65 People as Rich as 3.5 Billion People? Imagine? (1)

Not surprisingly Scandinavian countries will have lower Gini coefficients like 0.33 for Sweden or Denmark and developing countries will have higher Gini coefficients like Mexico 0.48 or South Africa 0.7 probably the highest in the world, explaining the high level of insecurity in the country.

In China the Gini coefficient reaches 0.47. The Chinese government is thus cracking down on corruption and taking measures to try and restore a more harmonious society in a Confucian spirit. Income inequality is openly creating social unrest with violent protests in the streets and factories but also online on social media and blogs for instance. That’s why sales of Cognac in China have dropped: State officials are now forbidden to offer expensive gifts.

It is to be noted that the US Gini coefficient is around the same level as in China at 0.42. More worryingly for democratic stability, taxes and transfers do not correct income inequality in the US. It remains high. Too high.

In Indonesia the Gini coefficient is around 0.41, which is also very high and rising since it was only 0.33 in 2002. The richest people are concentrating an ever greater proportion of the country’s wealth. That’s why we have seen Unions demanding wage hikes and often politicians siding with them for popularity gains and sometimes let’s be fair out of belief. Business is complaining but how will business operate if riots start everywhere because the income gap has just become too high? Plus encouraging local consumption requires people to be paid well. Pragmatism requires to take care of the issue seriously.

Why is Europe more egalitarian?

Although the issue of wealth disparity is also very high on the European political agenda, Europe as indicated before is the most egalitarian continent. Why? Some will say it is cultural or a product of history. Some European countries are said to have equality in their blood. It’s even the second word after freedom in the French national motto “Liberté, Egalité, Fraternité” (Freedom, Equality, Brotherhood).

Actually Europe seems to have less inequality because of its universal social policies that benefit all of society in the same way. You can be rich or poor but your kids are going to the same school system, you and your family are covered by the same health system and benefiting from the same type of family allowances. Equality in welfare coverage encourages less inequality in general in society. It also increases a sense of belonging to society. It lays the ground for better understanding of redistribution policies to correct income disparities through proportional taxes notably. It makes redistribution mechanisms more acceptable.

In the US, the approach is very different. There is no universality. My rich US friends pay huge amounts of money to go to the doctors or dentists. The private sector is king. Poor people in the US get food stamps, Medicaid or Medicare. The rich pay and the poor get a check. That’s the vision. By essence it encourages strong inequality. The developing world is in that situation also mostly. The rich pay high prices and the poor are lucky if they can get help.

So Indonesia is right to have chosen the road towards a universal social security system that will increase the sense of belonging and thus maybe contribute to closing the wealth gap in time, which of course will take time and effort. However it also means that in the medium or long term programs that tend to separate the poor from the rest of society are not to be privileged in matters of social security. Everyone should be on the same boat using the same social systems.