Let us abandon the fight against inequality

Moisés Naím / Financial Times

What should be a higher priority: reducing inequality or alleviating poverty? It is, of course, tempting to answer that they are equally important. Or that the question is moot because reducing poverty will automatically shrink income disparities; or that policies that lower inequality will inevitably reduce poverty.

These answers may be tempting, but they are also wrong. Although China and India’s economic booms have lifted millions out of poverty, they have also led to markedly greater disparities in income. Cuba’s economic inequality is perhaps less severe now than when Fidel Castro took power 47 years ago, but the average Cuban is far poorer today. In the US, poverty has not risen substantially, but the gulf between haves and have-nots is far greater.

For most of the past 50 years, global poverty was a chief concern for politicians, academics and the media. Today, the principal concern is global inequality. The gap between rich and poor is constantly in the spotlight. And for good reason: the wealthy seem to be leaving the impoverished further and further behind. Twenty years ago, Forbes, in its first ranking, found 140 billionaires worldwide. Today, the total is 793, with an increase of 102 from just last year. The number of millionaires in Asia grew by some 700,000 between 2000 and 2004. In the same period, North America’s population of millionaires shot up 500,000, and Europe’s increased by 100,000. According to Merrill Lynch, China will become the world’s leading source of luxury shoppers by 2009.

The world has always suffered from acute economic inequality. But, despite all the conspicuous consumption, global inequality has not changed significantly. According to some measures, it may even have declined. The World Bank recently announced that “since the [second world] war, international inequality has decreased immensely”. This conclusion will come as a shock to many, especially those who would point out that a century ago rich nations were nine times more affluent than poor countries and are now 100 times wealthier. This question is hotly debated among economists and it is probably best left to them. (The problem is that the statistics tell different stories depending on the methodology.) In truth, in some places inequality has become far worse and in other places the changes are fairly minor. But whereas the statistics about in-equality do not show big variations, our collective awareness about it has changed substantially.

There are several reasons for the world’s newfound anxiety over inequality. The most obvious is that today we are all better informed of the economic differences that divide us. You need only turn on a television or pick up a newspaper to be reminded where you stand in the global economic pecking order. Inequality anxiety is heightened further by people’s fears of terrorism or booming illegal immigration; in both cases, someone else’s inequity, so the theory goes, may eventually pose a direct threat to your wellbeing. Furthermore, in the US, inequality is increasingly dominating political debate. Thanks to America’s immense ability to spread its dilemmas to the rest of the world, inequality anxiety has been exported to countries where inequality has not changed much.

The wave of democracy that has swept the world since the 1980s has also pushed inequality toward the centre of many national conversations. More democracy has meant freer media, which are prone to document economic disparities and expose public corruption. For politicians, few messages are as likely to gain the favour of voters as promises of redistributing a nation’s wealth from those that have too much to those that have too little.

And herein lies the danger. Yes, in-equality is morally repugnant and politically corrosive. But it is also stubbornly immune to direct government interventions. The world has a long history of failed attempts at fighting inequality, including changing the tax system, labour market interventions, reform of property rights, massive subsidies, protection from foreign competition and price controls; the list is endless. Nothing has worked. Countries that are unequal have stayed unequal. In the past 25 years, no country that suffers unequal distribution of wealth has succeeded in permanently decreasing its inequality. More often than not, good intentions have led to waste, corruption and even more inequality.

What to do, then? Let us stop fighting a battle we cannot win and concentrate all efforts on a fight that can succeed. The best tools to achieve a long-term, sustained decline in inequality are the same as those that are now widely accepted as the best available levers to lift people out of poverty. Provide access to better education and health, clean water, justice, steady jobs, housing and credit. The recipe is well known, even boring. These goals are not good fodder for a rousing speech. And they will not bring down inequality as quickly as one would wish. But focusing on these indispensable goals will certainly close one important gap: the gap between our good deeds and our best intentions.