The many shades of inequality: A critical perspective

Michael Chibba - Guest Columnist
Friday, 21 August 2015
The many shades of inequality: A critical perspective

In this article I first share some conceptual and analytical issues on inequality.

Then, I offer two brief examples from the field or country level (Botswana and South Africa), before concluding.To begin with, inequality is poorly gauged, not well understood, and often sidestepped in policy-making. Part of the reason for this is that inequality has many shades, measurement is not always reliable and biased in favour of an economic indicator, and political forces have a hand in public policy and decision-making. Inequality always takes a back seat to other politically-driven issues, such as job creation.But, one may ask, what of ethics? Pope Francis, travelling through Latin America four weeks ago, gave a fiery speech in Paraguay about the inequalities of capitalism. His left-leaning stance draws from his moral convictions, rather than from economic or political theory. This is significant, because experts (economists, politicians, public servants, businessmen, others) rarely link ethics and morals to inequality. This is understandable, as ethics and moral (especially, religious) conviction are quite separate from policy prescriptions to tackle inequality. Also, issues of religion and state don’t mix well and are essentially separate matters, except for aberrations.

Inequality is often viewed, albeit mainly by economists, with respect to the Gini co-efficient (or Gini index), which was originally proposed by Corrado Gini, an Italian statistician and sociologist, in 1912. It is a measure of economic inequality. The Gini Index, usually measured in terms of income, wealth or consumption, uses a score of 0 to denote perfect equality, and 1 (or 100) for total inequality. Here are some sample numbers to provide a limited snapshot of inequality in the world.In his book entitled The Great Divide: Unequal societies and what we can do about them, Joseph Stiglitz does not complain so much about capitalism (as Pope Francis does), but how the twenty-first century has perverted it. One will find it hard to disagree with him on this point. In fact, in numerous publications since 2007 – a web search on academia.com or research.com, will reveal some of my many publications that attest to this point where I have reached the same conclusion. For example, see “The Economic Crisis and the Commonwealth” in World Economics, 11(2),  2010, pp. 101-102.

Indeed, the 2008-2009 (financial / economic) dual crises were a direct result of hyper-capitalism, whereby the tenets of capitalism were perverted by excessive belief in the free-market system and skewed by neoliberalism, a political doctrine. Furthermore, hyper-capitalism and neoliberalism have exacerbated inequality in the world. Witness how the rich were largely unscathed by the dual crisis but the brunt of the suffering (e.g. substantially reduced equity and sharp decline in general well-being) was borne by the poor, the working class, and even some middle class families.The French economist, Thomas Piketty, known for his path-breaking views in his book,  Capital in the Twenty-First Century, argues that statistical indices such as the Gini index, “mix very different things” in estimating inequality (such as labour, consumption, and capital) so that “it is impossible to distinguish among the multiple dimensions of inequality.” There are also “large uncertainties in the measurement of inequality in certain countries, especially China.” Moreover, he asserts that rising income or wealth inequality in the world is a result of free-market policies, in direct contrast to the conventional view that economic inequalities shrink over time.

In most cases they do not, as countries such as Botswana (a middle-income country but with very high inequality, and where I have worked and conducted field research – more on this later) show ample evidence of this fallacy. To be sure, Piketty has a few dissenters, some driven by politics, some by special interests, some by their natural tendency to disagree (and suggest that they are perhaps smarter), but very few provide genuine constructive criticism that is complementary in some small way. The latter is the case in a recent article by Robert Arnott, William Bernstein and Lillian Wu (in a Cato Institute publication), who suggest that in lieu of raising taxes (on the wealthy as Piketty suggests), a more meaningful approach to tackling inequality would be for shareholders to address corporate governance.

Another complementary perspective is offered by  Alberto Alesina, Stelios Michalopoulos and Elias Papaioannou (in “Ethnic Inequality”, forthcoming in Journal of Political Economy) who find that ethnic inequality leads to low levels of development, albeit based on the “Ethnic Gini index”, a measure of inequality between different ethnic groups within a country. A rich and powerful ethnic minority will be biased in its decision-making and takes actions to serve its interests (at everyone else’s expense). This in itself is not a new finding: indeed countless studies have found this to be the case in all countries. The authors of the study also found that in sub-Saharan Africa, ethnic inequality results in poor provision of basic infrastructure, and poor public services hinder economic growth. Furthermore, a country biased in terms of ethnicity will not pursue needed reforms that foster prosperity for all. Notwithstanding, and while contributing to expanding the Gini index’s scope of coverage, the Ethnic Gini index is anchored on an economic perspective, not a holistic one or at least one that extends beyond economics to capture a different and comprehensive dimension of inequality. 

