of those with high incomes,
they suggest, works through the political process to undermine mobility (very
much in accord with the hypothesis suggested by Erikson and Goldthorpe in the
quotation above).
To
the extent that income inequality (inequality of outcome) is in conflict with
equality of opportunity, we would expect a positive association between
relative equality in the distribution of income and a higher degree of social
or economic mobility, which would tend to indicate a higher degree of equality
of opportunity. While the data on these
issues are sparse and contested and are even less available for low-income
countries than for high income countries, they tend to be consistent with these
expectations. For example, Robert
Erikson and John Goldthorpe (1992, ch. 11) present results of a multivariate
analysis of social mobility across class groupings for a dozen “industrialized
countries” showing a significant role for income inequality in reducing
mobility. They are, however, cautious
about the significance of their results, and (as the quotation above indicates)
see the need for more examination of the issue.
Jo
Blanden et al (2005, Table 2) report intergenerational partial correlations for
eight European and North American countries (Britain, Canada, Denmark, Finland,
Norway, Sweden, West Germany, and the United States). Their data cover fathers’ and sons’ earnings,
with data on sons born between 1958 and 1970 (depending on the country). Combining these data with Gini coefficients
from the World Bank (2006, Table A2), we obtain the results shown in Figure 1 –
that is, a clear simple correlation between mobility and equality. These
results, of course, must be taken as only suggestive, as there are many
problems with the cross-country compatibility of the data, the number of
observations is very small, and the figure shows only the simple
correlation.
Data
for the U.S. at different points of time tend to support the same
conclusion. Daniel Aaronson and Bhashkar
Mazumder (2005/2007) have calculated the relationship between adult men’s log
annual earnings and log of annual family income in the previous
generation. Their regression coefficients,
or intergenerational elasticities (IGEs), describe how much economic
differences between families persists.
They report (their Table 1) the IGE for forty year olds at the beginning
of each decade from 1950 to 2000. These
IGE’s show the same pattern as do the Gini coefficients for family income for
these years – i.e., a decline from 1950 into the 1970s and then a upward
movement to 2000. The two sets of data
are shown in Figure 2. While the
patterns are not identical, they are certainly suggestive of the positive
relationship between equality and mobility.[16]
Using a different set of data and different
methodology, Katherine Bradbury and Jane Katz (2002) obtain similar
results. They present calculations
(their Appendix Table A1) showing a notable reduction in mobility across income
quintiles for families from the 1970s through the 1990s. For example, they report that in the 1970s
49.4 percent of families in the bottom income quintile were still in the bottom
quintile in 1979. For the 1980s and
1990s, the comparable figures were 50.4 percent and 53.3 percent
respectively. On the other extreme,
while 49.1 percent of those families in the top quintile remained in the top
quintile over the 1970s, 50.9 percent remained there in the 1980s and 53.2
percent remained there during the 1990s.[17]
The 1970s through the 1990s were of course a period of rising income inequality
in the United States, suggesting the inequality-immobility connection. As noted, however, these findings of an
equality-mobility connection are not uncontested.[18]
There
is one study of a set of African countries that yields some support for the
equality-mobility connection. Denis Cogneau and Sandrine Mesplé-Somps (2008) examine equal
opportunity in terms of social and economic mobility in Ivory Coast,
Ghana (at two points in time), Guinea, Madagascar and Uganda. While the results are not strong, the authors
conclude (p. 17): “Inequality of opportunity for income seems to correlate with
overall income inequality more than with national average income…” These results, however, are confounded by
numerous factors, including, for example, substantial regional differences
within countries and the difference associated with differences in colonial
history. Nonetheless, as with the
results noted above for high-income countries, this information is suggestive.[19]
It
would be reassuring to have more extensive data that would allow a meaningful
test of the hypothesis of an equality-mobility connection and thereby support
or undermine the argument that equality of opportunity is dependent on equality
of outcome/condition. However, given the
implications of the data we do have and the character of the argument for such
a connection, there is good basis to reject the idea that we can separate
economic of opportunity from equality of outcome.
Relative Equality as a Positive Instrument
“Using income inequality as an indicator and determinant of the scale
of socioeconomic stratification in a society, we show that many problems
associated with relative deprivation are more prevalent in more unequal
societies. We summarise previously
published evidence suggesting that this may be true of morbidity and mortality,
obesity, teenage birth rates, mental illness, homicide, low social capital,
hostility, and racism. To these we add
new analyses which suggest that this is also true of poor educational
performance among school children, the proportion of the population imprisoned,
drug overdose mortality and low social mobility.”—Richard Wilkinson and
Kate E. Pickett (2007, p. 1965)
Beyond
questions of definition and beyond philosophic disputes over the value of
relative equality, the distribution of income appears to play some important
roles in affecting various social outcomes that are widely valued. In particular, for example, a more equal
distribution of income appears to be a causal factor bringing about better
health outcomes and a reduction in violent crime. More precisely, a more equal distribution of
income is an indicator (a “marker”) for and a part of a set of social relations
that tend to generate these favorable outcomes.
In this sense, income equality has instrumental value as can be shown
using the health and crime examples.[20]
Equality and Health Outcomes[21]
No one
disputes that absolute poverty is bad for one’s health. “Better to be rich and healthy than poor and
sick,” as the sardonic statement puts the matter. Whether one examines the data within a
particular society or across various societies, the correlation between the
level of income of an individual or a society and health outcomes of the
individual or society (e.g., morbidity or mortality) is fairly clear. In both cases, however, the impact of income
on health outcomes appears to be much stronger at lower than at higher levels of
income – that is, at low levels of income a small increase of income is
associated with a large improvement of health outcomes, but at high levels of
income an increase of income has little impact on health outcomes.
Yet
it is also true that if we look across societies (leaving aside for the moment
how we define “societies,” which turns out to be an important issue), there is
a negative correlation between the degree of income inequality and health
outcomes. More unequal societies tend to
have worse health outcomes. This is a
controversial statement, as recognized even by its proponents (e.g., Wilkinson
and Pickett, 2006, and Subramanian and Kawachi, 2004), and some aspects of the
controversy will be taken up shortly.
Before I do so, however, it will be useful to consider the reasons why
inequality may cause poor health.
First,
there is the phenomenon that a change of income makes more difference for
health outcomes at low levels of income than at high levels of income. Thus in
two societies with the same average level of income we would expect the more
equal one to have better health outcomes on average, but only at the (small)
expense in terms of health outcomes of those at the top; overall – that is, the
health outcomes of the more equal society would not be better at every level.[22]
Second,
as noted above, more unequal societies appear to spend less on social programs
than do more equal societies. Accordingly, we would expect public health
services and the provision of health care for the low-income part of the
populace to be smaller in the more unequal societies. Thus, again we would expect a more equal
society to have better health outcomes on average, but health outcomes would
not necessarily be better for those at the upper income levels – or, at least,
the impacts would be small at the upper income levels.[23]
Third, more
unequal societies tend to generate greater stress levels, and stress can work
through psychosocial pathways to generate poor health. Income inequality “pollutes” the social
environment (to use Subramanian and Kawachi’s term), creating divisions,
resentments, and worries at all levels.
Those people in subordinate positions tend to be in a chronic state of
tension, as they are unable to attain the material standards of the society;
those people higher up tend to worry that they may not be able to maintain
their position. Fear, it has sometimes
been noted, is a powerful motivator; it is also a powerful generator of stress. Stress, it is well recognized, is a factor in
a great variety of health outcomes.
Perhaps the most important implication of the psychosocial explanation
is that it would explain the finding of some studies that health outcomes at
all levels are better in more equal societies (e.g., Banks et al, 2006)
In many ways the
psychosocial explanation of the role of inequality in affecting health is the
most compelling, but it is also difficult to establish and controversial (e.g.,
Lynch et al, 2000). Indeed, the entire argument
that health outcomes are significantly affected by income distribution is
controversial. In an extensive review,
Angus Deaton (2003) maintains that income distribution itself is not a major
determinant of population health. When
controlled for several other social variables, the relation between income
distribution and health, Deaton argues, drops from sight. But it seems that Deaton does not recognize
the point that income distribution is a “marker” for a whole set of measures of
social-economic differentiation.
Controlling for other measures of this differentiation will reduce, if
not eliminate the significance of income distribution itself, but the basic
connection between the differentiation (for which income distribution is
marker) will not be refuted.
Another source
of dispute over the role of income distribution in affecting health outcomes
arises from the way “society” is defined in various studies. In general, studies that focus on larger
social units – countries, states or provinces, and large metropolitan areas – find
more support for the connection between inequality and ill-health than do
studies where the units of observations are small – e.g., towns or
counties. Yet it would seem that the
comparisons of hierarchy and status that would affect stress tend to be derived
from the larger society in which people live.
