Inequality can’t be solved by nations alone – it will take civil society, too

Andrew Sheng says that while concern over inequality is widespread, the solutions have been elusive, largely because globalisation makes it easy for the rich to avoid progressive taxation. Therefore, civil society will have to play a role

PUBLISHED : Friday, 02 February, 2018, 1:01pm
UPDATED : Friday, 02 February, 2018, 7:06pm

In my last column, I asked why we were blind to inequality. The more important question is what we can do about it. Fifty years ago, Martin Luther King Jnr argued for the “the shift from a thing-oriented society to a person-oriented society”.

Inequality has risen because of four fundamental forces – geography, demography, technology and governance. Geography matters because the best jobs and wealth are created in advanced cities in the growing economies. You become poorer if you live in a ghetto, isolated rural area or failed state. Demographics matter because, if many young people all come into the labour market at the same time, wages will be low and jobs scarce – this sparked the Arab spring. Technology can help raise income and wealth, but it is a double-edged sword – wonderful for consumer surplus, creating new goods and services at cheaper prices, but creating job deficits by reducing demand for low-skilled, mechanical-type jobs. Lastly, if inequality and injustice are to be avoided, the quality of governance makes the most difference. We have never lacked the technical tools for social engineering. The real issue is whether we have the political will.

Solving inequality is much harder than diagnosing inequality. That no single country has succeeded impressively is a measure of how hard this is to achieve. There are eight possible measures to reduce inequality:

Providing basic services, such as education, health care and reskilling to improve talent and ability to grasp opportunities;

Providing good jobs, with appropriate pay and adequate pensions, giving the lower and middle classes the income to generate both consumption and savings;

A mix of progressive taxes, fiscal transfers and incentives to enable fiscal sustainability while providing social protection to the underprivileged;

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An inclusive financial system to generate efficient, fair and productive allocation of resources;

Encouraging asset accumulation via widespread home ownership and entrepreneurship in small and medium-sized enterprises to create a sense of ownership among the people;

Improving governance by building sound institutions and rule of law while tackling corruption, crime and rent-seeking so that the weak have access to justice or, in many countries, just reducing corruption;

Using technology plus research and development to push innovation and improvements in products, services and delivery of social services; and

Revolution in some form – economic historian Walter Schiedel’s The Great Leveller looks from the Stone Age to the 21st century, concluding that most cases in which social inequality was addressed were through catastrophe or mass violence.

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So why is inequality widespread? One critical obstacle is taxing the rich to pay for the poor: globalisation makes progressive taxation difficult, because the wealthy can shift funds abroad.

Recent US tax reductions make life very difficult for the rest of the world, because no country can raise taxes on their rich for fear of capital flight.

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But tough decisions require the political will to implement tough measures. No reform is possible without social consensus, which is impossible if the rich and powerful resist change. Change happens when even they recognise that change threatens their vital interests.

Arriving at a national consensus demands a national dialogue of give and take. Framing that dialogue is a formidable task. All too often, society is polarised because opponents talk past each other.

Getting the narrative right is an important first step, but ultimately, it is the results and accountability that become the litmus test of social inclusivity. Once a consensus is formed, its execution in a fair and transparent manner is critical. Society is stable when no one feels left behind.

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Not all inequities are the same. Each nation, like unhappy families, needs its own solutions. At the national level, you can tackle inequality by providing cheap “public goods” like health, education and security for everyone, especially the poor. But in a globalised world, no one is willing to fund the growing burden of global public goods, such as climate change, cross-border pollution, crime, tax evasion and terrorism.

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The daunting task of making the world more sustainable has been made more complex by the “America First policy”. As the last financial crisis showed, individual greed does not add up to public good. Indeed, collective private and public greed in a world of growing population and limited natural resources is a formula for disaster.

A global world cannot rely on national solutions. Global issues need civil society to help states do most of the heavy lifting in providing public goods. Building trust between civil society and national governments – creating the social narrative for trust and action – is the challenge of the 21st century.

Andrew Sheng writes on global issues from an Asian perspective