Excerpts from an article by Dambisa Moyo at Project Syndicate. An economist and author who sits on the boards of directors of global corporations, she was named by TIME Magazine as one of the “100 Most Influential People in the World.”
NEW YORK – Over the past decade, income inequality has come to be ranked alongside terrorism, climate change, pandemics, and economic stagnation as one of the most urgent issues on the international policy agenda. And yet, despite all the attention, few potentially effective solutions have been proposed. Identifying the best policies for reducing inequality remains a puzzle.
To understand why the problem confounds policymakers, it is helpful to compare the world’s two largest economies. The United States is a liberal democracy with a market-based economy, in which the factors of production are privately owned. China, by contrast, is governed by a political class that holds democracy in contempt. Its economy – despite decades of pro-market reforms – continues to be defined by heavy state intervention.
But despite their radically different political and economic systems, the two countries have roughly the same level of income inequality. Each country’s Gini coefficient – the most commonly used measure of income equality – is roughly 0.47.
In one important way, however, their situations are very different. In the US, inequality is rapidly worsening. In 1978, the top 1% of the US population was ten times richer than the rest of the country. Today, the average income of the top 1% is roughly 30 times that of the average person in the remaining 99%. During the same period, inequality in China has been declining.
…But societies do not flourish on economic growth alone. They suffer when the poor are unable to see a path toward betterment. Social mobility in the US (and elsewhere) has been declining, undermining faith in the “American Dream” (which includes the belief that hard work will make one better off than one’s parents). Over the past 30 years, the probability that an American born into the bottom quartile of the income distribution will end his life in the top quartile has more than halved…
Widening inequality provides fodder for political unrest, as citizens watch their prospects decline…
Globally, the slowdown in economic convergence has similar implications, as richer countries maintain their outsize influence around the world – leading to disaffection and radicalization among the poor. As difficult a puzzle as income inequality may seem today, failing to solve it could lead to far more severe challenges.
— Norm Farrell (@Norm_Farrell) February 22, 2016
Categories: Income Inequality