Social differences measured within the smaller units are less likely,
according to the psychosocial argument at least, to have a great impact on
health outcomes.[24]
Although
the equality-health connection remains controversial, the evidence from a great
many studies provides substantial support for the argument that inequality
(measured by income distribution or some other indicators of social position)
is a significant factor effecting negative health outcomes. The points made by critics, while relevant,
are not convincing. At the same time, it
is important to keep in mind that income level is still an important factor
affecting positive health. This is
especially the case in low-income countries, where rising per capita income is
strongly associated with improved health outcomes. This does not mean, however, that income
distribution is irrelevant for health outcomes in low-income countries. Not only does it appear to have some direct
effect outside the high-income countries (e.g., Subramanian et al, 2003), but,
in addition, patterns of inequality once established tend to persist. As low-income countries experience economic
growth, the impact of inequalities already well-established will tend to have a
greater role in health conditions.
Equality and Crime
It
seems likely that inequality would increase crime. With a high degree of inequality, people at
the bottom would tend to see themselves as especially deprived and also see
their position as unfair. They would
then be more likely to rationalize and engage in burglary and theft, crimes
against property. Moreover, the narrowly
economic theories of crime, which see crime as a decision based on a
calculation of potential gains relative to potential costs (deriving from Gary
Becker, 1968), postulate a positive relation between income inequality and
crime based on the larger wealth differences between the rich and the poor –
and therefore the greater potential gain.
Yet,
it is the connection between inequality and crimes of violence that is found to
be strong in various studies. For
example, Morgan Kelly (2000, p. 530) in a study based on data for U.S. counties
and cities, finds that, “The behavior of property and violent crime are quite
different. Inequality has no effect on
property crime but a strong and robust impact on violent crime…By contrast,
[absolute] poverty and police activity have significant effects on property
crime, but little on violent crime.” In
a cross-country study of inequality and violent crime, Daniel Lederman et al
(2002), using data from 39 countries, more than half of which are low- or
moderate-income countries, find a positive causal connection between inequality
and violent crime rates. (Both the
studies by Kelly and by Lederman et al control for a variety of related
variables and use a variety of statistical tests.) Gabriel Demombynes and Berk Ozler (2002)
examine the crime-inequality connection in South Africa, focusing on local
areas. They find a positive association
between inequality and crime for both violent crime and crimes against
property.
While
the argument based in the narrow economics approach pioneered by Becker may
have some relevance to the explanation of the inequality-crime connection, it
fails to come to grips with the strong relation between inequality and violent
crime. Explanations of the role of
income inequality in effecting violent crime tend to focus on the social impact
of inequality, the impact of inequality on social solidarity referred to
earlier. In a 1982 article that has been
a reference point for the crime-distribution connection, Judith Blau and Peter
Blau, examining the issue in the United States, find a strong connection
between violent crime and racial and economic inequality. They offer as an explanation: “In a society
founded on the principle ‘that all men are created equal,’ economic
inequalities rooted in ascribed positions violate the spirit of democracy and
are likely to create alienation, despair, and conflict.” (Blau and Blau, 1982,
p. 126). This argument overlaps with the
explanation, offered above, regarding the intrinsic value of economic equality.[25]
Conclusion
Many of the particular arguments I have made may be widely
accepted. Yet this does not
automatically lead to an acceptance of my general proposition that
economists and economic policy makers should focus much greater attention on
inequality as measured by the distribution of income (and wealth). While relative equality is a desirable
social goal, it is not the only social goal.
When other social goals – such as liberty or economic growth – come into
conflict with greater equality, many people would choose to meet these other
goals rather than the goal of greater equality.
There is
no denying the potential for conflict among social goals, and there is no
general way to resolve such conflicts prior to their appearance. When policy makers are faced with a conflict,
the only legitimate means of resolution is through a democratic process (though
of course this may be a problem when democracy itself is undermined by
inequality). However, to a large degree
the conflict between equality and other social goals is often exaggerated.
Such
exaggeration – indeed, actual incorrect characterization – has been the case
with the possible conflict between economic growth and a relatively equal
distribution of income. For generations
and across the ideological spectrum, it was widely accepted that such a
conflict existed. In recent decades,
however, as the empirical evidence has been examined, it has become clear that
there is no such general conflict. While
one cannot conclude that equality automatically yields more repid growth,
neither can one claim that a conflict necessarily exists. Many countries with more equal income
distributions have grown more rapidly than have other countries with more
inequality. It appears to depend on the
way economic growth is organized, the way an economy is structured in terms of
the types of institutions and policies that are established. Thus the evidence suggests that instead of
being presented with the challenge of a choice between relative equality and
growth, societies are presented with the challenge of structuring their
economies so as to promote both goals.
As to
the assertion that relative equality undermines liberty, here too there is no
necessary conflict. The establishment of
more extensive social programs that would raise the well-being of the poor, tax
the rich more heavily, and generate greater equality does not amount to some
incursion on the liberty of the rich.
Even extensive land confiscations can hardly be seen as violations of
liberty if those lands were obtained, as has sometimes been the case, through
some illicit means. The view that any
effort at reallocation is an encroachment on liberty is based on the assumption
that the existing distribution of income has been created by completely
legitimate means, an assumption that would defy credulity. None of this is to say that any reallocation
or confiscation is acceptable. It is
simply to say that a good deal of economic reorganization in the direction of
greater equality is possible without doing offense to liberty. Moreover, one could easily argue that the
only way to promote the liberty of those at the bottom of societies’
hierarchies is to establish a greater degree of equality.
Ultimately,
the matter may come down to a very practical issue, which may outweigh both
these arguments about conflicts of goals and the arguments I have developed in
this essay. If we want to something
about the condition of the poor, we had better pay attention to income
distribution. This practical matter lies
in arithmetic and has been summed up by Azizur Rahman Khan (2005, p. 8) with
the observation:
“A crude
estimation of the elasticities of headcount rate poverty … shows that the
partial elasticity with respect to the Gini ratio of expenditure is higher than
the absolute value of the partial elasticity with respect to PPP$ income.”
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Global
Wealth Report 2019: Global wealth rises by 2.6% driven by US & China,
despite trade tensions
Credit Suisse Research
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DAVID B. GRUSKY
The
Past, Present, and Future of Social Inequality : http://homepage.ntu.edu.tw/~khsu/mobile/sup2.pdf
In advanced industrial societies, much rhetoric and social
policy have been directed against economic and social inequality, yet despite
such efforts the brute facts of poverty and massive inequality are still
everywhere with us. The human condition has so far been a fundamentally unequal
one; indeed, all known societies have been characterized by inequalities of
some kind, with the most privileged individuals or families enjoying a
disproportionate share of power, prestige, and other valued resources. The task
of contemporary stratification research is to describe the contours and
distribution of inequality and to explain its persistence despite modern
egalitarian or anti-stratification values.
The term stratification system refers to the complex of
social institutions that generate observed inequalities of this sort. The key
components of such systems are (1) the institutional processes that define
certain types of goods as valuable and desirable, (2) the rules of allocation
that distribute these goods across various positions or occupations in the
division of labor (e.g., doctor, farmer, "housewife"), and (3) the
mobility mechanisms that link individuals to occupations and thereby generate
unequal control over valued resources. It follows that inequality is produced
by two types of matching processes: The social roles in society are first
matched to "reward packages" of unequal value, and individual members
of society are then allocated to the positions so defined and rewarded.' In all
societies, there is a constant flux of occupational incumbents as newcomers
enter the labor force and replace dying, retiring, or outmigrating workers, yet
the positions themselves and the reward packages attached to them typically
change only gradually. As Schumpeter (1953, 171) puts it, the occupational
structure can be seen as "a hotel . . . which is always occupied, but
always by different persons."
The contents of these
reward packages may well differ across modern societies, but the range of
variability appears not to be great. We have listed in Table 1 the various
goods and assets that have been socially valued in past or present societies
(for related listings, see Kerbo 2000, 43-44; Rothman 1999, 2-4; Gilbert 1998, 11-14;
Duncan 1968, 686-90; Runciman 1968; Svalastoga 1965,70).2 In constructing this
table, we have followed the usual objective of including all those goods that
are valuable in their own right (i.e., consumption goods) while excluding any
"second-order goods" (i.e., investments) that are deemed valuable
only insofar as they provide access to other intrinsically desirable goods. The
resulting list nonetheless includes resources and assets that serve some
investment functions. (continue: http://homepage.ntu.edu.tw/~khsu/mobile/sup2.pdf
)
[1] Paper to be included in a Festschrift volume in honor of Azizur
Rahman Khan. The author is Professor
Emeritus, Department of Economics, and Senior Fellow, Center for Social Policy,
University of Massachusetts Boston.
Contact: arthur.macewan@umb.edu.
[2] The most extensive and probably most important analytic work
directly connected to the MDGs is the Sachs Report, Investing in Development: A Practical Plan to Achieve the Millennium
Development Goals. (UN Millennium Project, 2005). As I have emphasized elsewhere, MacEwan
(2008), in its examination of poverty, the Sachs report ignores income (and
wealth) distribution.
[3] The poverty-inequality connection has been effectively demonstrated
in many writings by Azizur Rahman Khan and his collaborators, from his earlier
publications – e.g., Khan (1967) and (1972) – through his more recent work –
e.g., Khan (2005), Griffin et al (2002), and Khan and Riskin (2001).
