Private Property, Common Property or Collective Property?

photo by Henri Cartier Bresson

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A traditional objection to private property is that it tends to result in very unequal distributions. Wealth begets wealth, and even when it doesn’t it’s certainly the case that luck, effort, injustice etc. can leave some people with too much and others with barely enough property to survive. So, the logical step would be to switch to a system of common property: if something is the common property of all, then everyone, by definition, can make equal use of it and no one is left with nothing or a bare minimum.

However, when taking this seemingly logical step, we’ll fall over the first hurdle. The “tragedy of the commons” makes everyone worse off, even if everyone has equal access. If, for example, everyone has an equal right to use a piece of land for cattle, then no one has an incentive to avoid over-use. On the contrary, it’s in every individual’s interest to brings as many cows as possible. Someone who tries to act in a responsible way and limit his use of the common land bears the cost of his self-restraint while all other irresponsible users benefit from his self-restraint. The benefits of overuse are immediate and certain, while the benefits of restraint are in the future and conditional upon equal self-restraint of all users. Because everyone has an incentive to get as much out of the shared resource and as quickly as possible, the resource will be rapidly depleted, and everyone will be worse off in the end.

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The next logical step to remedy this deficiency of common ownership is to switch to collective ownership. Collective ownership means that the community as a whole decides how the commonly owned resources should be used. The self-destructive logic of common ownership results from a lack of trust and collective action among the users. This logic can be countered if there’s a collective decision on the rules that govern the use of the shared resources. For example, a collective decision could prohibit use above a certain level. Such a rule can enforce self-restraint.

The problem is that this step also fails. Collective ownership is perhaps possible when we’re dealing with one or a few resources (e.g. land and cattle), but a modern economy is too complex: there are too many resources and too many decisions to take. It doesn’t seem possible for a single human mind, let alone a very inclusive collective, to take all necessary decisions about resources. (Communist central planning was a failure in this respect, with wasteful resource allocation and huge inefficiencies).

“Victory of the 5 Year Plan A Blow to Capitalism”, Soviet propaganda poster

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That is why we’ll have to reconsider private property, combined with a market system based on prices. If people own their own things and their own share of the total pool of resources, then resources will not be depleted but instead be used productively. No one has an incentive to deplete their own private property; on the contrary, the incentive is to use it wisely and productively.

When individual owners are then also allowed to trade their surplus production in a free market system based on the price system, then this price system will signal over or under-use of resources (in certain cases at least). Producers and consumers responding to these price signals will then switch to underused resources, something which again promotes efficient resource use and avoids depletion (at least some of the time). But they will only respond to price signals when there is private property and when the loss of not responding or the gain of responding is theirs and theirs alone.

However, this brings us back to our starting point and the initial problem of private ownership: very unequal ownership and unequal use of resources, so unequal in some cases that certain people don’t have enough to survive in a decent way. Of course, those people can sell their labor power in order to acquire some property, but this will not always suffice. Given the various beneficial functions of private property – some of which are commonly neglected – people need more of it than we usually assume. The price system doesn’t always work, and the price of labor (the wage) isn’t always a fair one, or at least not one that allows the laborer to acquire all the necessary private property. Also, one has to take seriously the alienating consequences of wage labor and the unjust distribution of property resulting from luck and theft. Hence, we can only settle on private property as the least problematic form of property in our modern economies if we include a robust redistributive principle.

Inequality, A Collection of Images (3)

Kiev, Ukraine, on February 6, 2012 (Reuters/Gleb Garanich)

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The New Yorker “Occupy Wall Street” cover

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Eton boys, 1936, Photograph Jimmy Sime/Hulton/Getty

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More images here and here.

The Causes of Human Rights Violations (35): Last Place Aversion

pecking order

It seems that it’s very important to people that there are others who have it worse:

Support for redistribution, surprisingly enough, has plummeted during the recession. For years, the General Social Survey has asked individuals [in the US] whether “government should reduce income differences between the rich and the poor.” Agreement with this statement dropped dramatically between 2008 and 2010, the two most recent years of data available.  Other surveys have shown similar results.

What might explain this trend? First, the change is not driven by wealthy white Republicans reacting against President Obama’s agenda: the drop is if anything slightly larger among minorities, and Americans who self-identify as having below average income show the same decrease in support for redistribution as wealthier Americans.

“[L]ast place aversion” … can lead people near the bottom of the income distribution to oppose redistribution because it might allow people at the very bottom to catch up with them or even leapfrog past them. (source)

Lab experiments have shown that people

choose gambles with the potential to move them out of last place that they reject when randomly placed in other parts of the distribution. In money-transfer games, those randomly placed in second-to-last place are the least likely to costlessly give money to the player one rank below. …

Using survey data, we show that individuals making just above the minimum wage are the most likely to oppose its increase. (source)

I think it’s not far-fetched to assume that this isn’t limited to issues of redistribution and that something like it can lead to the persistence of certain types of rights violations. Perhaps some men in societies with endemic gender inequality actually like the fact that women are below them. And perhaps some groups in some societies need people like the Roma, “illegals”, immigrants or blacks to live in poverty and suffer from discrimination in order to feel better about themselves.

Moreover, individuals in positions of power can use last place aversion to create divisions and antagonism among groups belonging to the lower strata of the population and avoid the formation of a common front against the rulers. Last place aversion therefore leads to first place preservation.

More posts in this series are here.

Income Inequality (25): And Economic (In)Efficiency

The Ploughing Lesson by François-André Vincent (1746-1816)

As I stated before, economic theory suggests that income inequality is a necessary price to pay for economic efficiency: unequal rewards incite those with talents, skill and perseverance to innovate and to be productive, so they can reap higher benefits. Ultimately, this serves the welfare of the whole of society (a process which is then caricatured in trickle down economics). The mirror image of this is reductions of inequality that take away incentives for doing well, and that therefore result in economic inefficiency and less prosperity for all.

Tyler Cowen has framed it like this:

Redistribution of wealth has some role in maintaining a stable democracy and preventing starvation. But the power of wealth redistribution to produce net value is quite limited. The power of wealth creation to produce net value is extraordinary … We should be putting our resources, including our advocacy and our intellectual resources, into wealth creation as much as we can. (source)

But is that really true? There is some evidence that reducing inequality through redistribution actually promotes wealth creation. What’s the mechanism? Sam Bowles claims to have identified one element of it:

Inequality breeds conflict, and conflict breeds wasted resources … [I]n a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive. Inequality leads to an excess of what Bowles calls “guard labor”. (source)

More about that effect here and here. Other parts of the mechanism through which inequality impedes and equality promotes growth may be the following:

Poverty causes credit constraints. This stops the poor investing in businesses or education; the low aspirations caused by poverty can have the same effect. … Inequality can create the threat of redistribution which can blunt incentives to invest. Or it can lead to state interventions – such as the minimum wage – that harm wealth creation. … The backlash against wealth-creating processes such as globalization, offshoring and private equity in the UK and US are founded in the view that they create inequality. If we had better redistribution mechanisms (say, a basic income) such backlashes would be reduced, and the wealth creation process enhanced. (source)

That sounds persuasive and I want to see some evidence. In the meantime, it’s perhaps a bit glib to announce that “the power of wealth redistribution to produce net value is quite limited”.

Related Articles

• Spirit of the age (economist.com)
• Readers Comments on Inequality (kristof.blogs.nytimes.com)

Human Rights Facts (66): Life Expectancy Across Social Groups in the U.S.

blood flow

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I’ve written before about some very significant health disparities across segments of the population of the U.S. (see here, here. here, here, here and here). Health disparities across racial, gender or income groups are a strong indication of injustice since most if not all such disparities have no basis in biology and must therefore have social or political causes. They lead to a shorter life and a lower quality of life for the average person in certain social groups. For example, this study shows that

the life expectancy gap between the 3.4 million high-risk urban black males and the 5.6 million Asian females was 20.7 years in 2001.

See also these graphs:

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The causes of disparities like these are other types of disparities:

• differences in health care access and utilization (through differences in health insurance and different access to good quality medical facilities)
• different homicide rates
• different HIV rates
• differences in nutritional behavior and food availability (see the concept of “food deserts”)
• different poverty rates
• etc.

