Equity, Diversity and Inclusion

Wealth inequality keeps widening. But it's nothing new

A flower seller looks for possible buyers at a seafront in Mumbai June 25, 2008. REUTERS/Arko Datta (INDIA)

Nothing new ... the gap between rich and poor goes back hundreds of years, finds study Image: REUTERS/Arko Datta

Adam Jezard
Senior Writer, Forum Agenda
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Inequality

The debate about social inequality across the world has intensified in the past few years.

In particular, the United Kingdom’s decision to leave the European Union and the election of Donald Trump as president of the United States have been seen as outpourings of rage by the “left behind" communities that feel ignored by powerful “elites”.

The argument was reignited by a vote in the US senate on 1 December to pass tax reforms that include scrapping inheritance taxes for the wealthiest and reducing corporation taxes.

Image: Congressional Budget Office, Trends in Family Wealth 1989-2003/Inequality.org

What’s new about inequality?

Although presented as a means to stimulate economic growth by having wealth “trickle down” to the poorest, there is limited evidence similar moves produce beneficial effects.

Trump's opponents say reforms are likely to exacerbate inequalities, not least by raising the national debt levels to $1.4 trillion, which will disproportionately affect the poor.

But wealth inequality is nothing new, and a study by academic Timothy Kohler of Washington State University (WSU) and 17 others reckons that in the past it has led to civic disruption and social collapse.

The Gini is out of the bottle

In 1912 Italian sociologist and statistician Corrado Gini developed a means of measuring wealth distribution within societies, the Gini coefficient. Expressed simply, societies with a Gini coefficient of 1 are unequal – with wealth being held in fewer hands – while in a society with 0 all the wealth would be distributed evenly.

But the findings of Kohler et al, published in the journal Nature and discussed in a WSU blog, show that Gini’s work could be applied to past, as well as current, civilizations.

The researchers assigned Gini coefficients according to house sizes at 63 archaeological sites. They found that hunter-gatherer societies had few wealth disparities, with a median Gini of 0.17. But their mobility would make it hard to accumulate wealth, let alone pass it on.

Horticulturalists – small-scale, low-intensity farmers – had a median Gini of 0.27, while larger-scale agricultural societies had a median Gini of 0.35.

Workhorses mean wealth

Researchers found inequality kept rising in the “old world” of Europe, while it hit a plateau in the “new world” of the Americas, said Kohler.

This is because draft animals such as horses and oxen, unavailable in the new world, let richer European farmers till more land and expand, which increased their wealth and created an underclass of landless peasants.

The old world also witnessed the development of bronze metallurgy and a warrior elite that increased Ginis through large houses and territorial conquests.

The researchers’ models put the highest Ginis in the ancient world at 0.59, close to that of modern Greece’s 0.56 and Spain’s 0.58. It is well short of modern China’s 0.73 and the US’s 0.80, a 2000 figure cited in the Nature paper.

However, the 2017 Allianz Global Wealth Report puts the US’s Gini at 0.81, and in the WSU blog Kohler said he has seen a US Gini pegged at 0.85 which is “probably the highest wealth inequality for any developed country right now”.

Image: REUTERS/Mike Segar

Reasons for concern

In the WSU blog, Kohler cited a 2017 Science Magazine paper that found rates of mobility have fallen from 90% for US children born in 1940 to 50% for children born in the 1980s.

The results, the researchers wrote, “imply that reviving the ‘American dream’ of high rates of absolute mobility would require economic growth that is shared more broadly across the income distribution”.

Kohler added: “People need to be aware that inequality can have deleterious effects on health outcomes, on mobility, on degree of trust, on social solidarity … We’re not helping ourselves by being so unequal.”

Cries of despair

Meanwhile, in his book The Great Leveller, Walter Scheidel, who teaches ancient history at Stanford University, argues that inequality only declines when carnage and disaster strike and increases when peace and stability return.

To judge by history, he says, only the "four horsemen" – mass-mobilization warfare, transformative revolutions, state collapse, and catastrophic plagues – have repeatedly destroyed the fortunes of the rich.

The cries of despair of past “left behind groups” permeate the works of fiction writers like Charles Dickens, Victor Hugo and HG Wells.

Image: Credit Suisse Global Wealth Report 2017/Inequality.org

In his 1895 story, The Time Machine, a parable aimed at rich Victorian industrialists, Wells describes a post-apocalypse world in which the rich elites have become effete, useless dilettantes who play outdoors by day while the remnants of their enslaved workforces live in underground caverns and feast on the ground dwellers’ flesh by night.

The poor literally eat the rich.

More than a century after it was written, it is sobering to note that many of the inequities that prompted Wells to write his tale seem little changed.

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Equity, Diversity and InclusionEconomic Growth
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