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Tuesday, April 29, 2014

Good politics can halt tide of inequality

According to a recent report by Oxfam, the richest eighty-five people in the world, including Bill Gates, Carlos Slim and Aliko Dangote, own more wealth than the 3.5 billion people who constitute the poorest half of the world’s population.

I have argued here before that rising income and wealth inequality is the most urgent challenge of our time. In his Apostolic Exhortation in November 2013, Pope Francis wrote; “Some people continue to defend trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world”.

Karl Marx argued that the dynamics of private capital accumulation inevitably leads to the concentration of wealth in ever few hands. A century later, Simon Kuznets advanced the Kuznets curve, arguing that as countries developed incomes first increased, peaked and then decreased. These two polar opposite views demarcated the ideological fault line between socialism and capitalism, hence defining policy and political discourse on wealth distribution and inequality.

Here are some numbers to illustrate the dire and ever-growing gulf between the rich and the rest in Kenya. About 10 percent of Kenya’s wealthiest households control 42 percent of the total income, while the poorest 10 percent control just 1 percent. Over 64 percent of Kenya’s population lives on Ksh. 7200 or less per month. Moreover, about 80% of students in our public universities come from families of Kenya’s middle class; parents who own businesses or have a wage income, which constitutes less than 20 percent of the workforce or about 5 percent of the population. We know the achievement gap between rural and urban schools and between public and private schools. Could this be the beginning of an era where inheritance inevitably confers elite status?

The stock response we use in Kenya to blunt the inequality conversation is that raising national GDP is a higher order priority. In a sense the political class and the policy bureaucrats want us to believe that we are too engaged in the construction and production of the future to be bogged down with the untidy reality of how the gains from such growth is distributed. This is an exceedingly tenuous proposition.

In societies such as ours, wealth inequality at the levels we see today could have irreversible consequences on social cohesion, politics, security, justice, law and order. We know that unbridled wealth in few hands leads inevitably to concentration of power and the emergence of an oligarchy, which pauses a grave danger to state, political and civic institutions. We understand that unemployed youth are easy prey for networks of terrorism and organized crime such as poaching, narcotics and human trafficking.

Princeton professor and New York Times columnist Paul Krugman has argued that intimidated by class warfare, politicians have avoided making a major issue of the expanding gap between the rich and the rest. The policy and growth models, as well as the toxic politics of the past half-century have created the present, with all its contradictions. And hence, we must be preoccupied with dealing with the inequality today.

Thomas Picketty, a French professor of economics, has written a book described as one of the watershed books in economic thinking and a magnificent, sweeping meditation on inequality. Some believe that the book, Capital in the twenty-first century, could change the way we think about the past two hundred year of economic history. Picketty shows that inequality rises during periods when the rate of return on capital is higher than the rate of economic growth, which he refers to as the “central contradiction of capitalism”.

The book offers what amounts to a unified theory of inequality, which can help redefine the terms of a debate paralyzed by ideology and constrain all positions to data driven, evidence-based scrutiny. This ultimately, is the role public intellectuals must play. As a young economist, untainted by the physics envy of the 20th century economists, Picketty could rescue his discipline from the aridity of mathematical abstraction and return it to the richer model of political economy pursued by the best economist of the 19th century.

Wealth equality is not the inescapable byproduct economic development. Wealth inequality is a result of broken politics. Politics matters because at its very core, it is tangible. Politics is about distribution; who gets what, where and when. Good politics can be an effective antidote for inequality. 

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