[4] My list of arguments is not exhaustive. It would be relatively easy to maintain that
a high degree of income inequality is in conflict with democracy. That is an argument, however, that I will
leave to others.
[5] This section draws heavily on MacEwan (2008), where the argument is
developed more fully.
[6] Ironically, poverty became an issue
in the United States before it became a central issue for development
economics. With the publication of
Michael Harrington’s The Other America
(1962) and the subsequent “War On Poverty,” economists began to give attention
to poverty as an issue separate from economic growth per se. It was more than a decade later, with the
formulation of the basic needs concept, that the economics of low-income
countries began a re-orientation towards poverty alleviation as not simply a
concomitant of economic growth. Also,
during the era in which growth was the focus of development economics not only
was poverty an issue of subsidiary focus, but income inequality, insofar as it
was an issue, was usually seen as a basis for more rapid growth and thus, at
least to a degree, desirable.
[7] While such an absolute standard is used in the United States and
generally in low-income countries, European Union countries have come to define
poverty in relative terms – generally as living on less than half the national
average income. In this EU definition,
at any level of average income, poverty will be greater the greater is the
income inequality (as explained below).
[8] Adam
Smith, for example, saw the capability to appear in public without shame as a
basic need, the lack of which placed a person in poverty. Smith saw the possession of a linen shirt as
a requirement for meeting this need. Referring
to Smith’s linen shirt example, Sen points out that the capability to appear in
public without shame is an absolute capability, but the need for a linen shirt
in order to fulfill this capability is a socially determined, relative
need. (Sen 1983, p. 161)
[9] The approach of seeing poverty as a
social status is not peculiar to Sahlins, but is more generally the approach of
anthropology. See, for example, Green
(2006, p. 1109), who comments, “Anthropological perspectives on poverty
prioritise poverty not as an absolute measurable condition but as a qualitative
social relation. Anthropological accounts of poverty examine how the groups
categorised as poor come to be so classified and by whom.”
[10] There are two problems with Rawls related to the discussion here. First, there is no reason why “trickle-down”
approaches to economic policy could not be justified by his difference
principle. Indeed, the argument that
providing direct benefits to the wealthy helps the poor is exactly the argument
that supporters of these sorts of policies put forth. The difference principle would seem
consistent with all sorts of disequalizing policies, as long as the absolute
level of income of those at the bottom was increased. And this is the second problem: Rawls appears
to accept the idea that people are materially better or worse off as a function
of their absolute level of income. This
is, as argued in the previous section, a problem.
[11] I have been drawn to these points and related exchanges by Sheffler
(2005).
[12] Aside from the question of the
intrinsic value of equality, the resentment, envy and lack of social solidarity
that can come with inequality might generate social conflict, a phenomenon that
is sometimes cited as an explanation for why income inequality may retard
economic growth. (Alesina and Rodrik, 1994, and Persson and Tabellini, 1995)
[13] Richard Rothstein (2004) provides analysis and numerous particulars
of these factors in the U.S. context.
Donald Hirsch (2007, p. 5), focusing on the U.K., sums up his study as
follows: “Child poverty and unequal educational opportunities are inextricably
linked. Children’s educational prospects
reflect the disadvantages of their families.”
[14] Schools play a role here too.
The quality difference between the schools for the poor and those for
the rich is not only one along the good-bad dimension. Even “good” schools channel students from
different social classes in different directions and affect their expectations
and self-confidence. See, for example,
the study described by Martin Carnoy and Henry Levin (1985, ch. 5).
[15]
Schwabish et al also find,
however, find that inequality between the middle and the poor (as measured by the 50/10 percentile ratio) has a positive,
though small, impact on social spending.
[16] Aaronson and Mazumder use data from the Integrated Public Use
Microdata Series (IPUMS) of the decennial Censuses. In their abstract, they summarize their
method and results as follows: “We estimate a time series of intergenerational
economic mobility using a two sample estimation approach that matches
individuals in the Census to synthetic parents in the prior generation based on
state of birth and cohort. We find that
mobility increased from 1950 to 1980 but has declined sharply since 1980.”
[17] Bradbury and Katz base their calculations on the Panel Study of
Income Dynamics. Not all the
decade-to-decade comparisons show decreasing mobility. For example, whereas 3.3 percent of families
rose from the bottom income quintile to the top income quintile in the 1970s,
4.3 percent made this transition in the 1990s.
[18] For example, Tom Hertz (2006), examining the 1990-91 to 2003-2004
period in the United States does not find any general decrease in mobility
across income deciles or quintiles.
Hertz also uses data from the Panel Study of Income Dynamics, but his
method, as well as his years of focus, differ from those of Bradbury and Katz.
[19] I am unable to find other studies for low-income countries that
would provide systematic treatment of the mobility-equality connection. I would expect, however, that while the
distribution of income is important, the rate of growth would also have
important impacts on economic and social mobility. The structural change that accompanies rapid
growth in the development process would be likely to bring about opportunities
and disruptions that would effect a relatively high degree of mobility, all
else equal. However, all else is seldom
equal. For example, Munshi and
Rosenzweig (2005) find that rising income inequality in India during the
country’s recent period of more rapid growth appears to be associated with
greater geographic immobility largely because with rising income inequality
households at the bottom of the distribution are less likely to leave the
supportive networks of their, largely local, caste support systems. While Munshi and Rosenzweig focus on
geographic mobility, there is probably a strong connection to economic and
social mobility.
[20] As the quotation at the outset of this section from Wilkinson and Pickett
(2007) indicates, many other social maladies beyond ill-health and crime might
be attributed at least in part to inequality.
Beyond their list, a negative impact of inequality on the environment
should also be noted. (Boyce, 2007).
[21] In addition to other works cited, the argument here draws heavily
upon Wilkinson (2005) and Kawachi and Kennedy (2006). Also, see the reviews by Wilkinson and
Pickett (2006) and Subramanian and Kawachi (2004). I am grateful to both Richard Wilkinson and
Ichiro Kawachi for correspondence that helped me understand these issues –
though they are not to blame for any errors in my argument. Deaton (2003) reviews the issue and argues
the contrary position – i.e., against the connection between income inequality
and poor health outcomes.
[22] Subramanian and Kawachi (2004) describe this phenomenon and
distinguish the “concavity-induced income inequality effect” (referring to the
shape of the curve relating health outcomes to income) from the “pollution
effect” of income inequality. Explaining
the “pollution effect,” they state (p. 80): “In addition to the concavity
effect just described, researchers have posited an additional effect of income
inequality on health…This is the hypothesis that the distribution of income in
society, over and above individual incomes as well as societal average income,
matters for population health such that individuals (regardless of their
individual incomes) tend to have worse health in societies that are more
unequal. Thus, income inequality per se
may be damaging to the public’s health by causing a downward shift in the income/health curve. …[W]e shall refer to the
independent contextual income
inequality effect as the ‘pollution effect’ of income inequality on health.”
[23] However, Deon Filmer and Lant Pritchett (1997) in a cross-sectional analysis of
104 countries, while finding a significant impact of income inequality on child
mortality, also find that public spending on health had relatively little
impact. Filmer and Pritchett’s study demonstrates
that most of the variation in child mortality is accounted for by the average income
levels of the countries.
[24] In this connection, Wilkinson and
Pickett (2006, p. 1774) note: “The broad impression is that social class
stratification establishes itself primarily as a national social structure,
though there are perhaps also some more local civic hierarchies—for instance
within cities and US states. But it should go without saying that classes are
defined in relation to each other: one is higher because the other is lower,
and vice versa. The lower class identity of people in a poor neighbourhood is
inevitably defined in relation to a hierarchy which includes a knowledge of the
existence of superior classes who may live in other areas some distance away.”
[25] While there is dispute over the relative roles of absolute poverty
and income inequality in contributing to crime, there seems to be little
disagreement that inequality has a positive impact on crime. A meta-analysis carried out by Ching-Chi
Hsieh and M. D. Pugh (1993) found that poverty and income inequality are each
associated with violent crime, though they find a good deal of variation among
studies in the size of the impacts.
The
Case for 'Universal Property'
An idea pioneered by Alaska could inoculate society
against extreme inequality
- By James K.
Boyce on November 28, 2020
When voters went to the
polls in November, one outcome was certain: America would emerge as a nation
deeply divided. President-elect Biden’s pledge to “unite
and heal” will do little to remedy this reality unless good
intentions are matched by bold policies that truly bring Americans together.
Universal property—an innovative idea that goes beyond income to the economic
bedrock of wealth—offers a way to move in that direction, one that could win
support on both sides of the political aisle.
Americans cherish both
equality and liberty. The problem is that when these appear to be in conflict,
the nation is torn between those willing to sacrifice some liberty for greater
equality and those willing to do the opposite. This underlying fault line was
in evidence between those who voted for Biden and those who voted for Trump. It
is also a source of ambivalence among the many Americans on both sides who
value both.
