Ideas@TheCentre
What is driving income inequalities?
I was recently asked by a journalist if we should be concerned about widening income inequalities. Here is my reply:
The question is not whether wider material inequalities are a good or bad thing, but what is driving them.
If it were the case, as Wilkinson and Pickett claim, that greater economic inequality creates individual unhappiness and social malaise, I might be worried about recent trends. But the claim is untrue. Their work has been demonstrated to be fundamentally flawed (not just by me); propaganda masquerading as social 'science'.
A number of factors in the last 20 years or so have combined to increase income inequalities in advanced capitalist countries. The main one is a big increase in remuneration for the very top earners - the distribution among the bottom 95% hasn't shifted much - and this reflects the globalisation of the market for corporate leaders.
Is this widening income inequality a bad thing? If it is a result of fraud, deception or outright coercion, yes it is. But if it is a result of freely-taken decisions by people using their own money, no it isn't.
Consider the world's top footballers who nowadays earn $250K or more per week. Why do they get this much? Because top clubs chase scarce talent to improve their team performance. Who pays for these huge salaries? Ultimately, the millions of people who want to watch these players and who are prepared to pay higher ticket prices and/or monthly Pay-TV subscriptions in order to do so. Who gains? Everyone: players, the clubs who employ them, the clubs' customers who want to watch them, and the taxpayer. Who loses? Nobody.
It's the same with corporate high-flyers. Institutions compete for their services and bid up the price, but nobody is forced to pay it. Shareholders benefit from the enhanced profits these guys bring (if they don't, they sack them); customers benefit from the efficiencies they generate; taxpayers benefit from the increased tax revenues. If they break the rules, of course they should be penalised. But if not, they have a right to every dollar they earn.
For a thoroughly reasoned defence of this position, look no further than Robert Nozick's 'Anarchy, State and Utopia.' Nozick provides a compelling argument for assessing the ethics of inequality, not in terms of outcomes (how much do different people get?) but in terms of inputs (why do some people get more than others?).
If your labour creates more value than mine, you have a right to a higher reward. Similarly if as a result of exchanging and trading freely with others, you end up with more than me, you have a right to keep the proceeds. I have no grounds for complaint in either case. If I do still choose to complain (and even worse, combine with other malcontents and mobilise the coercive power of the state to take from you what is rightfully yours), my action is not ethical; it is malicious, driven by nothing but envy and spite.
Equality is a crucial principle, if we mean simply that all individuals should be subject to the same rules, without prejudice or favour. Everyone has equal value in the eyes of the law.
But the morality of equality gets twisted when applied to the results of free individuals operating under a common system of law. Working and freely exchanging goods and services with each other, equal individuals will always generate unequal outcomes between themselves.
Providing a welfare safety net for those who fail is one thing, but deliberately using the state to rob those who succeed is quite another. It is ironic that those who support policies of radical redistribution often believe they are expressing the highest 'moral' principles, when in reality they are peddling envy and greed.
Peter Saunders is a Senior Fellow at The Centre for Independent Studies.