More data on life expectancy here.

Why Do Countries Become/Remain Democracies? Or Don’t? (17): Inequality

Riot scene from Chaplin's Modern Times

A transition to democratic government is very unlikely when the population of a country is sharply divided in unequal classes or groups. Some of these groups will try to monopolize political power in order to repress rival groups and maintain the distributional status quo. For example, when there’s a division between a landowning class or an industrial class on the one hand, and a group of impoverished rural or urban workers on the other hand, then the former group will fear election victories by the latter group because such victories will lead to redistribution of land or other assets. Privileged classes will therefore work against democracy. As a result of this, the working classes will radicalize and aim for a revolutionary overthrow and the abolition of property rights altogether, thereby also making democracy less likely.

Something like this is arguably a good description of much of the recent history of Latin America. Positively stated: more economic equality – perhaps following the expansion of a middle class – will make democracy more viable, since different groups have less to lose from a democratic power shift.

But polarization doesn’t have to be exclusively economic in nature. Religious or ethnic divisions can also hinder the creation and continuity of democracy, especially when there’s also a spatial division between groups. This is probably what happened in Africa since decolonization. Of course, non-economic divisions are often exacerbated by economic ones, in which case we can hope that more economic equality will take the sting out of ethnic divisions.

More posts in this series are here.

Inequality, A Collection of Images (2)

(A older collection of images on inequality is here. Similar collections: sexism, segregation, antisemitism, discrimination, caste, and racism).

by Clay Bennett, Chattanooga Times Free Press

(source, more on income inequality)

Muslim veil cartoon by Olle Johansson

(source, more on the Muslim veil here, more on gender equality here)

segregation cartoon by Nate Beeler

(source, more on segregation, Jim Crow and Rand Paul’s objections to the Civil Rights Act)

by Clay Bennett, Chattanooga Times Free Press

(source, more on same-sex marriage rights here)

More collections of human rights images are here.

Related Articles

• The Causes of Wealth Inequality (12): Immigration (filipspagnoli.wordpress.com)
• The inequality that matters (marginalrevolution.com)
• Human Rights Facts (211): U.S. Public Opinion on Income Inequality (filipspagnoli.wordpress.com)

The Causes of Wealth Inequality (10): Racism

In the U.S., the median annual income for black families is 38 percent lower than for their white counterparts. Some more data on income inequality between race groups in the U.S. are here and here. So, income inequality in the U.S. has a racial component, and some of the explanations or causes of income inequality may have something to do with racism. I say “may” because if income inequality were essentially or mainly a consequence of racism, then there wouldn’t be any white poverty. Moreover, given the growth of total income inequality in the U.S. during the last decades – see the evolution here – the income gap between whites and blacks should have grown in the same proportion if racism is the sole cause. And that didn’t happen:

Image via Wikipedia

the black/white gap in median family income has stagnated; it’s a mere three percentage points smaller today than it was in 1979. … [D]uring the current economic downturn, the black/white income gap widened somewhat. … [T[he black/white income gap can't be a contributing factor to the [increase in inequality] if it hasn’t grown over the past three decades. And even if it had grown, there would be a limit to how much impact it could have on the national income-inequality trend, because African-Americans constitute only 13 percent of the U.S. population. (source)

The growth of income inequality in the U.S over the last decades can’t be blamed on racism, since inequality has risen across social groups, but perhaps part of the level of income inequality can be blamed on it. I don’t know how large a part, but probably not a very large part, given all the other likely causes of income inequality.

Still, I focus on the U.S. here, and that isn’t by far the only country plagued by inequality. If racism isn’t a particularly good explanation for income inequality in the U.S., maybe it is in other countries, and then I’m thinking in particular about some South American countries. More on that another time, however. I have to run.

More on racism. More posts in this series.

Related Articles

• The Great Divergence – how did income inequality get so bad? (americablog.com)
• Income Inequality: ‘The Most Profound Change In American Society In Your Lifetime’ (huffingtonpost.com)
• How the U.S. rates in income inequality vs. the world (walletpop.com)
• A Timeline of Income Inequality in America (uspoverty.change.org)

The Causes of Wealth Inequality (9): Merit

In my ongoing exploration of the possible causes of high income inequality in rich countries, I stumbled across this politically incorrect quote:

A reason for the “wealth or income gap”: Smart people keep on doing things that are smart and make them money while stupid people keep on doing things that are stupid and keep them from achieving.

People who get an education, stay off of drugs, apply themselves, and save and wisely invest their earnings do a lot better than people who drop out of school, become substance abusers, and buy fancy cars and houses that they can’t afford, only to lose them.

We don’t have an income gap. We have a stupid gap. (source)

It’s not only politically incorrect, it’s just plainly no-qualifier-needed incorrect. Of course, people’s efforts and wise decisions do make a difference. As well as their different talents (or lack thereof). So there will always be inequality. But society rewards certain talents more than others – or, if you object to the description of society as a moral agent, “we all” reward the talents of our fellow humans differently. And we often do so in a morally arbitrary way: we reward some talents more whereas other talents would perhaps, from a moral point of view, deserve higher rewards. The same is true for efforts: we reward some types of efforts more than others, and this isn’t always just.

So some people, because of their talents and efforts, create better outcomes for themselves, reap more lucrative rewards, and thereby create an income gap. However, this fact doesn’t necessarily imply that the resulting gap is morally right: society – all of us – may have been morally mistaken about the kinds of talents and efforts that we reward. Hence the gap can be immoral. Even if income inequality could be explained entirely by differences in effort and talent – which is implied in the quote but which I think isn’t true – that would not necessarily have any moral significance. Income inequality could still be wrong.

And we could still go one step further: even if income inequality could be explained entirely by morally significant differences in effort and talent – in other words, even if only morally worthy efforts and talents were rewarded by society – that would not necessarily exhaust all moral considerations. The moral judgments regarding efforts and talents could be offset by superior moral considerations about inequality.

And anyway, how does the guy from the quote above explain the fact that different countries have different levels of income inequality? Do we really believe that the American population has a higher standard deviation around average intelligence, talent and effort? In other words, does the U.S. have more smart and more stupid people than Sweden? Are the bell curves for intelligence, talent and effort flatter in the U.S.? I don’t think so. And if I’m right, then you need other and more sophisticated answers to the question why inequality is relatively high in the U.S.

Go here for some of those other answers. And go here, here, here and here for more about merit.

Related Articles

• Is Income Inequality Evil? (fskrealityguide.blogspot.com)
• Will income inequality cause class warfare? (psychologytoday.com)
• Improving the measurement of inequality (economist.com)
• Mapping Income Inequality (blogs.forbes.com)
• Americans Vastly Underestimate Wealth Inequality, Support ‘More Equal Distribution Of Wealth’: Study (huffingtonpost.com)
• A Timeline of Income Inequality in America (uspoverty.change.org)
• Our Banana Republic: US Income Inequality Grows (emptywheel.firedoglake.com)

The Ethics of Human Rights (38): Should People Be Equal or Should They Have Enough?

There are people who believe income inequality is a major problem – and I’m one of them – and there are others who say that the real problem isn’t a relational one but rather one of absolute means. Harry Frankfurt for example argues that it’s not important whether a person has less than another regardless of how much either of them has. What is important is whether people have enough of what they need for a decent human life.

Sufficientarianism

This so-called sufficientarian approach – as opposed to the egalitarian one – is supposedly not comparative or relational but humanitarian. It focuses on the alleviation of absolute suffering and deprivation instead of relative inequalities. Rather than diminishing the distance between the worst off and the best off, it wants to improve the situation of the worst off. The latter goal can be the result of the former, but doesn’t have to be. Or it can promote the former but doesn’t have to. For example, imagine a society where incomes are highly unequal but where none of the people at the wrong side of this inequality are below a threshold value of wellbeing (the threshold determines the difference between suffering and non-suffering). So, according to the sufficientarian approach, there’s no need to diminish inequality in such a society. There’s no need to do anything, in fact. Conversely, you can have a society – not so imaginary perhaps – with low levels of inequality but almost all of the people live below the threshold. Tinkering with inequality will not do much good in that society. What you have to do is raise the living standard of almost all the population.

