Does inequality really matter?

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

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.