• Wednesday, May 29, 2024
businessday logo


Does inequality matter?


The French political thinker Alexis de Tocqueville wrote that men are born equal, but their destinies are shaped by the inequality of conditions. De Tocqueville was the famous author of Democracy in America, an epistle on the principles of civil government in a free society. Born into the French aristocracy, de Tocqueville was obsessed about the ideological notion of equality and what it could mean for Europe in an age of revolutionary upheaval. The issues that dominated that bygone epoch are still very much with us.

In 2014, according Forbes Magazine, a journal that surveys trends among the ultra-rich, a total of 1,645 people made it to the world’s billionaire list, of which 268 were new comers. The United States continues to lead the pack with 492 billionaires, followed by China with 151 and Russia with 111. The world’s ultra-rich have a combined wealth exceeding $6.4 trillion. Africa is not faring badly, with its crop of billionaires numbering 29, and with our own Aliko Dangote leading the pack with a fortune assessed at US$25 billion.

“It is glorious to be rich”, enthused Chinese statesman Deng Xiaoping. I would like Nigeria to have 100 Dangotes in my lifetime. The only worry is the fact that while the rich are getting richer the poor are getting poorer. Income inequalities have never been wider since economics emerged as a field of scientific inquiry.

According to the American National Bureau of Economic Research (NBER), the top 10 percent of the world’s rich control over 71 percent of its total wealth.  One of the measures of income inequality is the Gini coefficient. It measures inequality on a scale from 0, representing complete equality, to 1, which amounts to complete inequality. The world’s Gini coefficient has been placed at 0.804, which represents a high level of inequality. The most unequal countries are to be found in Africa and Latin America.

If we are to go by the recent work of the celebrated French economist, Thomas Piketty, the ideal of equality may well be a heartbreaking illusion on a staggering scale. For much of this year, the economics profession has been discussing the eponymous of this young economist – he is 42 years of age – whose work has been greeted as a “unified field theory” integrating growth with capital theory and income distribution analysis. His book, Capital in the Twenty-First Century (Belknap and Harvard University, 2014), has been held as a work worthy of Adam Smith, Karl Marx and John Maynard Keynes; in the words of Nobel laureate Paul Krugman, “a tour de force of economic modelling”.

Since Marx, discussions on inequality have been dismissed as part of the politics of envy. One of the leading lights of the economics profession, Nobel laureate Robert Lucas of Chicago, went so far as to declare that, “Of the tendencies that are harmful to sound economics, the most seductive …the most poisonous, is to focus on questions of distribution”.

Piketty has pioneered a statistical methodology that enables him to place the debate on firm empirical foundations. The ideal of equality is inherent in the constitution of free societies. In the clarion words of the American Declaration of Independence:  “We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness”.

While the ideals of democracy have captured the imagination of civil publics the world over, the ideal of equality is being threatened everywhere. One of the greatest liberal philosophers of our century, John Rawls of Harvard University, revisited this theme of equality within his seminal work on justice which he defined in terms of “fairness”. More recently, the Indian Nobel economist Amartya Sen provided a somewhat different perspective on the problem of inequality by defining justice as a process rather than an end-state. More recently, the Harvard political philosopher Michael Sandel has taken an approach that is closer to the old Aristotelian perspective which views justice as “giving everyone their due”.

Much of this would have sounded like moral abstractions. Piketty’s is destined to change the very grammar of politics and economics as we have always known it.  He provides an empirical basis for understanding the nature of inequality and an analytical framework within which we can begin to tackle it.  His findings reveal that we are entering a new gilded age in which the magical 1 percent are accumulating staggering fortunes on an unprecedented scale.  Since the 1950s, for example, wealth distribution in the United States has taken the form of a stiff U-shaped curve.  Ever since the neoliberal revolution à la Reagan and Thatcher, the rich have gotten stupendously richer while the poor have continued to see their income diminish. 

An important trend, according to Piketty, is the fact that while in the 19th century the wealth of the top 1percent was inherited while today’s wealth is derived from high-income wages of new knowledge entrepreneurs in ICT, investment banking and the hedge fund industry. However, he makes it clear that salaries are not generally the predominant source for the new wealth. Most of it derives from capital income.  While total income and the stock of capital tend to grow together, in times of recession or slumps, income capital tends to grow faster than total national income. In such situations, the rewards of labour would tend to stagnate even as returns on capital continue to spiral. This is the source of much of the wealth that the super-rich control. It also lies at the foundations of inequality.

Ever since Rousseau, it is clear that inequality is a danger to free societies. Inequality and youth unemployment were at the heart of the Arab Spring – an upheaval that toppled the old regimes in Tunisia, Libya and Egypt. In countries like Nigeria with a high Gini coefficient of 0.736, were unemployment and misery abound – with little or no social safety nets – we may well be sitting on a time-bomb.