Income inequality for sufficientarians is relevant only to the extent that the wealth of those who are better off is a useful means to alleviate the suffering of the worst off. Diminishing inequality isn’t a goal in itself, and inequality doesn’t do any harm in itself.

Image via Wikipedia

It’s an appealing view, and I have been tempted myself. Even if you believe, as I do, that inequality can be harmful no matter what the income levels of the worst off are (harmful to democracy for instance) and that more equal societies almost always do better, you may still agree that the most urgent priority is the suffering of those who are worst off. Income inequality should then only be tackled afterwards. Anyway, tackling that first priority is a good step on the way to more equality; helping the worst off will reduce inequality almost automatically I would believe.

However, appealing though it may be, is sufficientarianism really all that much different from egalitarianism? As soon as you talk about the “worst off”, you have already engaged in comparative and relational analysis, by necessity. Another problem with sufficientarianism is the setting of the threshold: that is bound to be somewhat arbitrary. Of two people in very similar situations only one will receive help. You may say that cut offs are always inevitable, and perhaps that’s true, but sufficientarianism makes them painfully obvious to those concerned. People just above the threshold are told that they don’t matter, even if their neighbors who are just below matter a great deal. And finally, basic needs change over time, hence also the meaning of “suffering”. Will sufficientarians keep the threshold fixed, or allow it to rise over time? In the latter case, the difference between their approach and that of egalitarians is again rather small.

Prioritarianism

Some of these problems are sidestepped by a similar view called prioritarianism, made famous by Temkin and Parfit: benefiting people is more important the worse off they are. No need for a threshold here. When having to choose between two policies, you always take the one that is best for the worst off, whatever their level of well-being.

Benefits to the worse off matter more than benefits to the relatively better off. A benefit has greater moral value the worse the situation of the individual to whom it accrues. If we have some benefit to distribute, and this benefit has a value of x (no matter how we define “value”), it’s better to give this to the worst off than to anyone else. Strict utilitarianism, as opposed to prioritarianism, doesn’t care about who gets the benefit of x, because who gets it doesn’t change overall well-being. However, utilitarianism does take into account the possibility of the diminishing marginal utility of something: lots of money for a rich person isn’t as useful as the same amount of money for a poor person. But when comparing two people who would benefit just as much from such an amount of money, utilitarianism – as opposed to prioritarianism - doesn’t care who gets it; either person, the better off or the worse off, can get it. Prioritarianism doesn’t merely say that the worse off person should get it, but also says – contrary again to utilitarianism – that we should benefit the worse off even if that means diminishing total well-being; e.g. we can harm the interests of the better off if that means improving the well-being of the worse off:

Imagine choosing between two outcomes: In outcome 1, Jim’s well-being level is 110 (blissful); Pam’s is -73 (hellish); overall well-being is 37. In outcome 2, Jim’s well-being level is 23; Pam’s well-being level is 13; overall well-being is 36. Prioritarians would say that outcome 2 is better or more desirable than outcome 1 despite being lower than outcome 1 in terms of overall well-being. Bringing Pam up by 86 is weightier than bringing Jim down by 87. If we could move from a society described by outcome 1 to one described by outcome 2, we ought to. (source)

So prioritarianism avoids some of the counterintuitive implications of strict utilitarianism. And it also avoids the equally counterintuitive implications of strict egalitarianism. The latter may demand bringing everyone down to the level of the worst off while benefiting no one. Prioritarianism on the contrary does not propose a move toward more equality if that doesn’t benefit the worse off. And finally, it avoids some of the practical problems of sufficientarianism, while maintaining the appeal of the sufficientarian focus on the absolute deprivation of the worst off.

More on income inequality and relative poverty. More posts in this series are here.

Related Articles

• The Spirit Level: how ‘ideas wreckers’ turned book into political punchbag (guardian.co.uk)
• The Spirit Level is not on the level | Natalie Evans (guardian.co.uk)
• Un-Level Ground (online.wsj.com)
• Income Inequality: Who’s Really to Blame? (time.com)
• Income Inequality and Financial Crises (nytimes.com)
• America Should Rethink Self-Destructive Income Inequality: Financial Times Deutschland, Germany (themoderatevoice.com)
• Letters: Spirited defence of a level playing field (guardian.co.uk)

The Causes of Human Rights Violations (19): Ideology

Reinhold Niebuhr

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From Reinhold Niebuhr’s Moral Man and Immoral Society:

Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

That’s the basis of trickle down economics which is a theory about how inequalities ultimately benefit everyone. It’s also the basis of tax schemes such as a flat tax that limit forced redistribution, because the invisible hand will redistribute wealth or make it trickle down automatically.

And, when trickle down is discredited and when it turns out to be difficult to prove that inequality is a universal value, we hear that inequality isn’t as big a problem as it seems, and that this is the land of opportunity where even people who are on the wrong side of inequality can make it through hard work and discipline. Even Obama seems to believe this, as is clear from his inauguration speech. That’s a classic case of the anecdote turned into a “scientific” law. Data show that social mobility isn’t what the American Dream dreamers think it is. Implicit in this story is that existing inequalities are the sole responsibilities of individuals who haven’t made diligent use of the many opportunities this land has generously provided them. Discrimination, injustice, greed and lack of compassion are obscured as causes of inequality.

In reality, inequalities are indeed greater than could possibly be defended rationally, in the words of Niebuhr. The defense based on trickle down economics has failed, as has the defense based on the claim that inequalities are the sole result of individual choices and a lack of response to opportunities (this defense completely rejects effects of discrimination, which seems to be misguided).

However, it’s not because inequalities are greater than they should be that all inequalities are wrong. Some inequalities are unavoidable or even valuable. We do want Einsteins and Picassos. Society should reward merit. We all benefit from the recognition of exceptional individuals. Nietzsche for example rightly protested against the modern habit of cutting everyone down who dares to stick his head up. Equality of outcome is in many respects distasteful. And apart from the valuable inequalities, there are unavoidable inequalities. Some inequalities that are the result of the “lottery of birth” are impossible to correct: some people are born with more talent than others or with talents that are more appreciated in the economic or cultural market; and there will always be people who are born in privileged families.We wouldn’t want to engage in genetic engineering in order to redistribute talent, and neither would we be willing to redistribute children across families (at least not for the purpose of equality of opportunity).

Other aspects of the lottery of birth, however, are more difficult to defend. Why should the good luck of being born in a wealthy family with educated parents guarantee you a better education, better healthcare and better economic prospects? But of course it isn’t just the contingency of your place of birth that determines your opportunities and you future place in society. Some people are pulled down by discrimination or bad luck. We justifiably don’t accept that people’s prospects in life are fully determined by their family, luck or discrimination.

Again, equality of opportunity is different from equality of outcome: most of us don’t think it’s a good idea to strive towards equality of outcome in most spheres of life. We’re quite happy to accept that some people earn less money, have less vacation time, have lower social status and recognition levels and have more uncomfortable, dangerous, or physically draining work etc. What we don’t accept is that those outcomes are predetermined by the family they happen to be born in, by discrimination they suffer or by other instances of bad luck.

Read more on equality of opportunity.

The Causes of Wealth Inequality (5): Globalization

Another one in our series about the causes of wealth inequality (see here, here and here). (If you want to know why we think this is a human rights issue, go here or here first).

Globalization is supposed to have lowered the earnings of less-educated workers by putting them in direct competition with low-wage workers around the world. This competition put pressure on wages through international trade in goods and services; through the relocation or threat of relocation of production facilities to overseas locations; through competition with immigrants in local labor markets; and through other channels. …

U.S. and European workers are told that … our societies can no longer afford a generous welfare state. …

Contrary to the standard framing, which presents globalization as something that no nation can escape or even attempt to shape, we can choose the terms under which we integrate capital, product, and labor markets across countries. Over the last 30 years we have indeed “chosen” a particular form of globalization in the United States – a form that benefits corporations and their owners at the expense of workers and their communities. If we had chosen globalization on different terms, however, economic integration would not have required rising inequality. Another globalization is possible. (source, source)

So globalization, as it has occurred and is occurring, causes higher inequality in the West in two ways:

• The direct competition with overseas workers who can produce at lower wages puts downward pressure on wages in the West, especially for low-skilled workers at the wrong end of inequality.
• Governments in developed countries react to this competition by restricting social safety nets because the taxes necessary for the funding of these safety nets hurts the competitiveness of local businesses, a competitiveness already under pressure from low-cost labor in the developing world. Less generous safety nets obviously also have a negative effect on inequality.

