It is really quite difficult to conceive that just a group of 65 people (Bill Gates and co.) can have a wealth equivalent to more than half of humanity or 3.5 billion humans. It’s not surprising. It’s not unbelievable. It’s just crazy! That figure and following the issue around the world and especially in Indonesia at the moment made me want to write about this inequality issue.
“Les hommes naissent et demeurent libres et égaux en droits.” All men are born and remain free and equal in their rights. That’s what the First Article of the French Declaration of Human and Citizen Rights adopted in 1789 after the French Revolution states.
Humanity has never gotten there. Humans are not equal that’s a fact. Inequality is everywhere. In access to health, education, property, technology or simply security, you name it inequalities are huge and have always been. Many reports have been made on those different inequality issues. Everybody knows. Acts are rare.
It’s the same with poverty. Poverty is not limited to a money issue. It is multidimensional and in fact the first sign of poverty is often lack of dignity not lack of money. Humans are complex creatures. Well inequality is also multidimensional. I will focus more on income or wealth inequality here in these “income disparity” posts.
The global issue of wealth inequality.
Around the world nowadays the issue of wealth disparity and especially widening income inequalities has become critical. In the US who has forgotten the “Occupy Wall Street Movement” against the so called 1% of people whose percentage of the entire wealth cake seems to always increase against the 99% who compose the rest of the population. Actually the 0.1% confiscate an even bigger slice of the wealth cake and so forth. You are always the poor of someone else, right?
In Europe the question is also a huge debate. The French Socialist President for instance promised the 75% tax on all revenues above one million euros per month. Although the actual application of this law is not easy and was first rejected by the Constitutional Court, it does show the great importance in society of the income disparity issue. People want action to correct this inequality.
All over the world this subject is key. It is currently one of the most important topics of the Indonesian Presidential election. How to bring more income equality in order to increase stability in the country? Yes income inequality or kesenjangan pendapatan at a certain point encourages instability. History shows it. Revolutions show it. Sometimes the display of luxury cars or buying sprees in malls is just insane in Indonesia where half of the population is still poor. It is so insane that it becomes dangerous. It creates social envy and social tension.
The Gini coefficient
The famous Gini coefficient is the reference to measure income inequality. It is a figure between 0 for perfect equality of income distribution (everyone has the same income) to 1 perfect inequality (one person has all the income). It can be measured before taxes and social transfers or after. I will provide the Gini after taxes and transfers for a better measure of real disparity. Income inequality can actually be corrected by taxes and transfers. It must be said before that the Gini coefficient is criticized by many who say one figure cannot represent reality on its own. That’s why now people are coming out with the 1% or 0.1% figures for instance. The same story goes with GDP so that’s why the Human Development Index and other figures were popularized. However it is one indicator to look at.
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.
