Inequality isn’t always a bad thing
IN RECENT decades, economic inequality in the US and other developed nations has hit levels not seen since the 1920s.
Such inequality exacerbates social problems, amplifying health issues among the poor, reducing economic mobility and weakening democracy, research tells us. Inequality even eats away at basic human co-operation, undermining the trust that supports social life.
But some of this research has been rather unrealistic – assuming, for example, that people are identical in all respects aside from wealth.
In reality, people differ in many ways, including productivity and inability to contribute to a group’s goals.
How might these characteristics affect the interplay of inequality and co-operation? Recent experiments find some surprises. Yes, too much inequality is socially corrosive. Yet too little can also be a problem: when some people are more productive for the benefit of the group than others, moderate inequality can actually help further co-operation.
Importantly, however, this is true only if those who get more also produce more for the public good. Poor alignment between rewards and contributions is socially costly too.
Co-operation is perhaps the singular skill that sets humans apart from other species, and these experiments suggest that how it works isn’t simple. Inequality isn’t always bad. Nor is it, as right-leaning economists sometimes argue, something we just shouldn’t worry about.
One approach to studying inequality and co-operation is to set up a simple game in which individuals choose how much money to contribute to a fund. As the rounds progress, they can get back more if many others also contribute. All have an incentive to cheat, but do best by contributing, as long as many others do also.
Such studies have found that people co-operate if their wealth remains fairly equal, but not so much if wealth differences grow too big. Inequality destroys social solidarity.
But what if the participants are unequal not only in wealth? If some are more productive than others?
Economist Oliver Hauser and colleagues had explored this question using game theory, computer simulations and online experiments.
They confirmed that too much inequality generally makes people less co-operative. In the online experiments, high inequality caused those with the most wealth to lose interest in co-operating, as they had little to gain from relatively poor participants.
The rich players came to prefer social isolation. This outcome resonates with some disturbing trends in recent years, as the hyper-wealthy have increasingly isolated themselves in gated communities and enclaves.
The study’s surprising finding is that moderate inequality can boost co-operation as long as those who get more of the pie are more productive for the benefit of all. Both the more and less productive people recognise they can benefit by working together.
The less productive tolerate the higher wealth of the more productive because the larger contributions of this group benefit everyone. The wealthy find it costs them little to contribute more, and enjoy the extra wealth .