If these effects are real, perhaps they can explain the decline of manufacturing in many developed countries.

However, I’m not sure this pressure on wages is real and significant (I’ll try to find some data), and we also shouldn’t dismiss the benefits for low-wage workers in the West of cheaper products. This particular result of globalization can offset the possible negative wage effects of wage competition.

Also, I’m not sure governments in the West are actively attacking safety nets (here it says they haven’t during the last decades, but it seems that the recent economic crisis has convinced some to start cutting benefits). And finally, we should remember that inequality isn’t just a national problem. The inequality between countries is just as, if not more, important. And globalization has had a beneficial effect on inter-country inequality because it has redistributed wealth from rich countries to poor countries. For example, it’s hard to imagine how China could have had the same success in poverty reduction without globalization. The question is of course whether this redistribution had to come from low skilled workers in the West, rather than from their more wealthy fellow citizens. The fact that it did come, however, was undoubtedly beneficial to the poor in the receiving development countries.

If we put all the causes of wealth inequality discussed in different posts together, we get this tentative list:

• globalization (i.e. outsourcing, trade liberalization) and the resulting competition between low-skilled workers in the West and in development countries
• competition between low-skilled workers in the West and immigrants
• the development of technology and a decreasing demand for low-skilled workers
• the increased importance of cognitive skills relative to physical labor
• declining manufacturing employment
• shrinking unionization and fragmenting of collective bargaining
• changes in household size and composition (due to later marriage and more prevalent divorce, more and more households have just one adult, and hence only one potential earner)
• coupling between people with similar education and thus similar earnings potential (“marital homogamy”)
• “positive feedback”: wealth begets wealth.

More on income inequality. More on outsourcing. More on globalization.

The Causes of Wealth Inequality (4): Technology

Another one in our series about the causes of wealth inequality (see here, here and here). (If you want to know why we think this is a human rights issue, go here or here first).

[T]he diffusion of computers and related technology in the early 1980s steadily increased the demand for skilled workers relative to less-skilled workers, driving up the wages and incomes of more-educated workers and depressing the wages and incomes of less educated workers…

However, the technological explanation removed policy, politics, and power from the discussion of inequality, by attributing rising economic concentration to “technological progress,” a force that could be resisted only at our peril. (source, source)

Indeed, taken in isolation, this explanation obscures more than it reveals. To the extent that it reflects reality – and I think to some extent it does – we’ll still have to ask ourselves why there’s such a wide and growing distance between people with and without skills: why can’t we educate more people so that they can enjoy the wage premium of high-tech labor? Inequality isn’t just the outcome of technology but of choices regarding education, personal ones but also social and political ones.

And there’s another problem with the technological explanation of income inequality. It’s undoubtedly true that higher levels of technology increase demand for higher skilled people, and hence increases their wages (and vice versa for lower skilled people). When you combine this with the disappearance of a high number of jobs at the lower end of the wage sprectrum that are automated and replaced by computers, you end up with a strong push towards more inequality. However, this can’t explain the relatively large increase in income inequality in the U.S. and the U.K. when compared to other countries that are equally technologically advanced.

And neither can it explain why inequality is so top-heavy, in other words why the increase in income is concentrated in a tiny minority of individuals (the top 1% in the U.S.) whose skills aren’t that much different from those just below in the income distribution, if at all. Alex Tabarrok offers an interesting explanation of the fact that income inequality seems to be driven by very high earnings in the very top of the distribution. It also has something to do with technology, but not necessarily with skills:

J.K. Rowling is the first author in the history of the world to earn a billion dollars. … Why? Consider Homer, he told great stories but he could earn no more in a night than say 50 people might pay for an evening’s entertainment. Shakespeare did a little better. The Globe theater could hold 3000 and unlike Homer, Shakespeare didn’t have to be at the theater to earn. … By selling books Tolkien could sell to hundreds of thousands, even millions of buyers in a year … And books were cheaper to produce than actors which meant that Tolkien could earn a greater share of the revenues than did Shakespeare … Rowling has the leverage of the book but also the movie, the video game, and the toy. And globalization, both economic and cultural, means that Rowling’s words, images, and products are translated, transmitted and transported everywhere …

Rowling’s success brings with it inequality. Time is limited and people want to read the same books that their friends are reading so book publishing has a winner-take all component. Thus, greater leverage brings greater inequality. The average writer’s income hasn’t gone up much in the past thirty years but today, for the first time ever, a handful of writers can be multi-millionaires and even billionaires. The top pulls away from the median.

The same forces that have generated greater inequality in writing – the leveraging of intellect, the declining importance of physical labor in the production of value, cultural and economic globalization – are at work throughout the economy. Thus, if you really want to understand inequality today you must first understand Harry Potter.

More on inequality.

Inequality, A Collection of Images

More on inequality, and the differences between types of inequality, is here. Other collections of human rights images are here.

(source, more on income inequality here)

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(source, more on income inequality here)

marriage inequality protest in Long Beach

(source, more on same-sex marriage rights here)

(source, more on capitalism here and here)

(source, more on gender discrimination here)

(source unknown, more on global inequality here an here)

The Causes of Wealth Inequality (2): Positive Feedback

(source; more Herblock, more on “split-level living“)

Regular readers know that we often post about income inequality (which is a proxy of wealth inequality). Here‘s an overview. Although income inequality, contrary to some other kinds of inequality, isn’t a human rights violation as such (there’s no human right to equal income, nor should there be), it does have some negative consequences for certain human rights. Read more about this here.

So if we agree that income inequality is a problem (if you’re not convinced you may want to read this) it’s important to look at some of the causes. One of those is called “positive feedback“: wealth begets wealth. There’s an interesting quote about this here, and below is another one:

I think that perhaps the most important trend of the past thirty years is the increased importance of cognitive skills relative to physical labor. Obviously, this has been going on for more than just the past thirty years, but during the past thirty years we saw an acceleration. This has had a number of consequences:

1. It changed the role of women. Their comparative advantage went from housework to market work.

2. This in turn, as Wolfers and Stevenson have pointed out, changed the nature of marriage. Men and women look for complementarity in consumption rather than in production.

3. This in turn leads to more assortive mating, with achievement-oriented men looking for interesting mates rather than for good maids.

4. This in turn leads to greater inequality across households. It also fosters greater inequality among children. The children of two affluent parents are likely to have much better genetic and environmental endowments than the children of two (likely unmarried) low-income parents.

5. Inequality is exacerbated by globalization and technological change. If your comparative advantage is basic physical labor, you have to compete with machines as well is with workers from the Third World.

The net result is an economy that has improved considerably for people with high cognitive skills, but which has improved only somewhat for people with relatively low cognitive skills. Arnold Kling (source, source)

Some data on income inequality are here.

Political Graffiti (61): Global Inequality

(source, art by Mantis)

More on global inequality. More on development aid.

Human Rights Cartoon (59): Taxation and Public Spending

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Read more on taxation, public spending and inequality, on progressive taxation, and on homelessness.

Income Inequality (16): In the U.S.

Just a follow-up of some of my previous posts on income inequality in the U.S. (these are here, here, here and here).

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Not very surprising to see an increase of income inequality after all this. Read here why we should care about income inequality.

Income Inequality (12): Inequality in the U.S.

An interesting graph (click on the image to enlarge):

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As a child of a family in the bottom income quintile, you have almost 1 chance in two (45%) of staying there if you don’t have a college degree. If you do manage to get a degree, chances are only 1 in 6 (16%) that you stay at the bottom.

That seems like a good thing. Give people the opportunity to get a degree and they lift themselves out of poverty. Meritocracy is generally unobjectionable. The problem is that low family income reduces your chances of getting a degree in the first place. “Two thirds of the kids with average math scores and low-income parents wind up not going to college, while almost two-thirds of high-income kids with average math scores do go. And … parental income also has a strong impact on college completion.” (source, see also here).