Gender inequality or how ordinary women are unfairly treated in many countries around the globe, is also an important dimension of inequality, but one that is largely ignored by economists, politicians and the elite. In the “Mothers’ Index” compiled in May this year by the British charity Save the Children, 179 countries are ranked according to the well-being of their women. This index gauges, among other things, maternal mortality, the survival of young children and involvement by women in politics. The findings are not very encouraging for most developing countries and certain emerging market economies, where women fare poorly in gender equality. For example, whereas the Gini index for India from the World Bank suggests that inequality was essentially unchanged between 2011 and 2013, overall gender inequality has increased in India. Clearly, the Gini index is a poor predictor of gender inequality, which demands a separate and specialized index.The Paris-based “rich nations’ club”, the Organization for Economic Cooperation and Development (OECD), acknowledges that inequality can be gauged in terms of specific subject areas, especially income, taxation, health, well-being, education and innovation. Beyond such specific subjects, we have already highlighted morals (and ethics), gender, and political doctrine (i.e. neoliberalism), that drive our perception of inequality.

This brings us to the academic-sounding concept of “structural inequality”, which is a condition where one category of people in a country is attributed unequal status in relation to other members of society. This type of inequality certainly does prevail in almost all societies in the world. In the United States, it can be argued that Afro-Americans, Latino-Americans, and First Nations people (also disparagingly known as aboriginals, natives or Indians) are examples of structural inequality. Perhaps equally importantly, both global and national-level inequality, despite some notable advances in health care, education and poverty reduction, have worsened over the past few decades in almost all other directly related areas, such as governmental policy-making, transparency, freedom, housing,  employment opportunities, and narrow areas such as “incarceration inequality”. In order words, structural inequality has increased in many countries; and lack of progress in advancing democracy in the world has also negatively impacted on addressing inequality. Furthermore, each country poses a different set of challenges to tackle inequality. 

In field research and policy work I oversaw and conducted in Botswana on behalf of the Commonwealth Secretariat and counterparts in Botswana in 2006, and as reported in several peer-reviewed publications since (for example, see “Monetary Policy, Governance and Economic Development: The Botswana Experience” in World Economics, July-September 2007), inequality runs deep in policy work in the government – in the Bank of Botswana, for instance – as over half of the nation’s population is disregarded, decision-making includes only the well-connected, policy-making is not inclusive, and local values, mores and cultural systems (especially in the rural areas) are totally disregarded in the making of policy. Other government agencies, such as the Citizen Entrepreneurial Development Authority (CEDA) and the Local Enterprise Authority, extend their services, training and funding (in the case of CEDA), to only a few. The nation’s Statistics Department also routinely fails to accurately gather and measure statistics (for example, in ignoring various populations and businesses in gauging the Consumer Price Index). In short, inequality in policy-making, stakeholder consultations, financing, measurement and representation (on committees and boards, for example) is very high. I call this “Access Inequality”. Botswana does slightly better in gender equality (especially compared to its dismal Gini co-efficient score), with a Mothers’ Index (2015) rating of 119th out of 179 countries in the world. Nonetheless, on the whole, the status quo has not and will not change on inequality in Botswana unless there is critical reform or a “call to action”.  

A similar situation prevails in South Africa, though the context – the legacy of apartheid in particular – and the scope of policies followed to date paint a very different picture to that of Botswana  (for details, see Michael Chibba and John M. Luiz, “Poverty, Inequality & Unemployment in South Africa: Context, Issues & the Way Forward, Economic Papers, 30[3], September 2011, 307-315).   Rated as one of the worst countries in the world in terms of the Gini Index, South Africa fares much better in the Mothers’ Index (2015), at 72nd spot out of 179 countries in terms of gender equality.

Importantly, it’s time we stopped looking at the Gini index as the gold standard on inequality and instead developed a key set of indicators on inequality with actionable prescriptions to be developed at the national level by each country. Support from, and monitoring by, global institutions, such as the United Nations, would help in formulating actionable and inspirational goals and objectives, similar to those developed for the Millennium Development Goals. Michael Chibba is a freelance writer, public speaker, Guest Columnist, international business & development guru, economist/social scientist, teacher/lecturer/professor (Former Managing Director, Distinguished Fellow & Adjunct Professor, ICDEPR)

Last modified on Tuesday, 25 August 2015 08:39

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