Groningen, a.d. X Kal. Aug. MMDCCLXXI, A.U.C.,
Worldwide poverty has been falling over the last few decades. 150 years ago every country in the world was a developing country with raging epidemics and widespread poverty. Fortunately that has been much reduced. Meanwhile, however, inequality may be larger than ever. The middle class in developed countries is essentially richer than any emperor until 100 years ago. They can fly anywhere, communicate with people across the globe, and eat as much as they want. They can do things Queen Victoria could only dream off, even though she ruled the largest empire in world history. Meanwhile, many in developing countries are barely better off than the poorest 150 years ago. Moreover, within developing countries the gap between poor and rich has been increasing, especially since the financial crisis of 2007.
It is perhaps no surprise that there is a lot of attention for poverty and for inequality. However, there are those who think we should only look at poverty, while others focus too much on inequality in my opinion. I think both issues deserve attention, but for very different reasons. As an indicator, poverty is important in and of itself. The less people have to live in poverty, the better, which makes poverty such an important issue. Meanwhile, inequality as such does not tell me much, it is the sources and the consequences of inequality which matter. I think we can all agree that poverty is bad, even if we disagree on how to solve the problem. So let’s delve into why inequality matters.
Inequality can mean a lot of things, here I just mean inequality of wealth. The thing is, in and of itself inequality is not necessarily a problem to me. Inequality can be a result of some people working harder or being more capable of being very productive. Some inequality is even necessary in order to reward those who work hard, or are very productive. If we tax those people too much, they’ll stop working hard in order to be productive, so we will have less to redistribute to the poor. Besides, rewarding innovation leads to lower prices of products, meaning the poorest people can also buy more. Moreover, we often see that when countries get more modern economies, inequality rises. The rich get even richer, the middle class is less poor, so the gap between the rich and the poorest becomes much bigger. Yet, as long as the poor also get marginally richer, we still have a process which we should welcome compared to no economic development. So, rising inequality in combination with decreasing poverty is fine with me. I think a balance needs to be found: Even if trickle down economics works, if it only trickles down in the long run, poor people’s heads stay dry for a long time.
However, this does not mean that inequality is unimportant. Inequality can also be a sign of some things going (awfully) wrong in society. For instance, inequality could be a result of slavery. Or a result of widespread monopolization (and other ways in which the rich redistribute away from the poor using their power). Or of preventing the poor from voting, so they cannot claim any rights through a fair, open and democratic process. Often when inequality is rising it is because something like this is happening, but definitely not always.
So when inequality is on the rise some things to check are: Has the government become more corrupt? Have interest groups successfully lobbied the government to weaken labour legislation to the degree that labourers do not have the right of collective wage negotiation, or to get their companies subsidized? Has the government reduced its spending on public education over the last decades, so the kids of the rich do not have to compete with the kids of the poor anymore for well paid jobs? Are the markets with the most growth also monopolized, so much of the growth goes into the pockets of a few investors, and making the prices of products unnecessarily high for consumers?
If you keep asking questions like those, but you really cannot find any reason for rising inequality other than that some people have become more productive than others, it is OK that inequality is rising. After all, if some have become more productive, it means there are either new products available that did not exist before, products are of higher quality, or products have become cheaper and more people can afford them now. Moreover, the government also receives more taxes, so it can redistribute more too. In other words, inequality may be rising, but poverty is being reduced at the same time.
Bottom line: Poverty always matters, and should always be eradicated. However, inequality is only problematic when it is a result of the powerful/rich using their power to take money from others to make themselves richer, instead of a result of the some people getting more productive and making everyone better off.