Inequalities: Are Our Hands Tied? Answers from Four Rockstars of the Realm

This contribution is published as part of the UNRISD Think Piece Series, Overcoming Inequalities in a Fractured World: Between Elite Power and Social Mobilization, launched to coincide with a major UNRISD Call for Paper Conference by the same name. In this series, experts from academia, advocacy and policy practice engage with the topic of inequality by critically exploring the various causes of deepening inequalities in the current context, their implications for sustainable development, and strategies and mechanisms being employed to reverse them as part of the global conversation on inequalities leading up to the review of Sustainable Development Goal 10 at the UN High-Level Political Forum in July 2019.

Not only is economic inequality on the rise, but the research agenda on inequality has also moved decisively from the fringes to the centre of policy as well as academic interest, producing a vast amount of literature. In this think piece, Martyna B. Linartas reviews four of the most influential, but substantially different, recent works on the origins of economic inequality and the solutions they suggest to the problem. What is at the root of these competing narratives, and what implications do they have for policy making?

Martyna B. Linartas is a doctoral student of the Berlin Graduate School for Global and Transnational Studies (BGTS) within the Cluster of Excellence "Contestations of the Liberal Script" (SCRIPTS) at Freie Universität Berlin.


Inequality is one of the most pressing challenges of our times and has finally reached centre stage, dominating debates for example at the World Economic Forum and policy making at the United Nations. This think piece, drawing on a more extensive paper by the author, will briefly review and compare four of the most recent and influential contributions to this debate from the economic sphere by Thomas Piketty, Anthony B. Atkinson, Branko Milanovic and Walter Scheidel. They all dedicate their research to economic inequality, call for interdisciplinary research and provide substantial new findings. Yet, they differ quite considerably.

Piketty: It´s the r>g, stupid!

In Capital in the Twenty-First Century (2014), Piketty emphasizes the role of wealth concentration and distribution, breaking down his theory into one formula underpinned by data from the last 250 years: r>g. Piketty argues that the rate of return on capital r exceeds the rate of economic growth g and that this leads to growing wealth concentration in the hands of a few, hence rising inequality. He also argues, however, that this system is not immutable and can be modified to reverse the relationship between r and g, for example via a global (or at least regional) tax on capital to reduce the rate of return r. Central to his approach is an insistence on not only the ability to intervene in global processes but the imperative need to do so, and on the vital importance of political institutions to change existing patterns of wealth distribution.

Atkinson: Yes, we can!

In Inequality. What can be done? (2015), Atkinson analyses the UK and other mostly OECD countries from the twentieth century to the present, using the most common inequality index, the Gini index (and not the one named after him). Sometimes referred to as the “godfather” of inequality measurement, Atkinson makes the most concrete proposals of the four authors under review, and thanks to his engaging written style makes them accessible to non-specialists too. Some of his proposals are classic calls for progressive taxation and social protection. But others, more radically, target the marketplace, because he says that inequality can be reduced only if we consider inequality before taxes and transfers. The crux of his approach is that the solutions to the problem lie in our hands: the constraints on his proposals are purely political, not economic.

Milanovic: Round and round it goes

With Global Inequality. A New Approach for the Age of Globalization (2016), Milanovic provides a study of inequality both within and between countries. He introduces the model of “Kuznets circles” or “waves”, a new approach which is based, as the name suggests, on the well-known “Kuznets curve”. Economist Simon Kuznets assumed,

a long swing in the inequality characterizing the secular income structure: widening in the early phases of economic growth when the transition from the pre-industrial to the industrial civilization was most rapid; becoming stabilized for a while; and then narrowing in the later phases. (Kuznets 1955: 18)

While Piketty dismisses the Kuznets curve completely, Milanovic embraces and extends the curve. The rise and fall of the long swing in inequality does not stop after one curve but waxes and wanes over time, forming a wave.

For Milanovic, though, it is clear that “[i]nstitutions and policies work within what economics allows” (Milanovic 2016: 73). Consequently, and as globalization and technological processes define the frame for (national) politics, it makes more sense to concentrate on market income and interventions before taxes, such as higher investments in education (Milanovic 2016: 221). This sets him apart from Atkinson who considers measures both before and after taxes, and Piketty who concentrates on national and international taxation.

Scheidel: Be careful what you wish for

The Great Leveler. Violence and the History of Inequality from the Stone Age to the Twenty-First Century (2017), by the historian Walter Scheidel, is an interdisciplinary analysis of inequalities. At the centre of his work lie the arguments that 1) high levels of inequality have been the rule and not the exception ever since societies began to generate an economic surplus; and 2) massive violent shocks in the form of the “four [apocalyptic] horsemen” war, revolution, state failure and plague alone have been able to reduce economic inequality. He argues that they are, however, unlikely to appear any time soon although their destructive power is a necessary (if not sufficient) prerequisite to reduce inequality:

[P]rospects of future leveling are poor [but] (a)ll of us who prize greater economic equality would do well to remember that with the rarest of exceptions, it was only ever brought forth in sorrow. Be careful what you wish for. (Scheidel 2017: 443-444)

Economic or political primacy?

At the root of these competing narratives, I would argue, is the question: is it politics or economy which defines the space for action? Here thinkers are divided into two camps. There are those, like Milanovic and Scheidel, who believe that politics is endogenous to economy, this is to say, it is the economy that dictates politics’ priorities. But others, and these would include Piketty and Atkinson, believe that politics is exogenous to the economy. In other words, it is politics that defines binding rules for economy and society.

Far from being an idle academic question, this divide makes a crucial difference to policy making options.

If, with Milanovic and Scheidel we understand politics as endogenous to economy, and that economic developments in times of globalization are beyond our control, then the policy options are few and far between. If, however, we follow the thinking of Piketty and Atkinson and assume that the pattern of globalization and technological progress are not forces outside our control but rather something that people collectively have created by their own decisions, then the first step is to realize that we are not powerless in the face of some kind of economic inevitability.

In this case, the solutions to tackle growing inequality are up to us, not so much through individual actions, but via a collective effort based on democratic debate. Then the challenge is not economic but political—and firmly in the hands of people making and influencing policy.


REFERENCES
Atkinson, Anthony. 2015. Inequality. What can be done? Cambridge/London: Harvard University Press.

Kuznets, Simon. 1955. “Economic Growth and Income Inequality.” American Economic Review, 45(1):1-28.

Milanovic, Branko. 2016. Global Inequality. A New Approach for the Age of Globalization. Cambridge/London: Harvard University Press.

Piketty, Thomas. 2014. Capital in the Twenty-First Century. Munich: C.H. Beck.

Scheidel, Walter. 2017. The Great Leveler. Violence and the History of Inequality from the Stone Age to the Twenty-First Century. Princeton/Oxford: Princeton University Press.