Does in­equal­ity re­ally mat­ter?

Wealth dis­par­i­ties un­der­mine the so­cial and eco­nomic fab­ric of our so­ci­ety,

The Star Early Edition - - INSIDE -

DON’T fool your­self – in­equal­ity re­ally does mat­ter and we had bet­ter start do­ing some­thing about it. Two re­cent events in the in­ter­na­tional arena have high­lighted the ur­gent need for South Africans to de­bate is­sues of in­equal­ity in our so­ci­ety.

The first – a sad event – on Jan­uary 1 this year was the pass­ing of An­thony Atkin­son, which hardly re­ceived a men­tion in the South African press.

Sir An­thony Barnes Atkin­son – or Tony Atkin­son as he was known – was a Bri­tish econ­o­mist who is with­out doubt the doyen of stud­ies on in­equal­ity.

Atkin­son, some­what against the grain for an an econ­o­mist of the mod­ern era, pi­o­neered the his­tor­i­cal, em­pir­i­cal and the­o­ret­i­cal study of in­equal­ity. While clas­si­cal econ­o­mists such as Marx and Ri­cardo were con­cerned with in­equal­ity, their ap­proach was very much the­o­ret­i­cal.

Atkin­son pi­o­neered the gath­er­ing and anal­y­sis of his­tor­i­cal data on in­equal­ity, en­abling us to un­der­stand pat­terns of eco­nomic growth and in­equal­ity. Through many years of painstak­ing work, he put to­gether and an­a­lysed in­equal­ity data, first in Bri­tain and later in much of the de­vel­oped world.

From this work and un­der Atkin­son’s men­tor­ship emerged an ex­cit­ing branch of eco­nomic re­search on in­equal­ity and a group of highly in­no­va­tive econ­o­mists, in­clud­ing the likes of Thomas Piketty, in­ter­ested in his­tor­i­cal pat­terns of eco­nomic growth, dis­tri­bu­tion and in­equal­ity.

Fur­ther­more, his work al­lowed us bet­ter to un­der­stand the broader po­lit­i­cal, so­cial and eco­nomic forces that shape in­equal­ity and dis­tri­bu­tion in mod­ern so­ci­eties.

As high­lighted by Piketty in an obituary he wrote, his block­buster Cap­i­tal in the 21st Cen­tury would not have ex­isted with­out Atkin­son’s years of care­ful work and men­tor­ship.

Also some­what against the grain, Atkin­son com­bined care­ful and cau­tious aca­demic re­search with a firm com­mit­ment to ac­tu­ally chang­ing the world for the bet­ter and ad­dress­ing the ex­cep­tion­ally high lev­els of in­equal­ity across the globe.

In his last book, pub­lished in 2015, In­equal­ity – What can be done?, Atkin­son de­vel­ops a set of 15 pro­pos­als for ad­dress­ing poverty. These range from en­sur­ing that tech­no­log­i­cal in­no­va­tion in­creases the em­ploy­a­bil­ity of work­ers, gov­ern­ments com­mit­ting to ac­tive tar­gets for re­duc­ing unem­ploy­ment, min­i­mum-wage poli­cies, more pro­gres­sive tax poli­cies that tax high-in­come earn­ers at much higher rates than is cur­rently the norm, more ef­fec­tive tax­ing of in­her­i­tances, pro­gres­sive prop­erty taxes, child sup­port grants, im­prov­ing the ef­fi­cacy of so­cial in­sur­ance, and rich coun­tries in­creas­ing their tar­get of aid to 1 per­cent of na­tional in­come.

Col­leagues from Rhodes Univer­sity and I tried over the last two years to get Atkin­son to visit South Africa to de­liver a set of lec­tures on his work and en­gage with the chal­lenges of in­equal­ity in South Africa. Sadly, his poor health did not al­low him to take up our in­vi­ta­tion. We owe a great debt to him.

As Piketty ar­gues in his obituary: Atkin­son dies as in­equal­ity has be­come prob­a­bly the most press­ing is­sue our so­ci­eties are fac­ing. His life has been about cre­at­ing the tools to mea­sure, un­der­stand and tackle in­equal­ity. His work will live as we con­tinue con­fronting the prob­lem of in­equal­ity. It’s a rather sad in­dict­ment of the South African me­dia that Atkin­son’s pass­ing went with­out a men­tion.

