Inequality has been an issue in many different spheres – regardless if speaking about human rights, social mobility and access to education or global economic inequality between developed and underdeveloped countries, we see concerning dynamics emerging from too big gaps of distribution of goods, rights, economic capacity, etc. Nevertheless, inequality hasn’t been perceived as a significant threat to economy, but the economic crisis triggered insecurities and reconsiderations about an old problem.
In 2014, the word “inequality” appeared in media over 28,000 times, while prior to the crisis in 2006, it was mentioned only nearly 3,000 times. Moreover, experts participating in the World Economic Forum ranked inequality as the biggest challenge to economy, although the topic appeared for the first time on the list. Inequality has become a reality, even for the ones who are not directly experiencing it.
The debate is not new – attempts to discuss alternative economic models that lead to more equal societies and prove that wealth and income gaps lead to negative consequences, have been taken e.g. by Kate Pickett and Richard G. Wilkinson in their book “The Spirit Level: Why More Equal Societies Almost Always Do Better”. They try to portray positive correlations between equality and social peace, education level, health service or imprisonment, although their data set has been criticized for lacking coherence. The theoretical discussion has been recently fuelled by the French economist Thomas Piketty and his book “Capital in the Twenty-First Century”. As the title says, he brings back the variable of capital and does not directly focus on inequality, but uses the historic development of wealth and income inequality to show that the rich become richer and the poor even poorer.
What does that mean and why does it matter?
From a moral point of view, it is easy to dislike the idea of poor people becoming poorer and struggling harder in everyday life for proper access to healthcare, education and social security, while the economic elite tries to reproduce its wealth and status.
While Pickett and Wilkinson directly argue that inequality leads lower life expectancy, higher crime rates, lower education levels, higher obesity rates and lower social mobility, Thomas Piketty opens the political perspective in a TED talk he held in Berlin:
I think inequality is not a problem per se. I think inequality up to a point can actually be useful for innovation and growth. The problem is, it’s a question of degree. When inequality gets too extreme, then it becomes useless for growth and it can even become bad because it tends to lead to high perpetuation of inequality over time and low mobility. […]. And also, extreme inequality can be bad for our democratic institutions if it creates very unequal access to political voice, and the influence of private money in U.S. politics, I think, is a matter of concern right now.
In this sense, the explanation of the rise of nationalist parties like Front National in France or the tea-party-movement in the USA can be extended by adding the aspect of inequality to the many other determinants. In the USA, from 2010 to 2013, only the top 10% of the society had a growth of income, while the other 90% were facing a decline, according to the US Federal Reserve.
The solution: higher taxes?
Piketty among other economists, argues that higher taxes could be an effective measure to allocate wealth better. From tax revenues the education sector and healthcare could be improved, at the same time social support could be extended. This could be beneficial for the whole society, when the incentive for sustainable growth and prosperity is given by greater chances for social mobility and private investment.
The only problem: there is nobody to implement this or at least present the core arguments to a broader public. Neither in the USA, nor in most EU countries, is it likely that higher taxes as a tool for wealth allocation will be implemented soon. After the midterms, conservative politicians have the ability to block such left-wing ideas in the USA, even if somebody in the unlikely event insisted to advocate for measures against the inequalitiy.
Meanwhile in the EU, both in the European Parliament and the European Council, the conservative European People’s Party holds most seats. The dominance is not surprising, but understandable: conservative voters are easy to mobilize in order to try to preserve their wealth through electing parties that will rather implement protective policies instead of introducing significant allocation tools. Therefore, although the theoretic approaches offer possibilities regarding alternative economic models, in real-life politics there will hardly be any debate about adjustment of the policies in favour of the majority of the citizens.
Further readings and talks:
Gillian Tett: Anxiety in the Age of Inequality (Foreign Policy)
Steven Rattner: Inequality, Unbelievable, Gets Worse (New York Times)
OECD: Income Inequality Update
TED Talk (Berlin): Thomas Piketty: New thoughts on capital in the twenty-first century
TED Talk (Edinburgh): Richard Wilkinson: How economic inequalities harm societies
Picture: flickr.com; User: Foto_Michel