The notion that equality is
the enemy of liberty, and vice versa, is founded on the view that government is
the ultimate guarantor of equality, and private property the ultimate guarantor
of liberty. The balance between equality and liberty thus morphs into the
balance between the state and the market. A quintessential exposition of this
line of thinking can be found in the writings of antebellum South Carolina
Senator John C. Calhoun. In his Disquisition on Government, published
in 1851, Calhoun juxtaposed “two great classes”: one comprised of taxpayers
(including slaveholders like
himself) who fund the government, the other of “tax-consumers” who
live on government handouts. The 20th-century free-market avatar Ayn Rand gave
Calhoun’s classes more vivid labels: “The creator produces,” she wrote in her
1943 novel The Fountainhead, “the parasite loots.”
Around the same time that
Calhoun was penning his Disquisition, across the Atlantic two
German émigrés offered a very different notion of class struggle. In the Communist
Manifesto, Karl Marx and Friedrich Engels portrayed the working class
as the true creators of wealth, and the owners of capital as parasites. A key
plank in their program for building a more egalitarian society was state ownership
of “the means of production.” The shortcomings of this recipe became all too
clear with the advent of Communist regimes in the 20th century. The belief that
state property would in a meaningful sense belong to all was belied by the rise
of new elites, whose power like that of capitalists rested on control of
property—property nominally belonging to the governments they ran. In Russia,
three decades after elite “reformers” in the U.S.S.R. leveraged their political
status to reinvent themselves as post-communist oligarchs, wealth
is distributed even more unequally than in the United States. And
in China inequality
has reemerged with a vengeance.
The lesson: Neither private
property nor state-owned property is sufficient to guarantee equality and liberty
for all. The first can allow economic elites to monopolize wealth and power,
the second can allow political elites to do the same. But there is an
alternative type of property that can never be concentrated in the hands of an
elite. It was pioneered in, of all places, Alaska.
In 1976, as oil production
commenced on Alaska’s North Slope, the state amended its constitution to create
a new entity called the Alaska Permanent Fund.
The idea was the brainchild of Republican governor Jay Hammond, who believed
that Alaska’s oil wealth belonged to all its residents, and that all should
receive equal annual dividends from its extraction. The fund is “permanent”
because some of the money is invested so that future generations will receive
dividends too once oil production ends. “That money and the resources it comes
from belong to all Alaskans,” Hammond wrote, “not to
government or to a few ‘J.R. Ewings’ who in states like Texas own almost all
the oil.” Not surprisingly, the fund has proven enormously popular across the
state’s political spectrum. The record
payout, more than $3,000 per person including a one-time rebate,
came under Governor Sarah Palin in 2008.
The Permanent Fund is
neither private property nor public property in the conventional senses. Unlike
public property, the right to the revenue belongs to the people, not the
government. Unlike private property, this right cannot be bought or sold, owned
by corporations, or concentrated in a few hands. It is universal
property: individual, inalienable and perfectly egalitarian.
In 2001 Peter Barnes, a
solar energy entrepreneur and co-founder of the Working Assets Long Distance
telephone company, wrote a book called Who
Owns the Sky?, in which he proposed to treat the atmosphere’s
limited capacity to safely absorb carbon emissions like Alaska treats its oil:
as a joint inheritance that belongs in equal measure to each and every person.
To protect this precious inheritance for future generations, Barnes argued that
we ought to strictly limit the use of fossil fuels, charge prices for the
carbon emissions we do permit, and recycle the revenue to the public as
dividends. Hammond, for one, found the idea intriguing. “Pie in the sky?” he
mused. “Perhaps, but provocative.”
In his forthcoming
book Ours: How Universal Property Can Transform the World, Barnes
extends the possibilities for this alternative type of property beyond natural
assets to include assets we have created as a society, such as the legal and
institutional architecture of the financial system that underpins individual
prosperity. The gifts of society and the gifts of nature would be treated as a
joint inheritance belonging to all: universal property. Those who benefit from
using them would pay according to their use, and the money received from their
use would be paid out equally to all.
If implemented on a
significant scale, universal property would inoculate the society against
extreme inequality. It would provide an asset-based source for a universal
basic income, not dependent on redistributive taxation. Charging for use of the
sky’s carbon-absorption capacity would help stabilize
the Earth’s climate by curbing emissions; similarly, financial
transaction taxes would help stabilize the
economy by curbing hair-trigger speculation.
Universal property is a bold
idea that does not fit neatly into old labels. It is neither Democratic nor
Republican, neither liberal nor conservative, neither socialist nor libertarian.
Or rather, it is both. It would advance equality and liberty together. And by
bringing everyone into the same boat as co-owners, it could help bridge the
divides that keep us apart.
https://www.scientificamerican.com/article/the-case-for-universal-property/
The new elite’s phoney crusade to save the
world – without changing anything
Today’s titans of tech and
finance want to solve the world’s problems, as long as the solutions never,
ever threaten their own wealth and power. By Anand
Giridharadas
Tue 22 Jan
2019 06.00
Asuccessful society is a progress machine. It takes
in the raw material of innovations and produces broad human advancement.
America’s machine is broken. The same could be said of others around the world.
And now many of the people who broke the progress machine are trying to sell us
their services as repairmen. When the fruits of change have fallen on the US in
recent decades, the very fortunate have basketed almost all of them. For
instance, the average pretax income of the top 10th of Americans has
doubled since 1980, that of the top 1% has more than tripled, and that of the
top 0.001% has risen more than sevenfold – even as the average pretax income of
the bottom half of Americans has stayed almost
precisely the same. These familiar figures amount to
three-and-a-half decades’ worth of wondrous, head-spinning change with zero
impact on the average pay of 117 million Americans. Globally, over the same
period, according to the World
Inequality Report, the top 1% captured 27% of new income, while the
bottom half of humanity – presently, more than 3 billion people – saw 12% of
it.
That vast numbers of
Americans and others in the west have scarcely benefited from the age is not
because of a lack of innovation, but because of social arrangements that fail
to turn new stuff into better lives. For example, American scientists make the
most important discoveries in medicine and genetics and publish more biomedical
research than those of any other country – but the average American’s health
remains worse and slower-improving than that of peers in other rich countries,
and in some years life expectancy actually declines. American inventors create
astonishing new ways to learn thanks to the power of video and the internet,
many of them free of charge – but the average US high-school leaver tests
more poorly in reading today than in 1992. The country has had
a “culinary renaissance”, as one publication puts it, one farmers’ market and
Whole Foods store at a time – but it has failed to improve the nutrition of
most people, with the incidence of obesity and related conditions rising over
time.
The tools for becoming an
entrepreneur appear to be more accessible than ever, for the student who learns
coding online or the Uber driver – but the share of young people who own a
business has fallen by two-thirds since the 1980s. America has birthed both a
wildly successful online book superstore, Amazon, and another company, Google,
that has scanned more than 25m books for public use – but illiteracy has
remained stubbornly in place, and the fraction of Americans who read at least
one work of literature a year has dropped by almost a quarter in recent
decades. The government has more data at its disposal and more ways of talking
and listening to citizens – but only a quarter as many people find it
trustworthy as did in the tempestuous 1960s.
Meanwhile, the opportunity
to get ahead has been transformed from a shared reality to a perquisite of
already being ahead. Among Americans born in 1940, those raised at the top of
the upper middle class and the bottom of the lower middle class shared a
roughly 90% chance of realising the so-called American dream of ending up
better off than their parents. Among Americans born in 1984 and maturing into
adulthood today, the new reality is split-screen. Those raised near the top of
the income ladder now have a 70% chance of realising the dream. Meanwhile,
those close to the bottom, more in need of elevation, have a 35% chance of
climbing above their parents’ station. And it is not only progress and money
that the fortunate monopolise: rich American men, who tend to live longer than
the average citizens of any other country, now
live 15 years longer than poor American men, who endure only as
long as men in Sudan and Pakistan.
Thus many millions of
Americans, on the left and right, feel one thing in common: that the game is
rigged against people like them. Perhaps this is why we hear constant
condemnation of “the system”, for it is the system that people expect to turn
fortuitous developments into societal progress. Instead, the system – in
America and across much of the world – has been organised to siphon the gains
from innovation upward, such that the fortunes of the world’s billionaires now
grow at more than double the pace of everyone else’s, and the top 10% of humanity
have come to hold 85% of the planet’s wealth. New data published
this week by Oxfam showed that the world’s 2,200 billionaires
grew 12% wealthier in 2018, while the bottom half of humanity got 11% poorer.
It is no wonder, given these facts, that the voting public in the US (and
elsewhere) seems to have turned more resentful and suspicious in recent years,
embracing populist movements on
the left and right, bringing socialism and nationalism into the
centre of political life in a way that once seemed unthinkable, and succumbing
to all manner of conspiracy theory and fake news. There is a spreading
recognition, on both sides of the ideological divide, that the system is
broken, that the system has to change.
Some
elites faced with this kind of gathering anger have hidden behind walls and
gates and on landed estates, emerging only to try to seize even greater
political power to protect themselves against the mob. (We see you, Koch
brothers!) But in recent years a great many fortunate Americans have also tried
something else, something both laudable and self-serving: they have tried to
help by taking ownership of the problem. All around us, the winners in our
highly inequitable status quo declare themselves partisans of change. They know
the problem, and they want to be part of the solution. Actually, they want to
lead the search for solutions. They believe their solutions deserve to be at
the forefront of social change. They may join or support movements initiated by
ordinary people looking to fix aspects of their society. More often, though,
these elites start initiatives of their own, taking on social change as though
it were just another stock in their portfolio or corporation to restructure.