And something perhaps even more shocking from the graph above: a child from a family in the top income quintile who does not get a college degree is more likely to find himself or herself in the top income quintile than a child from a family in the bottom income quintile who does get a college degree (23 % chance against 19 %). So poor people are less likely to get a degree, and if they do get a degree they are still quite often less well off than a child from a rich family who didn’t get a degree.

All this points to a lack of social mobility and equal opportunity. Of course, these data are for the U.S. only, but you would expect to find something better for the “Land of Opportunity”. Or not. The U.S. has always been a great country to act on the opportunities that come your way. Nowhere is there more freedom to do something with opportunities. However, the country has never been good at distributing the opportunities more equally so that more people can use their freedom to do something when the opportunity is there.

There’s a firm belief that people can manage by themselves. They can take their bootstraps and lift themselves out of a situation that inhibits their opportunities. But this is not confirmed by the data. In a previous post I already showed how the U.S. has, among developed countries, the highest correlation between parents’ and children’s income, also indicating a lack of social mobility and equality of opportunity (see also here).

The Causes of Poverty (20): Education

In this and this post, I showed some data indicating that poverty or relatively low income has a negative effect on education levels. This may be obvious, but it’s good to have some data marking the extent of the effect and hence the importance of the problem.

I won’t repeat the reasons why poverty negatively impacts education (see those previous posts). I just wanted to show some more data (via Peter Orszag, data for the U.S.):

Income Inequality (11): Why Should We Care?

Some more on income inequality, although I already discussed this several times:

• There a post here on ways to measure income inequality.
• I have a page here with statistics on income inequality, and a world map here.
• Something here and here on the situation in the U.S.
• And I stated why it IS NOT a problem here, and why it IS a problem here.

Put very, very briefly, my position comes down to this. It’s a fact that many rich countries – rich in terms of total GDP – have a substantially unequal distribution of income; or, to put it in other words, these countries accept that there is huge inequality of wealth between people. It’s also a fact that, in many countries and particularly the U.S., these inequalities in income or wealth have become wider over the last decades.

What’s the problem, you may ask. Well, according to me this inequality poses some problems. But these problems are of relative importance. More important to me is the problem of absolute poverty. Absolute poverty is a lack of certain resources that are necessary to meet certain basic needs. This is not a problem of inequality. People may live in a very unequal society and at the wrong end of inequality, but they may nevertheless have no problem whatsoever meeting their basic needs.

More important as well, in some aspects at least, are the problems posed by other types of inequality. Gender inequality in some countries may be much more of a problem than income inequality (although these different types of inequality are probably connected).

Nevertheless, income inequality engenders some important problems. One is self-esteem. People suffering from relative poverty – i.e. finding themselves on the wrong end of an unequal income distribution – may suffer psychologically and emotionally. It’s also likely that their relative disadvantage isn’t very fair. In other words, it’s probably not solely based on questions of merit and desert. We don’t live in a world of equality of opportunity and level starting conditions. There’s also a correlation between relative and absolute poverty, so we may have to worry about relative poverty as a cause of absolute poverty.

Income inequality can also cause a problem for democracy. The rich can use their financial means to pervert the democratic procedures and to distort the equal influence on which democracy is based. Another way in which income inequality may pervert democracy is its divisiveness. It polarizes societies and it can antagonize regions within countries. None of this is helpful for the adequate functioning of democracy.

More on income inequality here and here.

Income Inequality (10): Two Worlds, The Obscene Disparities Between the Rich and the Poor

John Maynard Keynes

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From the earliest times from which we have record, that, say, the two thousand years before Christ, down to the beginning of the eighteenth century, there was no really great change in the standard of living of the average man living in the civilized centers of the earth. Ups and downs, certainly visitations of plague, famine and war, golden intervals, but no progressive violent change. Some periods perhaps fifty percent better than others, at the utmost a hundred percent better in the four thousand years that ended, say, in A.D. 1700. John Maynard Keynes

Our world today presents a shocking image: whereas the world economy produces enough to feed and house every single human being in a healthy way, humanity has divided itself into two groups: one, including about half of humanity, is hardly able to sustain life in a decent way; and another that spends too much, eats too much, works too much, wastes too much, and wrecks havoc on the earth.

It’s important to remember that this obscene inequality between the rich and the poor parts of humanity is a relatively recent phenomenon. Poverty may seem to be a big problem now, and it surely is, but 300 years ago it was the world’s problem, whereas now it is “only” a problem for half of the world.

Throughout much of human history, poverty was the norm. With the exception of a very, very small minority of rulers, landlords and tradesmen, everyone was as poor as the average poor person in Africa today. Life expectancy and income levels were not much different in Europe in the 16th century and in Africa in the 21st.

Hence, poverty wasn’t seen as a problem. It was the normal and perhaps even inevitable condition of life.

The current division of the world in rich and poor is the result of very uneven economic growth over the last 200 or 300 years, compared to very limited growth during the millennia before. You can see the relatively recent rise in economic growth in this graph:

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The uneven economic growth over the last 2 or 3 centuries - with startling levels of growth in the West and much more modest levels in the rest of the world - resulted mainly from uneven levels and speed of industrialization and technological development. For different reasons, modern industrial production based on technological improvements and inventions, first took off in the West, and more specifically in the U.K. This has had a hugely beneficial effect on living standards in the West.

Of course, industry and technology were not the only factors behind economic growth in the West. Exploitation of the rest of the world, colonialism and imperialism also helped the West develop, and to some extent restricted development in the “target” countries (“to some extent” because underdevelopment has many causes, including politics, climate factors, trade policies etc.). But colonial exploitation was made possible by technology and industry. And so it came second. Economic growth in the West, driven by technology, gave western counties the means, including vastly superior military means, to colonize the world. And once colonization was on its way, it was driven by other factors as well. The West’s technological and military superiority, caused by industrialization, would incite many westerners to believe that they were also in other ways superior: intellectual, moral, religious, psychological etc. Hence, racism further exacerbated colonial exploitation.

These are, in a nutshell, the causes of the current division of the world. This division is in itself a vast improvement, compared to the fate of humanity centuries ago. But the current contrast between rich and poor makes poverty seem more scandalous than it did before. And it really is more scandalous, given the economic possibilities to end poverty altogether. This scandal has given rise to Article 25 of the Universal Declaration of Human Rights:

Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services.

Such a right would have been inconceivable some centuries ago, because there simply wasn’t an economic base to do something about it. It was as inconceivable then as a right to universal friendship and brotherhood is today.

Income Inequality (9): Absolute and Relative Poverty

The problem of poverty and related problems such as income inequality have received a lot of attention on this blog, because I consider poverty to be one of the most urgent human rights problems. Now and again, I’ve also mentioned the possibility of distinguishing between different types of poverty (here for example), and one such possibility in particular, namely the difference between absolute and relative poverty. Absolute poverty meaning the lack of basic resources, and relative poverty meaning income inequality.

I’ve taken the view that absolute poverty is a more urgent priority than relative poverty (see here), and that therefore measurements of income inequality – such as the Gini coefficient – are less relevant than measurements of absolute poverty – such as the $1 a day measure. It’s the absolute income of people that matters, not the fact that other people are richer than you are and can afford more luxuries, at least from a human rights point of view (the absence of a certain minimum amount of basic resources is a human rights violation in itself and renders many other human rights meaningless; see here).

Inequality of wealth is less urgent than the fight against absolute poverty, and opposition to income inequality can be easily categorized as the politics of envy. If inequality really matters it is the inequality of opportunity and other types of inequality not related to wealth (discrimination for example).

The one exception I was willing to make is the negative influence of high levels of income inequality on the adequate functioning of democracy (see here and here). And I also pointed out that there is a correlation between relative poverty and absolute poverty: countries with relatively unequal income distribution don’t score well on absolute poverty measures either (see here).

Richard Wilkinson

It now seems that I was wrong. Richard Wilkinson has pointed out, some time ago already, that relative poverty matters. Once economic growth has pushed up absolute (albeit average per capita) income levels and done away with penury, people tend to be more healthy and live longer if levels of income inequality are relatively low. Countries with lower per capita income levels but also lower income inequality, can do better in terms of public health than high income countries with higher levels of income inequality. Poorer countries with a more equal wealth distribution are healthier and happier than richer, more unequal ones. Here’s a graph (from another, unrelated study) linking inequality (measured not by Gini but by way of the concentration of wealth in the 10% richest people) to life expectancy and child mortality:

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Some of the reasons are the stress of living at the bottom of the pecking order, the stress of disrespect and the lack of esteem and respect (including self-respect).

