“Simply staggering”. That’s how Winnie Byanyima, executive director of Oxfam, referred to global wealth inequality this past week. And the numbers are indeed staggering. Among the figures recently compiled—the richest 1% now own 48% of the world’s wealth, and will soon own more than half, and the richest 80 people in the world own more than the entire bottom half of the world’s population combined. Just to copy how I saw someone describe this yesterday, “Yes, that’s 80:3,500,000,000”. Then I watched the film “Living on One Dollar”, in which four college students from the U.S. move to Guatemala and attempt to live at the international poverty line of $1 a day (recently raised to $1.25), and it is just so very clear that the tiniest amounts of aid, if delivered effectively, could completely change the lives of people worldwide who are stuck in vicious cycles of poverty, who are unable to properly feed their children, who lack access to clean water or medical care, and who are unable to afford education. The amount I might spend on a snack on the way home from work could easily double a poor family’s income for a day.
But, let’s back up and look at this disparity, as how we got here isn’t as difficult to understand as some might think. First, the things that cause inequality within wealthy nations are slightly different from the things that cause inequality between the world’s nations. In terms of the United States, for example, you may have seen the YouTube video that went viral the other year–
While shocking, you don’t need Leftist conspiracy theories to explain how things ended up this way in wealthy countries. People who are bright and hardworking and get an education have a great deal to offer the market economy, and they are generally rewarded for it with high salaries. And, these people with high salaries spend a great deal less, proportionally, on food and clothes and the other necessities of life, than the less fortunate do. So, with a little willpower, they can save and invest chunks of their incomes, and, over time, grow wealthy. They can fund their children’s educations, they can use their money and influence to maintain the political situations that enable them to build wealth, and they can pass on their estates to their children due to low inheritance taxes. They can also use their social and political connections to help their children get into the best schools, and to subsequently help them find lucrative employment, all of which keep the wealthy wealthy. It isn’t a great mystery. (And in an odd coincidence, this week’s cover story in The Economist, “America’s New Aristocracy” is all about how the wealthy are more and more able to ensure that their children also become wealthy).
At the other end of the spectrum, those with less to offer the market economy find themselves competing both with technology, which can ever more efficiently do low-skill jobs, and with foreign workers, who will do those jobs for less pay. With these forces depressing both wages and employment levels, people at the bottom find it ever more difficult to get ahead, as it often takes their entire incomes just to stay even. Their children fall victim to a huge array of pitfalls, and more often than not end up impoverished themselves.
And while Inequality in the US is extreme, the fact is that inequality by world standards is even worse. The reasons for this are a bit different, but are also not difficult to understand. Wealthy nations have learned to create wealth, and that wealth makes it easier to create ever more wealth, in a virtuous cycle. Poor nations, by contrast, often have problems that derail wealth creation, and find themselves actually going backwards. I wrote about this in my post “Wealth 101“; I’ll copy two paragraphs here–
“So why exactly are poor parts of the world so poor, and what can we do about it? In general, they are poor because their systems to create wealth are broken. They are wracked by war, they lack communications or energy or transportation infrastructure, their human capital is lacking due to disease, or malnutrition, or lack of education, or they are plagued by natural disasters, or live in places where their governments fail miserably to fulfill proper governmental functions, and/or steal the wealth that the country produces, or waste it. Some governments impede trade, some fail to protect the rule of law. Unfortunately, wealth creation is easily disrupted; it doesn’t work if any of these things are broken.
“This is what makes fixing world poverty so difficult. Fixing just education isn’t enough. Fixing just medical care isn’t enough. Fixing just transportation infrastructure isn’t enough. Countries need all the puzzle pieces to create wealth. And all people need to consume to live, and if a country’s consumption is higher than its wealth creation, then a brutal economic downward spiral begins. Conversely, in the rich parts of the world, wealth creation begets yet more wealth creation, in a virtuous cycle. Both of these are concurrent: cue wealth disparity.”
So, the forces that create inequality, both within wealthy nations, and worldwide, are relatively straightforward, and we do indeed live in an unequal world. The big question here, though, is should we try to change this? And here’s where I’m stuck, because my gut feeling is that I would much rather live in a fairer, more equal world. There are strong arguments on both sides of the issue, however. The missing piece of this puzzle, for me, is whether world poverty levels have indeed fallen in recent decades. The evidence I’ve seen is decidedly mixed (as just one example, see The Economist article “A Fall to Cheer“). If worldwide poverty rates have improved, even as inequality has risen, then it appears that a rising tide does indeed lift all boats. If poverty has stubbornly persisted, as I suspect it has, despite ever more wealth being created in the world, then our system would appear to be failing in basic aspects of morality. And, even if worldwide poverty rates have improved somewhat, there are undoubtedly billions who live today on income levels that are less than $2 a day, and the world should find this unconscionable.
So, no clean wrap-up to this post. We live in an unequal world. But, I wish that those poor families in the “Living on One Dollar” film, and other poor families worldwide, had even the tiniest, tiniest portions of the world’s wealth that is skewed so heavily to one side. The world can do better.