Is inequality inevitable?
In South Africa, one of the most
unequal countries in the world,
the richest one-tenth of 1%, owns
almost 30% of all the country’s wealth,
more than double what the bottom 90% owns.
Income and wealth inequality are not new.
In fact, economists and historians
who’ve charted economic inequality
throughout history haven’t found
a single society without it.
Which raises a bleak question:
is inequality inevitable?
One way to estimate inequality is
with a number called the Gini index,
which is calculated by comparing
the income or wealth distribution
of a perfectly equal society to the
actual income or wealth distribution.
The area of this shape multiplied
by 2 is the Gini index.
A Gini of 1 indicates
perfect inequality—
one person has everything
and everyone else has nothing.
You’d never see this in real life
because everyone except
that one person would starve.
A Gini index of 0 indicates
perfect equality—
everyone has exactly
the same income or wealth.
But you also never see this in real life,
not even in communist countries,
because for one thing,
that would mean paying everyone—
no matter how young, old,
what job they’re in or where they work—
the exact same wage.
Typical after-tax Ginis in developed
countries today are around 0.3,
though there’s a wide range
from pretty equal to pretty unequal.
Before we go any further, you should
know what the Gini index—
or any other measure of economic
inequality— doesn’t tell us:
it gives no information about how
income and wealth are distributed
across genders, races, educational
backgrounds or other demographics;
it doesn’t tell us how easy or difficult
it is to escape poverty.
And it also gives no insight
as to how a particular society
arrived at its present level
of inequality.
Economic inequality is deeply entangled
with other types of inequality:
for example, generations
of discrimination, imperialism,
and colonialism
created deeply rooted
power and class inequalities
that persist to this day.
But we still need at least a rough measure
of who gets how much in a country.
That’s what the Gini index gives us.
Some countries are, economically,
much more unequal than others.
And that’s because a significant portion
of economic inequality
is the result of choices
that governments make.
Let's talk about some of these choices.
First: what kind of economy to use.
In the 20th century, some countries
switched to socialism or communism
for a variety of reasons,
including reducing economic inequality.
These changes did dramatically
reduce economic inequality
in the two largest
non-capitalist economies,
China and the Soviet Union—
especially in the Soviet Union.
But neither country prospered as much
as the world's leading economies.
So yes, people earned about as much
as their neighbors did,
but that wasn’t very much.
This— and many other issues— contributed
to the Soviet Union’s collapse in 1991.
And China, to grow more quickly,
shifted its economy towards capitalism
starting in the late 1970s.
What about capitalist countries?
Can they choose to reduce
economic inequality?
It’s tempting to think
“no, because the whole point of
capitalism is to hoard enough gold coins
to be able to dive into them
like Scrooge McDuck.”
China seems to provide
the textbook example of this:
after it became more capitalist,
its Gini index shot up from under 0.4
to over 0.55.
Meanwhile, its per capita yearly income
jumped from the rough equivalent
of $1,500 to over $13,000.
But there are many counter-examples:
capitalist countries in which inequality
is actually holding steady or decreasing.
France has kept its Gini index
below 0.32 since 1979.
Ireland's Gini has been trending
mostly downward since 1995.
The Netherlands and Denmark have kept
theirs below 0.28 since the 1980s.
How do they do it?
One way is with taxes.
Personal income taxes in most
countries are progressive:
the more money you make,
the higher your tax rate.
And the more progressive your tax system,
the more it reduces inequality.
So, for example, while pre-tax income
inequality in France
is roughly the same as it is in the US,
post-tax inequality in France
is roughly 20% lower.
Meanwhile, inheritance taxes can reduce
the amount of wealth
that a single family can amass
over generations.
Germany and many other European
countries have inheritance or estate taxes
that kick in at a few thousand
to a few hundred thousand Euros,
depending on who's inheriting.
The US, on the other hand,
lets you inherit $12 million
without paying any federal tax.
Another way is with transfers—
when the government takes tax revenues
from one group of people
and gives it to another.
For example, Social Security programs
tax people who work
and use the revenue to support retirees.
In Italy, about a quarter of Italians’
disposable household income
comes from government transfers.
That’s a lot,
especially relative to the US,
where the figure is just over 5%.
A third way is to ensure that everyone
has access to things
like education and healthcare.
A highly educated, healthy workforce can
command a higher salary on the market,
thus reducing inequality.
The fourth way
is addressing the digital divide:
the gap between those who have access
to the Internet and those who do not.
A fifth way is dealing
with extreme wealth.
Multibillionaires can buy
social media platforms,
news outlets, policy think-tanks,
perhaps even politicians,
and bend them to their will,
threatening the very fabric of democracy.
We are just barely scratching
the surface of inequality here.
We haven’t touched on the drastic divides
in who has wealth and who doesn’t;
the power structures that prevent
social and economic mobility;
and the drastic inequality
between countries—
the fact that, for example,
just three Americans have
90 billion more dollars than Egypt,
a country of 100 million people.
And here’s one final thing to think about:
power and wealth are self-reinforcing,
which means that equality is not.
Left to their own devices,
societies tend toward inequality—
unless we weaken the feedback loops
of wealth and power concentration.