This doesn’t mean than countries shouldn’t try to achieve economic growth. I’ve shown here that economic growth and poverty reduction go hand in hand.

Income Inequality (8): Income Inequality in the U.S. Under Democratic and Republican Presidents

Larry Bartels

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Partisan differences in macroeconomic priorities and performance have clearly had a very significant impact on the economic fortunes of American families over the past half century. Larry Bartels

In this post, I described the rise in income inequality in the U.S. during the past decades. Using Census Bureau data covering the period from 1948 to 2005, Larry Bartels’ book, Unequal Democracy, suggests that there is a much more egalitarian pattern of income growth under Democratic presidents than under Republican ones. So with Obama taking office, there is a possibility that the rise in income inequality will stop or even be reversed. At least his promised tax policies will, if implemented, be more egalitarian than McCain’s would have been (see here). Those who wonder why income inequality is a human rights issue can have a look here.

(As Mark Thoma points out here, this is more true for the first half of the period than for the second half).

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More on income inequality here, here, here and here.

Racism (4): Competition v Racial Bias

I’ve written a lot about discrimination, inequality and poverty, but I have to admit that much of it was descriptive, moralizing and philosophical. Especially regarding racial bias, I haven’t come up with many solutions, apart from better education and affirmative action.

Gary Becker

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I’ve now discovered the work of Gary Becker, a Nobel Prize winning economist who wrote about this some decades ago (I know, I’m late). He looked at the well-documented fact that African-Americans in the U.S. earn less than whites, partly because on average they are less well educated. But even if corrected for this, there remains an unexplainable difference in wages. Unexplainable apart from racial bias. There have been many studies that have proven the existence of bias. For example, firms are 1.5 times as likely to interview someone for a job if they think the person is white, even if all other characteristics such as education and experience are equal.

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The interesting thing about Becker is that he goes beyond education, positive discrimination or labor legislation in his search for solutions. He mentions increased competition between firms. A racially biased firm will only hire a white who is more expensive and perhaps even less qualified than a black, if this firm is not under pressure from competitors. If its market is opened to competition, then other firms can and will produce the same goods at cheaper prices by hiring the black guy/gal. The biased firm would then be forced to do the same. It may remain biased – opinions on such matters are notoriously hard to change – but it no longer has the luxury of acting on its bias.

So this sounds promising, and market freedom is beneficial for other reasons as well, so it’s worth to pursue it. But don’t expect too much of the free market. There’s no invisible hand, leading those motivated by selfish motives to destroy racism without really wanting to. Much more needs to be done.

Income Inequality (5): Increasing Income Inequality in OECD Countries

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In the wake of the controversy over Obama’s remark about ”spreading the wealth around”, comes an OECD study on rising income inequality in its member states, and notably in the U.S. This backs up what I’ve written recently. Here’s an excerpt of the study:

The gap between rich and poor has grown in more than three-quarters of OECD countries over the past two decades. … In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class. … Also, social mobility is lower in countries with high inequality. … A key driver of income inequality has been the number of low-skilled and poorly educated who are out of work. More people living alone or in single-parent households has also contributed.

A higher Gini coefficient means more inequality (source). (More on the Gini measure here).

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What to do about it?

In developed countries, governments have been taxing more and spending more on social benefits to offset the trend towards more inequality. Without this spending, the report says, the rise in inequality would have been even more rapid. … Although the role of the tax and benefit system in redistributing incomes and in curbing poverty remains important in many OECD countries, our data confirms that its effectiveness has gone down in the past ten years. Trying to patch the gaps in income distribution solely through more social spending is like treating the symptoms instead of the disease. … Increasing employment is the best way of reducing poverty. … Countries have to do better at getting people into work and giving them in-work benefits to provide working families with a boost in income, rather than relying on unemployment, disability and early retirement benefits.

According to me, it’s not so much relative poverty (i.e. income or resource inequality) which is important but absolute poverty (more on the types of poverty here). People need an absolute number and quantity of basic resources and capabilities in order to have a life which is fulfilling, which allows them to develop themselves and to enjoy all things that make human life worthwhile. The fact that my neighbor has a luxury car and I have just a basic model is not a morally important one.

Income inequality can of course mean that the people on the wrong end of the unequal scale suffer from absolute poverty, but not necessarily. If they do, it’s their absolute poverty and not their unequal position that’s the problem. (In fact, there is a correlation between wide distributions of income and high levels of absolute poverty, see here).

One field in which income inequality can cause a problem is democracy. The rich can use their financial means to pervert the democratic procedures and to distort the equal influence on which democracy is based. Another way in which income inequality may pervert democracy is its divisiveness. It polarizes societies and it can divide regions within countries. None of this is helpful for the adequate functioning of democracy.

But perhaps there’s also another case to be made for reducing relative poverty or income inequality. People who are on the wrong end of income inequality and who happen to live in a wealthy country may not lack basic resources such as education, healthcare, income, work etc., but they may lack self-esteem because they compare themselves to more successful fellow citizens.

This description of the relative importance of income inequality has no implications for other types of inequality. Other types are probably more of a moral problem. I’ll come back to this in future posts.

More on income inequality here.

Human Rights Maps (23): Income Inequality

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A more recent map with data for 2011:

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More on income inequality and how it is measured.

Human Rights Facts (19): Inequality of Opportunity Index

The “lottery of birth” gives individuals a very different start in life and very different prospects for life, depending on the place and circumstances in which they are born and grow up, and the heritage, both social and genetic, with which they are born. Being born in a poor and uneducated family, in a poor country, with a genetic heritage that makes you more likely to get certain diseases or less likely to develop certain talents, all this and more reduces your opportunities and your chances to achieve certain goals, to benefit from certain circumstances, to develop yourself etc. And all this through no fault or responsibility of your own.

Your own faults may, of course, aggravate your situation, and your sense of responsibility may make it possible for you to rise above the odds and gain more opportunities and success than could on average be expected from someone in your position. However, these quasi-heroic individuals need not concern us. It’s the average that we have to worry about.

The lottery of birth is morally arbitrary, and the equal value of every human being and the equal respect we owe to every human being, morally forces us to level the field of opportunities as much as we can. We will never be able to offer the same prospects of success to all those aspiring to the same goal and using the same energy and determination to achieve it. We cannot exclude bad luck just as we cannot distribute talent. But there are other ways in which we can help those who are less endowed by the lottery of nature and chance, those who didn’t have the good fortune of being born with good health and talents, in a wealthy class in a wealthy country with a good education system, a good economy, freedom and rights etc. We can fight against poverty, develop education and health care, offer respect and encouragement etc.

But before you can equalize opportunities, you have to measure them. The World Bank has come up with a “Human Opportunity Index” or HOI which combines different measures of opportunities in a single composite indicator. How many opportunities (e.g. access to education, to clean water, electricity, sanitation etc) are available in a country and how fair are those opportunities distributed between the rich and poor?

More on equality of opportunity.

Income Inequality (4): Income Inequality and Fairness

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More on income inequality here, here and here. I’ve stated my personal views on income inequality here and here.

Income Inequality (3): The U.S.

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Income inequality within a country is usually measured using the so-called Gini-index (see also here). When we look at the Gini indices for the U.S. at various times, we see an increase in inequality (a higher value means more inequality):

• 1967: 39.7 (first year reported)
• 1968: 38.6 (lowest index reported)
• 1970: 39.4
• 1980: 40.3
• 1990: 42.8
• 2000: 46.2
• 2005: 46.9
• 2006: 47.0 (highest index reported)
• 2007: 46.3

These data show an increasing gap between rich and poor over the period between 1970 and 2000 (no significant evolution since 2000). As a result, inequality in the U.S. is now higher than in other developed countries:

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Before the 1960s, the U.S. became progressively more egalitarian. From the 1970s onward, average income continued to increase, but mainly thanks to large increases in the top incomes, which caused a change in the trend and an increase in inequality.

