Wrong on inequality

Dino Galetti reminds us again that shareholder capitalism is “a system that worsens economic inequality” in “India is a Better Match for SA than Global Superpowers” (February 28).

While Galetti isn’t the first to wheel out this “truism”, he may be disturbed to find out it is not actually true.

If you take the Economic Freedom of the World scores as a proxy for capitalism and plot them against the Gini coefficient — an indicator of economic inequality — then the numbers show no correlation. The reality, for those bothered enough to check, is that capitalism is a lousy predictor for whether a society is likely to show inequality or not.

Take SA for example. It scored 110th out of 162 in the 2019 Economic Freedom report; SA is in the bottom third of economies on the capitalism scale, and yet we’re in the top three for inequality. Similarly with Brazil, which scores 144th for capitalism and shows extreme levels of inequality.

Contrast that with Hong Kong (first), New Zealand (third) and Ireland (fifth), exemplars of capitalism, yet they offer societies with very low levels of inequality.

The reality is that capitalism is not the main factor that creates inequality or equality; it’s usually something else. Looking at the three countries above you would be more inclined to suggest homogeneity of society as a more compelling explanation, rather than their free market economies.

Niel Emerick via e-mail