Because they are in charge of these attempts at social change, the attempts
naturally reflect their biases.
For the most part, these
initiatives are not democratic, nor do they reflect collective problem-solving
or universal solutions. Rather, they favour the use of the private sector and
its charitable spoils, the market way of looking at things, and the bypassing
of government. They reflect a highly influential view that the winners of an
unjust status quo – and the tools and mentalities and values that helped them
win – are the secret to redressing the injustices. Those at greatest risk of
being resented in an age of inequality are thereby recast as our saviours from
an age of inequality. Socially minded financiers at Goldman Sachs seek to
change the world through “win-win” initiatives such as “green bonds” and “impact
investing”. Tech companies such as Uber and Airbnb cast themselves as
empowering the poor by allowing them to chauffeur people around or rent out
spare rooms. Management consultants and Wall Street brains seek to convince the
social sector that they should guide its pursuit of greater equality by
assuming board seats and leadership positions.
Conferences and ideas
festivals sponsored by plutocrats and big business – such as the World
Economic Forum, which is under way in Davos, Switzerland, this week
– host panels on injustice and promote “thought leaders” who are willing to
confine their thinking to improving lives within the faulty system rather than
tackling the faults. Profitable companies built in questionable ways and
employing reckless means engage in corporate social responsibility, and some
rich people make a splash by “giving back” – regardless of the fact that they
may have caused serious societal problems as they built their fortunes. Elite
networking forums such as the Aspen Institute and the Clinton Global Initiative
groom the rich to be self-appointed leaders of social change, taking on the
problems people like them have been instrumental in creating or sustaining. A
new breed of community-minded so-called
B Corporations has been born, reflecting a faith that more
enlightened corporate self-interest – rather than, say, public regulation – is
the surest guarantor of the public welfare. A pair of Silicon Valley
billionaires fund an
initiative to rethink the Democratic party, and one of them can
claim, without a hint of irony, that their goals are to amplify the voices of
the powerless and reduce the political influence of rich people like them.
This genre of elites
believes and promotes the idea that social change should be pursued principally
through the free market and voluntary action, not public life and the law and
the reform of the systems that people share in common; that it should be
supervised by the winners of capitalism and their allies, and not be
antagonistic to their needs; and that the biggest beneficiaries of the status
quo should play a leading role in the status quo’s reform. This is what I call
MarketWorld – an ascendant power elite defined by the concurrent drives to do
well and do good, to change the world while also profiting from the status quo.
It consists of enlightened businesspeople and their collaborators in the worlds
of charity, academia, media, government and thinktanks. It has its own
thinkers, whom it calls “thought leaders”, its own language, and even its own
territory – including a constantly shifting archipelago of conferences at which
its values are reinforced and disseminated and translated into action.
MarketWorld is a network and community, but it is also a culture and state of
mind.
The elites of
MarketWorld often speak in a language of “changing the world” and “making the
world a better place” – language more typically associated with protest
barricades than ski resorts. Yet we are left with the inescapable fact that
even as these elites have done much to help, they have continued to hoard the
overwhelming share of progress, the average American’s life has scarcely
improved, and virtually all of the US’s institutions, with the exception of the
military, have lost the public’s trust.
One
of the towering figures in this new approach to changing the world is the
former US president Bill Clinton. After leaving office in 2001, he came to
champion, through his foundation and his annual Clinton Global Initiative
gatherings in New York, a mode of public-private world improvement that brought
together actors like Goldman Sachs, the Rockefeller Foundation and McDonald’s,
sometimes with a governmental partner, to solve big problems in ways plutocrats
could get on board with.
After the populist eruption
that resulted in Hillary Clinton’s defeat in the 2016 US election, I asked the
former president what he thought lay behind the surge of public anger. “The
pain and road rage we see reflected in the election has been building a long
time,” he said. He thought the anger “is being fed in part by the feeling that
the most powerful people in the government, economy and society no longer care
about them or look down on them. They want to become part of our progress
toward shared opportunities, shared stability and shared prosperity.” But when
it came to his proposed solution, it sounded a lot like the model to which he
was already committed: “The only answer is to build an aggressive, creative
partnership involving all levels of government, the private sector and
nongovernment organisations to make it better.” In other words, the only answer
is to pursue social change outside of traditional public forums, with the
political representatives of mankind as one input among several, and
corporations having the big say in whether they would sponsor a given
initiative or not. The public’s anger, of course, has been directed in part at
the very elites he had sought to convene, on whom he had gambled his theory of
post-political problem-solving, who had lost the trust of so many millions of
people, making them feel betrayed, uncared for and scorned.
What people have been
rejecting in the US – as well as in Britain, Hungary and elsewhere – was, in their
view, rule by global elites who put the pursuit of profit above the needs of
their neighbours and fellow citizens. These were elites who seemed more loyal
to one another than to their own communities; elites who often showed greater
interest in distant humanitarian causes than in the pain of people 10 miles to
the east or west. Frustrated citizens felt they possessed no power over the
spreadsheet- and PowerPoint-wielding elites commensurate with the power these
elites had gained over them – whether in switching around their hours or
automating their plant or quietly slipping into law a new billionaire-made
curriculum for their children’s school. What they did not appreciate was the
world being changed without them.
Which raises a question for
all of us: are we ready to hand over our future to the plutocratic elites, one
supposedly world-changing initiative at a time? Are we ready to call
participatory democracy a failure, and to declare these other, private forms of
change-making the new way forward? Is the decrepit state of American
self-government an excuse to work around it and let it further atrophy? Or is
meaningful democracy, in which we all potentially have a voice, worth fighting
for?
There
is no denying that today’s American elite may be among the more socially
concerned elites in history. But it is also, by the cold logic of numbers,
among the more predatory. By refusing to risk its way of life, by rejecting the
idea that the powerful might have to sacrifice for the common good, it clings
to a set of social arrangements that allow it to monopolise progress and then
give symbolic scraps to the forsaken – many of whom wouldn’t need the scraps if
society were working right. It is vital that we try to understand the
connection between these elites’ social concern and predation, between the
extraordinary helping and the extraordinary hoarding, between the milking – and
perhaps abetting – of an unjust status quo and the attempts by the milkers to
repair a small part of it. It is also important to understand how the elites
see the world, so that we might better assess the merits and limitations of
their world-changing campaigns. There are many ways to make sense of all this
elite concern and predation. One is that the elites are doing the best they
can. The world is what it is, the system is what it is, the forces of the age
are bigger than anyone can resist, and the most fortunate are helping. This
view may allow that elite helpfulness is just a drop in the bucket, but
reassures itself that at least it is something. The slightly more critical view
is that this sort of change is well-meaning but inadequate. It treats symptoms,
not root causes – it does not change the fundamentals of what ails us.
According to this view, elites are shirking the duty of more meaningful reform.
But there is still another,
darker way of judging what goes on when elites put themselves in the vanguard
of social change: that doing so not only fails to make things better, but also
serves to keep things as they are. After all, it takes the edge off of some of
the public’s anger at being excluded from progress. It improves the image of
the winners. By using private and voluntary half-measures, it crowds out public
solutions that would solve problems for everyone, and do so with or without the
elite’s blessing. There is no question that the outpouring of elite-led social
change in our era does great good and soothes pain and saves lives. But we
should also recall Oscar Wilde’s words about such elite helpfulness being “not
a solution” but “an aggravation of the difficulty”. More than a century ago, in
an age of churn like our own, he
wrote: “Just as the worst slave-owners were those who were kind to
their slaves, and so prevented the horror of the system being realised by those
who suffered from it, and understood by those who contemplated it, so, in the
present state of things in England, the people who do most harm are the people
who try to do most good.” Wilde’s formulation may sound extreme to modern ears.
How can there be anything wrong with trying to do good? The answer may be: when
the good is an accomplice to even greater, if more invisible, harm. In our era
that harm is the concentration of money and power among a small few, who reap
from that concentration a near monopoly on the benefits of change. And
do-gooding pursued by elites tends not only to leave this concentration
untouched, but actually to shore it up. For when elites assume leadership of
social change, they are able to reshape what social change is – above all, to
present it as something that should never threaten winners. In an age defined
by a chasm between those who have power and those who don’t, elites have spread
the idea that people must be helped, but only in market-friendly ways that do
not upset fundamental power equations. Society should be changed in ways that
do not change the underlying economic system that has allowed the winners to
win and fostered many of the problems they seek to solve.
