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What can we do about inequality?

Andrew Sheng/ANN |


In the last column, I asked why we were blind to inequality. The more important question is: what can we do about it?

Fifty years ago, Martin Luther King argued that “we must rapidly begin … the shift from a thing-oriented society to a person-oriented society”. Otherwise, “the giant triplets of racism, extreme materialism and militarism are incapable of being conquered”. All triplets are now manifested in the Trumpist debate in America.

Inequality has risen because of four fundamental forces – geography, demography, technology and governance.

Firstly, geography matters because the best jobs and wealth are created in advanced cities in the growing economies. You become poorer if you live in a ghetto, isolated rural area or a failed state.

Secondly, demographics matter, because if many young people all come into the labour market at the same time, wages will be low and jobs will be scarce. This was the unrest that sparked the Arab Spring.

Thirdly, technology can help raise income and wealth, but it is a two-edged sword. Technology is wonderful for consumer surplus, creating new goods and services at cheaper prices. But at the same time, it creates job deficits, because robotics, automatic and artificial intelligence will reduce demand for low-skilled, mechanical type jobs.

Lastly, if inequality and injustice is to be avoided, then the quality of governance makes the most difference. We have never lacked the technical tools for the job of social engineering. The real issue is whether we have the political will to address social inequity.

Conundrums in solving Inequality

Solving Inequality is many times harder than diagnosing inequality. The fact that no single country has succeeded impressively is a measure of how hard it is to achieve this both politically and operationally.

There are eight possible measures to reduce inequality.

Firstly, many countries provide basic services, such as education, healthcare and re-skilling and infrastructure to improve human talent and ability to grasp opportunities.

Secondly, by providing good jobs, with minimum pay and adequate pensions, the lower and middle class are given the income they deserve to generate both consumption and savings.

Thirdly, a combination of progressive taxes, fiscal transfers and incentives enables fiscal sustainability whilst giving social protection for the under-privileged.

Fourthly, an inclusive financial system helps to generate efficient, fair and productive allocation of resources.

Fifthly, encouraging asset accumulation in the form of widespread home ownership and entrepreneurship in small and medium enterprises creates a sense of ownership by the people.

Sixthly, improving governance by building sound institutions, rule of law and tackling corruption, crime and rent-seeking activities, so that the weak have access to fair justice. In many countries, just reducing corruption can improve overall social welfare and revive economic recovery.

Seventh, using technology, research and development to push innovation and improvements in products, services and delivery of social services.

Last but not least, pay serious attention to social inequality or face revolution in one form or the other. Economic historian Walter Schiedel’s 2017 book, “The Great Leveller”, looking at history from the Stone Age to the 21st century concluded that most cases where social inequality was addressed were through catastrophe or mass violence.

Given known solutions to tackle inequality, why is income and social inequality still widespread?

One critical obstacle is the political difficulty in taxing the rich and powerful to pay for the poor. Globalization makes progressive taxation difficult, because the wealthy can always shift funds abroad to escape taxation.

The recent US tax reductions make life very difficult for the rest of the world. No country can raise taxes on their rich for fear of capital flight. The US becomes the ultimate safe haven for the rich from the rest of the world.

But to get tough decisions require getting the political will to implement tough measures. No reform is possible without getting social consensus. And consensus is impossible if the rich and powerful resist change. Change happens when even they recognise that without change, their vital interests are threatened.

Arriving at a national consensus demands a national narrative or dialogue of give and take. Life is intrinsically unequal, but there is no universal formula on how each society arrives at its social narrative and solutions.

Framing that dialogue is itself a formidable task, which is often under-estimated. All too often, society is polarised because opponents talk past each other. In Hong Kong, polarisation worsens when the two sides can’t even swear at each other in a common dialect.

Getting the narrative right is an important first step, but ultimately, it is the delivery of results or implementation and accountability that becomes the litmus test of social inclusivity. Once a consensus is formed, however difficult, then its execution in a fair and transparent manner is critical. Society is stable when no one feels left behind.

In other words, social equity is trust that 99% of the people, by the people and for the people will have their fair share of their due income, wealth and opportunities.

Simply put, all inequities are not the same. Each nation, like unhappy families, need to find their own solutions. At the national level, you can tackle inequality by providing cheap “public goods” like health, education and security for everyone, especially the poor. But in a globalised world with no global government, no one is willing to fund the growing burden of global public goods, such as climate change, cross-border pollution, crime, tax evasion and terrorism.

The daunting task of making the world more sustainable has been made more complex by the America First policy. As the last financial crisis showed, individual greed does not add up to the public good. Indeed, collective private and public greed in a world of growing population and limited natural resources is a formula for disaster.

In short, a global world cannot rely simply on national solutions. Global issues will need civil society to help like-minded states to do most of the heavy lifting of providing public goods. Building the trust between civil society and national governments – creating the social narrative for trust and action – is THE challenge of the 21st century.


(Andrew Sheng writes on global issues from an Asian perspective)