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This trend of rising inequality since the 1970s in the U.S. and some other advanced industrial societies (especially the U.K.) goes against traditional wisdom.

Simon Kuznets argued that levels of economic inequality are in large part the result of stages of development. Kuznets saw a curve-like relationship between level of income and inequality, now known as Kuznets curve. According to Kuznets, countries with low levels of development have relatively equal distributions of wealth. As a country develops, it acquires more capital, which leads to the owners of this capital having more wealth and income and introducing inequality. Eventually, through various possible redistribution mechanisms such as social welfare programs, more developed countries move back to lower levels of inequality. Kuznets demonstrated this relationship using cross-sectional data. However, more recent testing of this theory with superior panel data has shown it to be very weak. (source)

The trend of rising inequality has been called “The Great U-Turn“, a phrase coined by Harrison and Bluestone. When we focus on the U.S., we can identify the following causes of this u-turn:

• Globalization and trade liberalization depressing the wages of the less skilled or threatening their jobs.
• Rising number of single parent families.
• Influx of women and immigrants in the low-end job-market has also depressed wages.
• Lower taxes for high incomes by the Reagan administration.
• The weakness of the labor movement in the U.S.
• A relatively large wage premium for a college education in the U.S.
• The work ethic in the U.S. typically favors large rewards for success.
• Increasing reliance on technology causing increased demand (and higher returns) for education and cognitive skills.
• Etc.

What can be done about it?

• Offer better education.
• Renewed public support for the right of unorganized workers to be represented by unions.
• Strengthen the social safety net, including universal coverage for health care.
• Vote for Obama. A study by the independent Tax Policy Centre found that the tax policies proposed McCain would widen the gap in after-tax income of rich and poor even more, and that the policies proposed by Obama would reverse the trend:

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More on income inequality.

Human Rights Maps (6): Gender Inequality

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More on gender inequality.

Income Inequality (2): Inequality Between Rich and Poor Countries

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The following graph, from the Special Studies series of the World Trade Organization, shows the differences in annual per capita GDP growth between rich and poor countries. The vertical axis shows the average annual per capita growth between 1960 and 1990, and the horizontal axis the per capita GDP in 1960.

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Had the per capita incomes of the poorer countries (left side of the graph) been converging with that of the richer ones (right side), or had, in other words, the income inequality between poor and rich countries been decreasing, then the countries would have lined up from left to right along a downward-sloping line with the poorest country growing the fastest. This is not the case.

If anything, richer countries have been growing faster on average than poorer countries, thereby increasing global income disparity. (source)

Some poor countries – or countries that were poor in 1960 – have done much better than others. These are the ones in the upper left side of the graph. The ones in the left bottom half have seen low annual growth figures. Some countries, mainly in East Asia, have done well, and continue to do so.

More on inequality. And more on poverty.

The Causes of Poverty (10): Lack of Economic Growth

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Economic growth is the increase in value of the goods and services produced by an economy or a country. It is the percent rate of increase from one year to the next in gross domestic product or GDP of an economy or a country. In order to correct for the population sizes of different economies and countries, GPD per capita rather than national or total GPD is used.

GDP per capita of an economy is often used as an indicator of the average standard of living of individuals in that country, and economic growth is therefore often seen as indicating an increase in the average standard of living. “Average” means that GDP growth is not the same as poverty reduction. GDP growth per capita does not provide information on the distribution of income in a country/economy. A rise in the average standard of living can be accompanied with greater inequality and poverty for some or even many.

Therefore separate measurements of distribution or inequality and poverty are necessary.

However, there is a strong correlation between these measurements. As an empirical matter, economic growth (annual growth in GDP per capita) and poverty reduction go hand in hand.

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Since growth and poverty reduction go hand in hand, it is of the utmost importance that those who care about poverty reduction do everything possible to promote economic growth. Even though our knowledge about the kinds of policies that stimulate growth is limited, we know that some things in some circumstances drive economic growth and others do not. Good institutions, good education, investments, respect for human rights and the rule of law, free markets etc. are generally considered to be good for growth.

This doesn’t mean that economic growth is all that matters, that poverty reduction follows automatically from growth or that only policies that are targeted on growth can generate poverty reduction. This kind of “invisible hand” theory, or “trickle down” theory has been discredited. Other policies such as redistribution are also necessary for poverty reduction, but it is precisely economic growth that delivers the means for redistribution. Conversely, policies specifically aimed at poverty reduction can benefit growth. It’s interesting to note that poverty reduction is one of the drivers of growth. So the causation goes both ways, as is often the case in correlations.

Policies that are effective in increasing the incomes of the poor–such as investments in primary education, rural infrastructure, health, and nutrition–are also policies that enhance the productive capacity of the economy in aggregate. (source)

John Rawls

So specific policy measures aimed at improving the lives of the poor are necessary. An exclusive focus on fostering growth is wrong. One could even say that the focus on the poor is the priority, and that measures aimed at growth are only a means to help the poor, and only one means among many. This has become known as the difference principle of John Rawls: social and economic inequalities are to be arranged so that they are to be of the greatest benefit to the least-advantaged members of society.

“From this perspective, it can be entirely rational and proper for a government to select, among two competing growth strategies, the one that has greater potential payoff for the poor even if the aggregate growth impact is less assured. (source)

There is a correlation between poverty reduction and economic growth, not because economic growth automatically and single-handedly reduces poverty, but because policy makers can use growth to reduce poverty and because these efforts in turn promote growth. Growth is good for the poor, but growth without poverty measures will be unequal growth, growth which doesn’t benefit everyone equally. Growth can indeed lead to lesser gains, no gains at all or even absolute losses for some people at the bottom of the income distribution scale, for example those people who were previously working in factories that were closed because of the industrial reforms necessary for overall growth (such as liberalization).

None of the above is meant as a denial of the possible negative aspects of economic growth: the costs to the environment aren’t factored in, disasters create economic growth because of the reconstruction etc.

More on poverty.

Human Rights Stories (4): Animal Farm

George Orwell

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Excerpt from George Orwell’s Animal Farm:

Benjamin felt a nose nuzzling at his shoulder. He looked round. It was Clover. Her old eyes looked dimmer than ever. Without saying anything, she tugged gently at his mane and led him round to the end of the big barn, where the Seven Commandments were written. For a minute or two they stood gazing at the tatted wall with its white lettering.

‘My sight is failing,’ she said finally. ‘Even when I was young I could not have read what was written there. But it appears to me that that wall looks different. Are the Seven Commandments the same as they used to be, Benjamin?’

For once Benjamin consented to break his rule, and he read out to her what was written on the wall. There was nothing there now except a single Commandment. It ran:

ALL ANIMALS ARE EQUAL
BUT SOME ANIMALS ARE MORE EQUAL THAN OTHERS

After that it did not seem strange when next day the pigs who were supervising the work of the farm all carried whips in their trotters.

More on equality.

Human Rights Quote (52): Equality of Opportunity

John Rawls

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Those who are at the same level of talent and ability, and have the same willingness to use them, should have the same prospects of success regardless of their initial place in the social system. In all sectors of society there should be roughly equal prospects of culture and achievement for everyone similarly motivated and endowed. The expectations of those with the same abilities and aspirations should not be affected by their social class. Chances to acquire cultural knowledge and skills should not depend upon one’s class position, and so the school system, whether public or private, should be designed to even out class barriers. John Rawls.

See also this post for more on equality and this on equality of opportunity.

Human Rights Quote (51): Gender Discrimination

The inequality of the sexes has deprived society of a vast pool of talent. If women had the free use of their faculties along with the same prizes and encouragements as men, there would be a doubling of the mass of mental faculties available for the higher service of humanity. Every restraint on freedom of conduct of any of their human fellow creatures dries up pro tanto the principal fountain of human happiness, and leaves the species less rich, to an inappreciable degree, in all that makes life valuable to the individual human being. John Stuart Mill

More on gender inequality or gender discrimination.

Gender Discrimination (4): “Global Gender Gap”

The “Global Gender Gap Index 2007”, published by the World Economic Forum, ranks 128 countries according to the level of gender-inequality existing in those countries. This ranking is based on 14 indicators covering political representation, access to education, health and economic participation.