The broad fidelity to this
law helps make sense of what we observe all around: powerful people fighting to
“change the world” in ways that essentially keep it the same, and “giving back”
in ways that sustain an indefensible distribution of influence, resources and
tools. Is there a better way? The secretary-general of the Organisation
for Economic Co-operation and Development (OECD), a research and policy
organisation that works on behalf of the world’s richest countries, has
compared the prevailing elite posture to that of the fictional
19th-century Italian aristocrat Tancredi Falconeri, from Giuseppe Tomasi di
Lampedusa’s novel The Leopard, who declares: “If we want things to stay as they
are, things will have to change.” If this view is correct, then much of today’s
charity and social innovation and buy-one-give-one
marketing may not be measures of reform so much as forms of
conservative self-defence – measures that protect elites from more menacing
change. Among the kinds of issues being sidelined, the OECD leader wrote, are
“rising inequalities of income, wealth and opportunities; the growing
disconnect between finance and the real economy; mounting divergence in
productivity levels between workers, firms and regions; winner-take-most
dynamics in many markets; limited progressivity of our tax systems; corruption
and capture of politics and institutions by vested interests; lack of
transparency and participation by ordinary citizens in decision-making; the
soundness of the education and of the values we transmit to future generations.”
Elites, he wrote, have found myriad ways to “change things on the surface so
that in practice nothing changes at all”. The people with the most to lose from
genuine social change have placed themselves in charge of social change – often
with the passive assent of those most in need of it.
It is fitting that an era
marked by these tendencies should culminate in the election of Donald Trump. He
is at once an exposer, an exploiter and an embodiment of the cult of elite-led
social change. He tapped, as few before him successfully had, into a widespread
intuition that elites were phonily claiming to be doing what was best for most
Americans. He exploited that intuition by whipping it into frenzied anger and
then directing most of that anger not at elites, but at the most marginalised
and vulnerable Americans. And he came to incarnate the very fraud that had
fuelled his rise, and that he had exploited. He became, like the elites he
assailed, the establishment figure who falsely casts himself as a renegade. He
became the rich, educated man who styles himself as the ablest protector of the
poor and uneducated – and who insists, against all evidence, that his interests
have nothing to do with the change he seeks. He became the chief salesman for
the theory, rife among plutocratic change agents, that what is best for
powerful him is best for the powerless too. Trump is the reductio ad
absurdum of a culture that tasks elites with reforming the very
systems that have made them and left others in the dust.
One thing that unites those
who voted for Trump and those who despaired at his being elected – and the same
might be said of those for and against Brexit – is a sense that the country
requires transformational reform. The question we confront is whether moneyed elites,
who already rule the roost in the economy and exert enormous influence in the
corridors of political power, should be allowed to continue their conquest of
social change and of the pursuit of greater equality. The only thing better
than controlling money and power is to control the efforts to question the
distribution of money and power. The only thing better than being a fox is
being a fox asked to watch over hens.
What is at stake is whether
the reform of our common life is led by governments elected by and accountable
to the people, or rather by wealthy elites claiming to know our best interests.
We must decide whether, in the name of ascendant values such as efficiency and
scale, we are willing to allow democratic purpose to be usurped by private actors
who often genuinely aspire to improve things but, first things first, seek to
protect themselves. Yes, the American government is dysfunctional at present.
But that is all the more reason to treat its repair as our foremost national
priority. Pursuing workarounds of our troubled democracy makes democracy even
more troubled. We must ask ourselves why we have so easily lost faith in the
engines of progress that got us where we are today – in the democratic efforts
to outlaw slavery, end child labour, limit the workday, keep drugs safe,
protect collective bargaining, create public schools, battle the Great
Depression, electrify rural America, weave a nation together by road, pursue a
Great Society free of poverty, extend civil and political rights to women and
African Americans and other minorities, and give our fellow citizens health,
security and dignity in old age.
Much of what appears to be
reform in our time is in fact the defense of stasis. When we see through the
myths that foster this misperception, the path to genuine change will come into
view. It will once again be possible to improve the world without permission
slips from the powerful.
This is an
edited extract from Winners Take All: The Elite Charade of Changing the World
by Anand Giridharadas, published by Allen Lane on 24 January and available to
buy at guardianbookshop.com
Socialism for the rich’: the evils of bad
economics
The
economic arguments adopted by Britain and the US in the 1980s led to vastly
increased inequality – and gave the false impression that this outcome was not
only inevitable, but good. By Jonathan Aldred
Thu
6 Jun 2019 06.00
In most rich countries,
inequality is rising, and has been rising for some time. Many people believe
this is a problem, but, equally, many think there’s not much we can do about
it. After all, the argument goes, globalisation and new technology have created
an economy in which those with highly valued skills or talents can earn huge
rewards. Inequality inevitably
rises. Attempting to reduce inequality via redistributive taxation is likely to
fail because the global elite can easily hide their money in tax havens.
Insofar as increased taxation does hit the rich, it will deter wealth creation,
so we all end up poorer.
One
strange thing about these arguments, whatever their merits, is how they stand
in stark contrast to the economic orthodoxy that existed from roughly 1945
until 1980, which held that rising inequality was not inevitable, and that
various government policies could reduce it. What’s more, these policies appear
to have been successful. Inequality fell in most countries from the 1940s to
the 1970s. The inequality we see today is largely due to changes since 1980.
In
both the US and the UK, from 1980 to 2016, the share of total income going to
the top 1% has more than doubled.
After allowing for inflation, the earnings of the bottom 90% in the US and UK
have barely risen at all over the past 25 years. More generally, 50 years ago,
a US CEO earned on average about 20 times as much as the typical worker. Today,
the CEO earns 354
times as much.
Any
argument that rising inequality is largely inevitable in our globalised economy
faces a crucial objection. Since 1980 some countries have experienced a big
increase in inequality (the US and the UK); some have seen a much smaller
increase (Canada, Japan, Italy), while inequality has been stable or falling in
others (France, Belgium and Hungary). So rising inequality cannot be
inevitable. And the extent of inequality within a country cannot be solely
determined by long-run global economic forces, because, although most richer
countries have been subject to broadly similar forces, the experiences of
inequality have differed.
The
familiar political explanation for this rising inequality is the huge shift in
mainstream economic and political thinking, in favour of free markets,
triggered by the elections of Ronald Reagan and Margaret Thatcher. Its fit with
the facts is undeniable. Across developed economies, the biggest rise in
inequality since 1945 occurred in the US and UK from 1980 onwards.
The
power of a grand political transformation seems persuasive. But it cannot be
the whole explanation. It is too top-down: it is all about what politicians and
other elites do to us. The idea that rising inequality is inevitable begins to
look like a convenient myth, one that allows us to avoid thinking about another
possibility: that through our electoral choices and decisions in daily life we
have supported rising inequality, or at least acquiesced in it. Admittedly,
that assumes we know about it. Surveys in the UK and US consistently suggest
that we underestimate both
the level of current inequality and how much it has recently increased. But
ignorance cannot be a complete excuse, because surveys also reveal a change in
attitudes: rising inequality has become more acceptable – or at least, less
unacceptable – especially if you are not on the wrong end of it.
Inequality
is unlikely to fall much in the future unless our attitudes turn unequivocally
against it. Among other things, we will need to accept that how much people
earn in the market is often not what they deserve, and that the tax they pay is
not taking from what is rightfully theirs.
One crucial reason why we
have done so little to reduce inequality in recent years is that we downplay
the role of luck in achieving success. Parents teach their children that almost
all goals are attainable if you try hard enough. This is a lie, but there is a
good excuse for it: unless you try your best, many goals will definitely remain
unreachable.
Ignoring
the good luck behind my success helps me feel good about myself, and makes it
much easier to feel I deserve the rewards associated with success. High earners
may truly believe that they deserve their income because they are vividly aware
of how hard they have worked and the obstacles they have had to overcome to be
successful.
But
this is not true everywhere. Support for the idea that you deserve what you get
varies from country to country. And in fact, support for such beliefs is
stronger in countries where there seems to be stronger evidence that
contradicts them. What explains this?
Attitude
surveys have consistently shown that, compared to US residents, Europeans are
roughly twice as likely to believe that luck is the main determinant of income
and that the poor are trapped in poverty. Similarly, people in the US are about
twice as likely as Europeans to believe that the poor are lazy and that hard
work leads to higher quality of life in the long run.
Yet
in fact, the poor (the bottom 20%) work roughly the same total annual hours in the
US and Europe. And economic opportunity and intergenerational mobility is more
limited in the US than in Europe. The US intergenerational mobility statistics
bear a striking
resemblance to those for height: US children born to poor
parents are as likely to be poor as those born to tall parents are likely to be
tall. And research has repeatedly shown that many people in the US don’t know
this: perceptions of social mobility are consistently over-optimistic.
European
countries have, on average, more redistributive tax systems and more welfare
benefits for the poor than the US, and therefore less inequality, after taxes
and benefits. Many people see this outcome as a reflection of the different
values that shape US and European societies. But cause-and-effect may run the
other way: you-deserve-what-you-get beliefs are strengthened by inequality.
Psychologists
have shown that people have motivated beliefs: beliefs that they have chosen to
hold because those beliefs meet a psychological need. Now, being poor in the US
is extremely tough, given the meagre welfare benefits and high levels of
post-tax inequality. So Americans have a greater need than Europeans to believe
that you deserve what you get and you get what you deserve. These beliefs play
a powerful role in motivating yourself and your children to work as hard as
possible to avoid poverty. And these beliefs can help alleviate the guilt
involved in ignoring a homeless person begging on your street.
