The iniquities of inequality

2th of 3, 2015
By Tirthankar  Mukherjee

One reason why the Right – do mark the capital R, for this significant and substantial section of the world’s population is often enough not right – was so upset by Thomas Piketty’s book last year is that it showed so cogently that inequality is not inevitable, it is engineered. Even the economically inept realise that inequality, even of the wildest variety, cannot be seen as an unavoidable byproduct of growth; it is nurtured in and ensconced by deliberately erected and protected structures. The economic climate cannot be represented as a natural force, like uncontrollable weather. It could be comforting to say, “It’s a shame that the planet is getting hotter, just as it’s a shame that the rich are getting richer,” but that is not true. These things are man-made and not at all unmanageably spontaneous. In fact, there are deliberate and systemic reasons as to why this is happening.

That does not make inequality any the less knotty. There is little agreement on what ought to be equal. Should it be a measurable outcome such as income or wealth; a hazier outcome such as power or freedom; or a vague aspiration such as “equality of opportunity”? A look in any direction will show that the world is becoming more unequal, but it is less than clear what is meant by that. Income inequality between countries has grown over the past three centuries but it may now be narrowing between the world’s people as a whole.

The consequences of inequality can be highly corrosive no matter that complete equality of income is neither practical nor possibly desirable, though extreme logic will say this is mere speculation, as mankind has never had such a model. Regardless of the precise metrics, what matters most is the dynamics of inequality. It took a long time for humanity to acquire this problem. Ninety-five per cent of our time on earth has been spent as “egalitarian” hunter-gatherers, much like what many Mongolians of a certain age say, “We were all equally poor in the socialist days.” There is no clear evidence that agriculture marked a material advance; this only came definitively with the scientific and industrial revolutions. Simon Kuznets, the Belarussian йmigrй who became a major figure in American economics, used the available data to show that, while societies become more unequal in the first stages of industrialisation, inequality subsides as they achieve maturity. This “Kuznets Curve” had been the received wisdom until Piketty and his collaborators produced the evidence that it is false. In fact, the curve goes in exactly the opposite direction: capitalism started out unequal, flattened inequality for much of the 20th century, but is now headed back towards Dickensian levels of inequality worldwide. Many of the 700 pages in Piketty’s book are spent marshalling the evidence that 21st-century capitalism is on a one-way journey towards inequality – unless we do something.

Worthy people --the 2,500 business leaders including billionaires, academics, policymakers and politicians who gather every year for the World Economic Forum (WEF) in the ski resort of Davos in Switzerland (to achieve what exactly has never been clear to me, and I cannot be unique) – took up the business last month after being under pressure to tackle rising inequality following publication of a study by the anti-poverty charity Oxfam which found that – on current trends – by next year, 1% of the world’s population will own more wealth than the other 99%.

Briefly, the charity’s research shows that the share of the world’s wealth owned by the best-off 1% has increased from 44% in 2009 to 48% in 2014, while the least well-off 80% currently own just 5.5%. On current trends the richest 1% would own more than 50% of the world’s wealth by 2016.

Anywhere you look, the phenomenon hits you. In Russia, 20 richest people own $227 billion. In Britain, the richest 100 families in 2008 had seen their combined wealth increase by at least £15bn, a period during which average income increased by £1,233. Britain’s current richest 100 had the same wealth as 30% of UK households. In the USA, the aggregate pre-tax income of the bottom 90 per cent of households has grown by 1.9 per cent in real terms, but among the top 1 per cent, pre-tax incomes have more than doubled.

What about Mongolia? The unequal distribution of wealth and opportunity is gross and obvious but I have always been baffled by the reticence of business leaders about their assets, more so as in many other areas, the country seems to be laughably obsessed with statistics. The mandatory declarations of public figures are patently perfunctory, but some time ago a persevering analyst found that according to the 2012 annual filing, parliament members at that time sat on $785 million at the then exchange rates, the equivalent of 7.6% of the country’s GDP. Of the 74 MPs who disclosed their wealth, the top four controlled about 64% of the total. If US politicians concentrated the wealth of America to the same degree they’d each be worth more than $2.2 billion, while in fact the median net worth of members of the US Congress is $440,000.  Chinese politicians fare better. They control 1.1% of the country’s economy, the world’s second biggest.

Ahead of this year’s meeting, the WEF published 14 measures of inclusive growth in an apparent response to criticism that the gathering has become an exercise in hand-wringing about the gap between rich and poor. The policy paper said there was a need to make the discussions about tackling inequality “less vaguely aspirational”, and wanted governments to “assess 14 yardsticks of progress under six pillars: education and skills; employment and labour compensation; asset building and business investment; corruption and rents; fiscal transfers; and basic services and infrastructure.

One feature of this whole exercise in Davos was the almost catalytic role played by Oxfam International. Its executive director and one of the six co-chairs at this year’s WEF, Winnie Byanyima, has been arguing that the increasing concentration of wealth since the deep recession of 2008-09 is “bad for growth and bad for governance”.  Oxfam made headlines at Davos last year with a study showing that the 85 richest people on the planet have the same wealth as the poorest 50% (3.5 billion people). This year the comparison is starker, with just 80 people owning the same amount of wealth as more than 3.5 billion people, down from 388 in 2010.

Oxfam said it was calling on governments to adopt a seven point plan:

•     Clamp down on tax dodging by
        corporations and rich individuals.
•     Invest in universal, free public services
        such as health and education.
•     Share the tax burden fairly, shifting
      taxation from labour and consumption
      towards capital and wealth.
•     Introduce minimum wages and move
      towards a living wage for all workers.
•     Introduce equal pay legislation and
      promote economic policies to give
      women a fair deal.
•     Ensure adequate safety-nets for
      the poorest, including a minimum-income
•     Agree on a global goal to tackle inequality.

I am not very hopeful of much change, given the increasing tendency of wealth to be inherited and to be used as a lobbying tool by the rich to further their own interests. More than a third of the 1,645 billionaires listed by Forbes inherited some or all of their riches, while 20% have interests in the financial and insurance sectors, a group which saw their cash wealth increase by 11% in the 12 months to March 2014. These sectors spent $550m lobbying policymakers in Washington and Brussels during 2013. During the 2012 US election cycle alone, the financial sector provided $571m in campaign contributions.

After such knowledge, what forgiveness?

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