Economic Inequality in a Nutshell

This first and most obvious form of inequality in our days revolves aro­und income, wealth and access to material resources; the ability to acquire goods and services from others. Because material wealth has long been the main focus of struggles for equality, it merits less discussion here. It is, of course, no less important. For instance, it is perhaps the single most wide­ly accepted finding within social science that greater eco­nomic inequ­ality (often measured by the so called “Gini coefficient”) has a solid corre­lation with violent crime, much more so than poverty in itself, and that lower economic inequality is conducive to stability, social trust and a higher qu­ality of life in society at large.

The following is a slightly edited extract from Hanzi Freinacht’s book ‘Nordic Ideology: A Metamodern Guide to Politics, Book Two’. This is the second book in a series on metamodern thought, a work of popular philosophy that investigates the nature of psychological development and its political implications.

There is, in the public debate, considerable confusion regarding the ques­tion whether economic inequality has been rising or falling during recent decades. On the Left, the idea that inequality is rising remains an almost religious tenet. A famous 2013 book by Thomas Piketty, Capi­tal in the Twenty-First Century, showed that a small group—the “top one per­cent”—has been amassing an increasingly larger portion of the wealth sin­ce the turn to neo-liberal economic pol­icies, begin­ning with the Rea­gan-Thatcher era around 1980, and that this is larg­ely a global trend. This trend is much more pronounced if you look at the top 0.01%, which has led many to believe that rising econo­mic inequal­ity is an uncontroversial fact. But there is more to the story as so often is the case with these things.

We are witnessing a few interrelated trends that have to do with econ­omic globalization, the lack of transnational governance, rapid economic growth and techno­logical advancement. These factors taken together cre­a­te a more complex picture. Let’s take a look:

  • The overall economic inequality of the world is falling, with the global Gini coefficient reaching a peak around the year 2000 (the most unequal distribution of income). It has since begun to decrease somewhat, largely due to the impressive economic growth of coun­tries like China, India and Brazil where large new middle classes have emerged. In­equality within these countries has also increased as not all members of society have been successfully in­clu­ded. Still, if we are to believe the forec­asts of an influential 2008 Goldman Sachs report, two billion more people should have joined the global middle class by 2030, and thus far, at the time of writing, the numbers have not disappointed.[i]
  • The economic inequality within rich countries, such as the US or the European countries, has been rising. This is largely due to the pressures of globalization where many jobs have been outsourced to low-income countries and immigration from poorer countries have created downward pressures on low-paying jobs. This means the middle and working classes of these societies have become more pressured since they are competing with­in a much larger world economy. Many jobs have also been automated, and countries have been less able to maintain generous welfare spend­ing and high taxation as many corporations have become more trans­national and thereby been able to move their profits and activities to countries with lower taxes. Taken toge­th­er, this means the general experience of “nor­mal people” in rich countries is that inequality is growing. As these popul­ations still largely dominate the global discourse, “the nor­mal Western­ers”, this has become the leading narrative.
  • Absolute poverty (living on less than two dollars a day) has been falling sharply due to economic growth around the world. An important aspect here is also that technological advancements have made it possible to get more value for less money. For instance, getting a smartphone, which contains many em­pow­ering technologies, is much less expen­sive than getting a camera, a computer, a telephone, and a GPS. Writing an email is less expensive than mailing a letter, reading Wikipedia is less expensive than buying books or news­papers, and so forth. Internet trade and large retail warehouses like Walmart have also increased the efficiency of distribution and thereby made many consumer goods much cheaper. The world at large is becoming richer at an astoun­ding pace.
  • And yes, Doctor Piketty, a small proportion of the global population has been amassing a growing share of the wealth. This is the result of two fundamental factors: globalization and technological progress. Glob­alization (increasing trade, communication and foreign direct invest­ments) conn­ects all of us into one bustling economy of seven going on eight billion people. In a smaller world, say a tribe of 150 people, you can never really get much richer than anyone else. But when there are billions of interacting people, those who gain the most central positions in the economy can become very, very rich. This is due to what network theo­rists like Albert-László Barabási call “non-random networks”, i.e. that the central positions always have more connections to make use of. Add to this some central technologies that are difficult to create, but many people want or need, and you have set up a cocktail for small groups to become incredibly wealthy. This is reinforced by the dynamics of the digital economy and its large platforms which tie millions of market agents to the same central nodes, which grants the advantages of “big data” to the central agents.