All of the world’s countries are affected by gender-based inequality, but some more than others. The Global Gender Gap Index tries to measure the levels of inequality.

These are the categories that are measured and that make up the global index:

This is the 2007 ranking (there are no long historical series so difficult to analyze evolutions):

Here’s a map of country performances:

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More on gender inequality. More on discrimination.

Marx and Human Rights

Karl Marx on a coin, some irony!

According to Marx, human rights are the “rights of the egoistic man, separated from his fellow men and from the community”. They are the rights of man as an isolated, inward looking, self-centered creature

• who regards his free opinion as his intellectual private property instead of a part of communication
• who uses his right to private property not in order to create a beach-head for his public and cultural life but to accumulate unnecessary wealth and to protect unequal property relationships
• who uses the right to privacy as a wall keeping out the poor snoopers watching the rich people
• who considers fellow men as the only legitimate restraint on his own freedom, and therefore as a limit instead of the source of his own thinking, identity and humanity (this is the way in which Marx read art. 6 of the French constitution of 1793: “Liberty is the power which man has to do everything which does not harm the rights of others”)
• who considers freedom to be no more than the ability to pursue selfish interests and to enjoy property, unhindered by the need to help other people, “without regard for other men and independently of society”
• and who considers equality to be the equal right to this kind of freedom (everybody can emancipate himself by becoming a bourgeois).

Human rights, in this view, serve only to protect egoism and the unequal distribution of property, and to oppress the poor who question this and who try to redistribute property. On top of that, human rights obscure this fact because they are formulated in such a way that it seems that everybody profits from them. Contrary to what is implicit in their name, “human” rights are not general or universal rights. They are the rights of those who have property and who want to keep it. A specific situation of a specific group of people is generalized in human rights.

Of course, this criticism can be correct. No one will deny that human rights can serve to protect and justify egoism, oppression of the poor and indifference. They can help to shield people behind private interest and to transform society into a collection of loose, self-centered, self-sufficient, withdrawn, independent, sovereign and isolated individuals. Because the rich have more means to use, for example, their freedom of expression, this freedom can be an instrument of the rich to monopolize political propaganda and political power and to use this power to maintain their privileged situation. Economic relationships can be maintained by legal means.

However, in order to judge and possibly reject a phenomenon, one should also look at its intended and ideal functions, not only at the ways in which it can be abused. Human rights not only protect man against the attacks and claims of other people (for example the attacks and claims on his property); they also create the possibility of forcing people to help each other. They do not allow you to do something to other people (taking their property, determining their opinions etc.), but at the same time they invite you to do something with other people. In other words, they are not only negative. They not only limit the way we relate to other people, they also stimulate and protect the way we relate to other people.

More on Karl Marx, and specifically his thinking about democracy.

Economic Human Rights (8): Poverty

In 2001, 1,1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day. The proportion of the developing world’s population living in extreme economic poverty – defined as living on less than $1 per day – has fallen from 28 percent in 1990 to 21 percent in 2001. So, some progress has taken place, but the figures still remain too high. Infant mortality rates in low- and middle-income countries have fallen from 86 per 1,000 live births in 1980 to 60 in 2002. Life expectancy in these countries has risen from 60 to 65 between 1980 and 2002. But the picture is very uneven across the globe. Global trends in poverty reduction have been dominated by rapid growth in China and the East Asia and Pacific region. But in Sub-Saharan Africa, where GDP per capita shrank 14 percent, poverty rose from 41 percent in 1981 to 46 percent in 2001, and an additional 150 million people were living in extreme poverty. (source)

Now, what has this to do with human rights? Well, obviously poverty is a violation of human rights. Article 25 of the Universal Declaration states:

“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.”

And we all know the devastating effects of poverty on other human rights. More on poverty.

Income Inequality (1): Gini

Corrado Gini

The inequality of wealth or income in a particular country is traditionally measured by the Gini coefficient (named after Corrado Gini). This coefficient is the result of a comparison of the percentage of the population and the percentage of the total income of the population. E.g. 80% of the population earns 50% of the total income, and the remaining 20% earns the other half.

You can see this on the graph below. The diagonal 45° line represents the fictional state of equal income: 5% of the population earns 5% of the income, 10 earns 10, 20 earns 20 etc. In reality, income distribution is of course unequal and is somewhere along the curved line, the Lorenz curve, with the majority of the population earning the minority share of the national income, and a minority earning the majority.

The more curved this line, the more unequal the income. The Gini coefficient is the surface between the diagonal and the curved line, divided by the whole surface under the diagonal.

This is then expressed as a value between 0 and 1 (following a complicated mathematical formula which I will not inflict on you). 0 corresponds to perfect equality: everyone having exactly the same income, = diagonal. And 1 corresponds to perfect inequality where one person has all the income, while everyone else has zero income. There will be no curve in this case as the curve comprises the horizontal axis and the right-hand vertical axis. Both extremes obviously being impossible. In real life, the lowest is 0.23 in Sweden; the highest is 0.7 in Namibia (most recent data).

(source)

A complete list of countries’ performances is here. (Sometimes you’ll also find the Gini index, when the coefficient is multiplied by 100 and hence expressed as a percentage).

Of course, the Gini coefficient is a measure of relative poverty: the people on the wrong side of inequality in a rich country with a relatively high Gini can be better of then the people on the wrong side of inequality in a poor country with a relatively low Gini. The coefficient remains useful because the way individuals or households perceive their position in a given society, compared to the other people of their society, is an important aspect of their welfare.

In any case, there seems to be a correlation between relative poverty and absolute poverty: countries with relatively unequal income distribution don’t score well on absolute poverty measures either:

Now, human rights do not require perfect income equality. Such a kind of equality would even be damaging since if would destroy all incentives for economic productivity. It would lead to economic ruin and hence gross violations of human rights. However, extreme inequality of income also leads to violations of human rights: it creates hunger and poverty, unequal education and unequal participation in political and cultural life etc. More about equality here.

Economic Human Rights (4): Taxation

What if different kinds of equality contradict each other? For example equality before the law on the one hand (laws must be equal for everybody and should not discriminate) and material equality as promoted by economic rights on the other hand.

Material equality is often promoted by way of taxation based on legislation. The purpose of taxation is the redistribution of property. The problem is that redistribution only benefits one group of people and harms the interests of the rest of the population. Taxation laws do not seem to be equal for everybody and do not have the same result for everybody. It seems as if they discriminate against certain people. A wealthy person can claim that laws must be the same for everybody and that a law which forces one person to give and allows another to receive is illegitimate. A law against murder does not, at the same time, force one person to abstain from murder and allow another person to murder. So why should a law on taxation be allowed to discriminate?

First of all, there is no reason to believe that the principle of equality before the law is an absolute principle. It must be possible to make trade-offs between principles. If one principle—for example equality before the law—does serious harm to another principle—for example material equality—then it may be acceptable to sacrifice or limit one principle for the sake of another. Sometimes, one has to make a choice and one has to establish priorities. This goes both ways. Too much attention to material equality can be counteracted by way of the principle of equality before the law.

However, it may not be necessary to limit the principle of equality before the law. Taxation laws do not discriminate, at least when we define discrimination as giving something to one person and denying it to another without good reason. Economic rights indeed give something to one person and not to another. Even more so, they take away something from one person in order to give it to another. However, the former person is not denied the thing that is given to the latter. He or she has and continues to have the same thing as the one given to the latter. The consequences of taxes are equal for everybody because they make sure that everybody has the same minimum of material means. Taxation laws do not cause discrimination or inequality. On the contrary, they are designed to eliminate discrimination and inequality, not only at the level of material well-being but also at the level of political influence, because material inequality causes political inequality.

We have discrimination when a law only benefits one group of persons and when there is no good reason why other persons should not benefit. It is clear that there is no good reason why wealthy people should benefit from taxation laws in the same way as poor people, except of course when they themselves become poor. Everybody can be in a position in which he or she needs taxation laws.

The right to free speech does not benefit everybody in an equal way either. Some people gain more from this right than other people. A colored person suffering from discrimination needs this right more than a white, middle-class person without political worries. However, there is no reason to claim that this right contradicts the principle of equality before the law.