This
is not just a US issue. Britain is an outlier within Europe, with
relatively high
inequality and low economic and social mobility. Its recent
history fits the cause-and-effect relationship here. Following the election of
Margaret Thatcher in 1979, inequality rose significantly. After inequality
rose, British attitudes changed. More people became convinced that generous
welfare benefits make poor people lazy and that high salaries are essential to
motivate talented people. However, intergenerational mobility fell: your income
in Britain today is closely correlated with your parents’ income.
If
the American Dream and other narratives about everyone having a chance to be
rich were true, we would expect the opposite relationship: high inequality (is
fair because of) high intergenerational mobility. Instead, we see a very
different narrative: people cope with high inequality by convincing themselves
it is fair after all. We adopt narratives to justify inequality because society
is highly unequal, not the other way round. So inequality may be
self-perpetuating in a surprising way. Rather than resist and revolt, we just
cope with it. Less Communist Manifesto, more self-help manual.
Inequality begets further
inequality. As the top 1% grow richer, they have more incentive and more
ability to enrich themselves further. They exert more and more influence on
politics, from election-campaign funding to lobbying over particular rules and
regulations. The result is a stream of policies that help them but are
inefficient and wasteful. Leftwing critics have called it “socialism for the
rich”. Even the billionaire investor Warren Buffett seems to agree: “There’s
been class warfare going on for the last 20 years and my class has won,”
he once
said.
This
process has been most devastating when it comes to tax. High earners have most
to gain from income tax cuts, and more spare cash to lobby politicians for
these cuts. Once tax cuts are secured, high earners have an even stronger
incentive to seek pay rises, because they keep a greater proportion of
after-tax pay. And so on.
Although
there have been cuts in the top rate of income tax across almost all developed
economies since 1979, it was the UK and the US that were first, and that went
furthest. In 1979, Thatcher cut the UK’s top rate from 83% to 60%, with a
further reduction to 40% in 1988. Reagan cut the top US rate from 70% in 1981
to 28% in 1986. Although top rates today are slightly higher – 37% in the US
and 45% in the UK – the numbers are worth mentioning because they are
strikingly lower than in the post-second-world-war period, when top tax rates
averaged 75% in the US and were even higher in the UK.
Some
elements of the Reagan-Thatcher revolution in economic policy, such as Milton
Friedman’s monetarist macroeconomics,
have subsequently been abandoned. But the key policy idea to come out of
microeconomics has become so widely accepted today that it has acquired the
status of common sense: that tax discourages economic activity and, in
particular, income tax discourages work.
This
doctrine seemingly transformed public debate about taxation from an endless
argument over who gets what, to the promise of a bright and prosperous future
for all. The “for all” bit was crucial: no more winners and losers. Just
winners. And the basic ideas were simple enough to fit on the back of a napkin.
One evening in December
1974, a group of ambitious young conservatives met for dinner at the Two
Continents restaurant in Washington DC. The group included the Chicago University
economist Arthur Laffer, Donald Rumsfeld (then chief of staff to President
Gerald Ford), and Dick Cheney (then Rumsfeld’s deputy, and a former Yale
classmate of Laffer’s).
While
discussing Ford’s recent tax increases, Laffer pointed out that, like a 0%
income tax rate, a 100% rate would raise no revenue because no one would bother
working. Logically, there must be some tax rate between these two extremes that
would maximise tax revenue. Although Laffer does not remember doing so, he
apparently grabbed a napkin and drew a curve on it, representing the
relationship between tax rates and revenues. The Laffer
curve was born and, with it, the idea of trickle-down
economics.
The
key implication that impressed Rumsfeld and Cheney was that, just as tax rates
lower than 100% must raise more revenue, cuts in income tax rates more
generally could raise revenue. In other words, there could be winners, and no losers,
from tax cuts. But could does not mean will. No
empirical evidence was produced in support of the mere logical possibility that
tax cuts could raise revenue, and even the economists employed by the incoming
Reagan administration six years later struggled to find any evidence in support
of the idea.
Yet
it proved irresistible to Reagan, the perennial optimist, who essentially
overruled his expert advisers, convinced that the “entrepreneurial spirit
unleashed by the new tax cuts would surely bring in more revenue than his
experts imagined”, as the historian Daniel T Rodgers put it. (If this potent
brew of populist optimism and impatience with economic experts seems familiar
today, that might be explained in part by the fact that Laffer was also a campaign
adviser to Donald Trump.)
For
income tax cuts to raise tax revenue, the prospect of higher after-tax pay must
motivate people to work more. The resulting increase in GDP and income may be
enough to generate higher tax revenues, even though the tax rate itself has
fallen. Although the effects of the big Reagan tax cuts are still disputed
(mainly because of disagreement over how the US economy would have performed
without the cuts), even those sympathetic to trickle-down economics conceded
that the cuts had negligible impact on GDP – and certainly not enough to
outweigh the negative effect of the cuts on tax revenues.
But
the Laffer curve did remind economists that a revenue-maximising top tax rate
somewhere between 0% and 100% must exist. Finding the magic number is another
matter: the search continues today. It is worth a brief dig into this research,
not least because it is regularly used to veto attempts to reduce inequality by
raising tax on the rich. In 2013, for example, the UK chancellor of the exchequer
George Osborne reduced the top rate of income tax from 50% to 45%, arguing
Laffer-style that the tax cut would lead to little, if any, loss of revenue.
Osborne’s argument relied on economic analysis suggesting that the
revenue-maximising top tax rate for the UK is about 40%.
Yet
the assumptions behind this number are shaky, as most economists involved in
producing such figures acknowledge. Let’s begin with the underlying idea: if
lower tax rates raise your after-tax pay, you are motivated to work more. It
seems plausible enough but, in practice, the effects are likely to be minimal.
If income tax falls, many of us cannot work more, even if we wanted to. There
is little opportunity to get paid overtime, or otherwise increase our paid
working hours, and working harder during current working hours does not lead to
higher pay. Even for those who have these opportunities, it is far from clear
that they will work more or harder. They may even decide to work less: since
after-tax pay has risen, they can choose to work fewer hours and still maintain
their previous income level. So the popular presumption that income tax cuts
must lead to more work and productive economic activity turns out to have
little basis in either common sense or economic theory.
There
are deeper difficulties with Osborne’s argument, difficulties not widely known
even among economists. It is often assumed that if the top 1% is incentivised
by income tax cuts to earn more, those higher earnings reflect an increase in
productive economic activity. In other words, the pie gets bigger. But some
economists, including the influential Thomas
Piketty, have shown this was not true for CEOs and other top
corporate managers following the tax cuts in the 1980s. Instead, they
essentially funded their own pay rises by paying shareholders less, which led
in turn to lower dividend tax revenue for the government. In fact, Piketty and
colleagues have argued that the revenue-maximising top income tax rate may be
as high as 83%.
The income tax cuts for
the rich of the past 40 years were originally justified by economic arguments:
Laffer’s rhetoric was seized upon by politicians. But to economists, his ideas
were both familiar and trivial. Modern economics provides neither theory nor
evidence proving the merit of these tax cuts. Both are ambiguous. Although
politicians can ignore this truth for a while, it suggests that widespread
opposition to higher taxes on the rich is ultimately based on reasons beyond
economics.
When
the top UK income tax rate was raised to 50% in 2009 (until Osborne cut it to
45% four years later) the composer Andrew Lloyd Webber, one of Britain’s
wealthiest people, responded bluntly: “The last thing we need is a Somali
pirate-style raid on the few wealth creators who still dare to navigate
Britain’s gale-force waters.” In the US, Stephen Schwarzman, CEO of private
equity firm Blackstone, likened proposals
to remove a specialised tax exemption to the German invasion of Poland.
While
we may scoff at these moans from the super-rich, most people unthinkingly
accept the fundamental idea behind them: that income tax is a kind of theft,
taking income which is rightfully owned by the person who earned it. It follows
that tax is, at best, a necessary evil, and so should be minimised as far as
possible. On these grounds, the 83% top tax rate discussed by Piketty is seen
as unacceptable.
There
is an entire cultural ecosystem that has evolved around the idea of
tax-as-theft, recognisable today in politicians’ talk about “spending
taxpayers’ money”, or campaigners celebrating “tax
freedom day”. This language exists outside the world of politics,
too. Tax economists, accountants and lawyers refer to the so-called “tax
burden”.
But
the idea that you somehow own your pre-tax income, while obvious, is false. To
begin with, you could never have ownership rights prior to, or independent
from, taxation. Ownership is a legal right. Laws require various institutions,
including police and a legal system, to function. These institutions are
financed through taxation. The tax and the ownership rights are effectively
created simultaneously. We cannot have one without the other.