A sec­ond event, which did re­ceive a lot of press, was Ox­fam’s Global In­equal­ity Re­port, re­leased ear­lier this month to co­in­cide with the World Eco­nomic Fo­rum meet­ing in Davos. The Ox­fam re­port tells us that, among oth­ers:

What Ox­fam has shown us is how shock­ingly im­moral the dis­tri­bu­tional im­pacts of the cur­rent phase of eco­nomic growth is. It should hor­rify us that the wealth gap is so ex­treme, and that eight men are so wealthy that their wealth out­num­bers that of bil­lions of peo­ple.

The Ox­fam re­port has gen­er­ated a lot of re­sponse, some rais­ing ques­tions about the method­ol­ogy. In Ox­fam’s de­fence, they have, un­like many oth­ers, placed their data and method­ol­ogy in the pub­lic do­main so that it can be in­ter­ro­gated and chal­lenged.

One of the de­bates that the Ox­fam re­port has gen­er­ated is whether in­equal­ity re­ally mat­ters. Some have ar­gued that as long as poverty lev­els are de­clin­ing and the in­comes of the poor­est are in­creas­ing, it doesn’t re­ally mat­ter that the wealth of the high­est in­come earn­ers grows at a faster rate, thus in­creas­ing lev­els of in­equal­ity. Econ­o­mists work­ing on poverty think about this as the dif­fer­ence be­tween ab­so­lute and rel­a­tive poverty.

The for­mer refers to a set stan­dard bench­marked against a met­ric for how much in­come is needed to sur­vive (for ex­am­ple $2 a day). The lat­ter con­cept mea­sures poverty in re­la­tion to the so­ci­ety or con­text. So, some would ar­gue, it does not mat­ter if rel­a­tive poverty is in­creas­ing as long as ab­so­lute poverty lev­els are fall­ing.

The ev­i­dence sug­gests that as in­come lev­els in­crease, peo­ple care a lot more about rel­a­tive poverty lev­els. This is hardly sur­pris­ing since, as Atkin­son taught us, is­sues of poverty and in­equal­ity need to be un­der­stood within the over­all po­lit­i­cal and eco­nomic en­vi­ron­ment. As in­equal­ity grows and as the wealthy be­come more and more wealthy, peo­ple will be con­cerned a lot more about in­equal­ity.

As South Africans, we should be very con­cerned about in­equal­ity. Given our his­tory and the fact that we are con­sid­ered to be among the most un­equal so­ci­eties in the world, sig­nif­i­cant growth in wealth dis­par­i­ties will un­der­mine the so­cial and eco­nomic fab­ric of our so­ci­ety.

Atkin­son’s work and the Ox­fam re­port of­fer a num­ber of pol­icy ideas which need to be de­bated ur­gently. In­ter­est­ingly, both Atkin­son and Ox­fam favour min­i­mum-wage poli­cies. I had the plea­sure of chair­ing the ad­vi­sory panel which has rec­om­mended a na­tional min­i­mum wage of R20 an hour for South Africa. This would be a good place to start to ad­dress the big­ger and press­ing chal­lenges of in­equal­ity in our so­ci­ety.

The ini­tial re­sponse to our pro­posal was that the R20/hour is ex­cep­tion­ally low. How­ever, when we pointed out that 47 per­cent of work­ers cur­rently earn less than even that, the poverty pic­ture in South Africa came into sharp fo­cus. There is a just im­per­a­tive here and across the world to en­sure the spot­light is shone on the im­moral­ity of ex­or­bi­tant wealth of a few when so many live in dire con­di­tions of poverty.

The Ox­fam re­port has helped us take that con­ver­sa­tion for­ward. And we should be pay­ing a lot more at­ten­tion to Tony Atkin­son’s life­time of work. Pro­fes­sor Im­raan Valo­dia is dean of the Com­merce, Law and Man­age­ment De­part­ment at Wits Univer­sity.

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