Thus, the interconnected world market is creating a situation where global inequality is decreasing, poverty is decreasing, but inequality is increa­sing within countries, and small transnational elites are becom­ing much, much richer than the rest of us.

You can see it all summed up in this one graph, taken from Our World in Data:[ii]


You can see how, in 1970, there were a rich world and a poor one (the two bumps on the 1970 distribution). By 2000, however, this had changed into one large, even global, pyramid with more peo­ple at the top and fewer at the very bottom. The rich countries no longer offer the same “buffer” against in­equality within their borders—now we are all part of the same competitive mega-structure that is the global market.[i]

Which conclusions can be drawn from this analysis? An obvious one is that inequality is increasingly a global issue, and thus more of a transnati­onal con­cern than a national one. This means that economic inequality—for all its importance and for all of its harmful effects—cannot readily be tack­­­led by means of classical Left economics of redistribution within the singular state. If you raise the taxes and redistribute wealth too vigorously within one country, this does not only necessitate the exclusion of foreig­n­ers, but it also scares away global capital. Hence, we need effective global systems of redistrib­ution. In order to reach a point where serious global redistrib­ution is possi­ble, we would require a larger systemic shift to­wards global govern­ance.

And to get there we need significant proportions of post­modern and metamodern people around the world. And these peo­ple only show up in significant numbers within the postindustrial stra­ta of the world eco­nomy, which makes any prospect of establishing such a world order un­achievable for the foreseeable future as it won’t be possible without vit­al economies such as China and India.

This is not to say that income redistribution is futile: Stronger econ­om­ies with functional institutions can still perform relatively extensive such meas­ures. But redistribution by means of taxes and social security is just not sufficient to counter the extremely powerful trends that drive the world economy: globalization, non-random network effects, techn­ol­ogical adv­an­cements and unregulated transnational mark­ets. How­­ever, as I will discuss in the following posts, there are other ways to decrease the viscerally felt ine­quality between human beings. In fact, I would argue, that an exagg­erated focus on economic inequality leaves us with an im­pov­erished vis­ion of what equality really is.

Hanzi Freinacht is a political philosopher, historian and sociologist, author of ‘The Listening Society’, ‘Nordic Ideology’ and the upcoming books ‘The 6 Hidden Patterns of History’ and ‘Outcompeting Capitalism’. Much of his time is spent alone in the Swiss Alps. You can follow Hanzi on his facebook profile here, and you can speed up the process of new metamodern content reaching the world by making a donation to Hanzi here.

[i]. Another version of telling this story is the famous graph by econ­omist Branko Milanović’s “elephant curve”. Source: The American Prospect, using data provided by Branko Milanović. It’s called the “elephant curve” because it looks like an elephant. The graph has been discussed at length in Milanović 2016 book, Global Inequality.

[i]. “The middle three quintiles (i.e. excluding the top and bottom 20%) in terms of country incomes could be responsible for 57% of global GDP in PPP terms, up from only 31% [in 2008] (and climb from 15% to 43% in USD terms). This group, which will be dominated by a subset of the BRICs and N11 (China, India, Brazil, Egypt, Philippines, Indonesia, Iran, Mexico, Vietnam) will matter more and more for global spending patterns.”

See: Wilson, D., Dragusanu, R., 2008. The Expanding Middle: The Explo­ding World Middle Class and Falling Global Inequality. Goldman Sachs: Global Econo­mics Paper No: 170.

[ii]. Originally from an OECD report: van Zanden et al. 2014. How Was Life? OECD.