‘There’s
been class warfare going on for the last 20 years, and my class has won’ … US
billionaire Warren Buffett. Photograph: Kevin Lamarque/Reuters
However,
if the only function of the state is to support private ownership rights
(maintaining a legal system, police, and so on), it seems that taxation could
be very low – and any further taxation on top could still be seen as a form of
theft. Implicit in this view is the idea of incomes earned, and so ownership
rights created, in an entirely private market economy, with the state entering
only later, to ensure these rights are maintained. Many economics textbooks
picture the state in this way, as an add-on to the market. Yet this, too, is a
fantasy.
In
the modern world, all economic activity reflects the influence of government.
Markets are inevitably defined and shaped by government. There is no such thing
as income earned before government comes along. My earnings partly reflect my
education. Earlier still, the circumstances of my birth and my subsequent
health reflects the healthcare available. Even if that healthcare is entirely
“private”, it depends on the education of doctors and nurses, and the drugs and
other technologies available. Like all other goods and services, these in turn
depend on the economic and social infrastructure, including transport networks,
communications systems, energy supplies and extensive legal arrangements
covering complex matters such as intellectual property, formal markets such as
stock exchanges, and jurisdiction across national borders. Lord Lloyd-Webber’s
wealth depends on government decisions about the length of copyright on the
music he wrote. In sum, it is impossible to isolate what is “yours” from what
is made possible, or influenced, by the role of government.
Talk
of taxation as theft turns out to be a variation on the egotistical tendency to
see one’s success in splendid isolation, ignoring the contribution of past
generations, current colleagues and government. Undervaluing the role of
government leads to the belief that if you are smart and hard-working, the high
taxes you endure, paying for often wasteful government, are not a good deal.
You would be better off in a minimal-state, low-tax society.
One
reply to this challenge points to the evidence on the rich leaving their home
country to move to a lower tax jurisdiction: in fact, very few of them do. But
here is a more ambitious reply from Warren Buffett: “Imagine there are two identical twins in the womb … And the genie says to them: ‘One
of you is going to be born in the United States, and one of you is going to be
born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes.
What percentage of your income would you bid to be born in the United States?’
… The people who say: ‘I did it all myself’ … believe me, they’d bid more to be
in the United States than in Bangladesh.”
Much
of the inequality we see today in richer countries is more down to decisions
made by governments than to irreversible market forces. These decisions can be
changed. However, we have to want to control inequality: we must make
inequality reduction a central aim of government policy and wider society. The
most entrenched, self-deluding and self-perpetuating justifications for
inequality are about morality, not economy. The great economist John Kenneth
Galbraith nicely summarised the problem: “One of man’s oldest exercises in
moral philosophy … is the search for a superior moral justification for
selfishness. It is an exercise which always involves a certain number of
internal contradictions and even a few absurdities. The conspicuously wealthy
turn up urging the character-building value of privation for the poor.”
Adapted from
Licence to be Bad: How Economics Corrupted
Us by Jonathan Aldred, published by Allen Lane and available at guardianbookshop.co.uk
https://www.theguardian.com/inequality/2019/jun/06/socialism-for-the-rich-the-evils-of-bad-economics?utm_
Michael
J. Sandel's "Justice. What's the Right Thing to Do? "
Justice offers readers the same exhilarating journey that captivates
Harvard students.
What are our obligations to others as people in a free society? Should government tax the rich to help the poor? Is the free market fair? Is it sometimes wrong to tell the truth? Is killing sometimes morally required? Is it possible, or desirable, to legislate morality? Do individual rights and the common good conflict?
This book is a searching, lyrical exploration of the meaning of justice, one that invites readers of all political persuasions to consider familiar controversies in fresh and illuminating ways. Affirmative action, same-sex marriage, physician-assisted suicide, abortion, national service, patriotism and dissent, the moral limits of markets—Sandel dramatizes the challenge of thinking through these conflicts, and shows how a surer grasp of philosophy can help us make sense of politics, morality, and our own convictions as well. Justice is lively, thought-provoking, and wise—an essential new addition to the small shelf of books that speak convincingly to the hard questions of our civic life...: https://www.goodreads.com/book/show/6452731-justice
What are our obligations to others as people in a free society? Should government tax the rich to help the poor? Is the free market fair? Is it sometimes wrong to tell the truth? Is killing sometimes morally required? Is it possible, or desirable, to legislate morality? Do individual rights and the common good conflict?
This book is a searching, lyrical exploration of the meaning of justice, one that invites readers of all political persuasions to consider familiar controversies in fresh and illuminating ways. Affirmative action, same-sex marriage, physician-assisted suicide, abortion, national service, patriotism and dissent, the moral limits of markets—Sandel dramatizes the challenge of thinking through these conflicts, and shows how a surer grasp of philosophy can help us make sense of politics, morality, and our own convictions as well. Justice is lively, thought-provoking, and wise—an essential new addition to the small shelf of books that speak convincingly to the hard questions of our civic life...: https://www.goodreads.com/book/show/6452731-justice
Global Wealth Report 2018
The
ninth edition of the Global Wealth Report published by the Credit Suisse
Research Institute provides the most comprehensive and up-to-date source of
information available on global household wealth. During the twelve months to
mid-2018, aggregate global wealth rose by $14.0 trillion (4.6%) to a combined
total of $317 trillion, outpacing population growth. Wealth per adult grew by
3.2%, raising global mean wealth to a record high of $63,100 per adult. The US
contributed most to global wealth adding $6.3 trillion and taking its total to
$98 trillion. This continues its unbroken run of growth in both total wealth
and wealth per adult every year since 2008. Unsurprisingly, China is now
clearly established in second place of the world wealth hierarchy. The country
overtook Japan with respect to the number of ultra-high net worth (UHNW)
individuals in 2009, total wealth in 2011 and the number of millionaires in
2014.
This
year's report also provides new insights on female wealth holdings. Women now
account for an estimated 40% of global wealth overall and their share of wealth
has grown considerably throughout the 20th century. The report explores global
variations in female wealth accumulation, along with differences in portfolio
composition, risk aversion and the impact on female Millennials.
Interesting
Facts & Figures
317
trillion
USD global wealth in 2018
42
million
millionaires worldwide
63100
USD
average 2018 wealth per adult
399
trillion
USD global wealth by 2023
Basic Economics: A Citizen's Guide to the
Economy
Why are some countries rich and others poor?
Basic Economics is a citizen's guide to economics-for those
who want to understand how the economy works but have no interest in jargon or
equations. Sowell reveals the general principles behind any kind of
economy-capitalist, socialist, feudal, and so on. In readable language, he
shows how to critique economic policies in terms of the incentives they create,
rather than the goals they proclaim. With clear explanations of the entire
field, from rent control and the rise and fall of businesses to the
international balance of payments, this is the first book for anyone who wishes
to understand how the economy functions.: https://www.goodreads.com/book/show/3023.Basic_Economics
Promise of Access: Technology, Inequality, and the Political Economy of Hope
Why simple technological solutions to complex
social issues continue to appeal to politicians and professionals who should
(and often do) know better.
Why do we keep trying to solve poverty with technology? What makes us feel that
we need to learn to code--or else? In The Promise of Access, Daniel
Greene argues that the problem of poverty became a problem of technology in
order to manage the contradictions of a changing economy. Greene shows how the
digital divide emerged as a policy problem and why simple technological
solutions to complex social issues continue to appeal to politicians and
professionals who should (and often do) know better.: https://www.goodreads.com/book/show/54609485-the-promise-of-access
The Journey of Humanity: The Origins of
Wealth and Inequality
by Oded Galor
A landmark, radically
uplifting account of our species' progress from one of the world's pre-eminent
thinkers - with breakthrough insights into the power of diversity and our
capacity to tackle climate change.
"Completely brilliant and utterly original...a book for our epoch."
-- Jon Snow, former presenter Channel 4 News
"Astounding in scope and insight...provides the keys to the betterment of
our species." -- Nouriel Roubini, author of Crisis Economics
"A masterful sweep through the human odyssey...if you liked Sapiens,
you'll love this." -- Lewis Dartnell, author of Origins
In a captivating journey from the dawn of human existence to the present,
world-renowned economist and thinker Oded Galor offers an intriguing solution
to two of humanity's great mysteries.
Why are humans the only
species to have escaped - only very recently - the subsistence trap, allowing
us to enjoy a standard of living that vastly exceeds all others? And why have
we progressed so unequally around the world, resulting in the great disparities
between nations that exist today? Immense in scope and packed with astounding
connections, Galor's gripping narrative explains how technology, population
size, and adaptation led to a stunning "phase change" in the human
story a mere two hundred years ago. But by tracing that same journey back in
time and peeling away the layers of influence - colonialism, political
institutions, societal structure, culture - he arrives also at an explanation
of inequality's ultimate causes: those ancestral populations that enjoyed
fruitful geographical characteristics and rich diversity were set on the path
to prosperity, while those that lacked it were disadvantaged in ways still echoed
today.
As we face ecological crisis across the globe, The Journey of Humanity is
a book of urgent truths and enduring relevance, with lessons that are both
hopeful and profound: gender equality, investment in education, and balancing
diversity with social cohesion are the keys not only to our species' thriving,
but to its survival. https://www.goodreads.com/en/book/show/58502650-the-journey-of-humanity
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