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Killing inequality (2)

By News Express on 02/10/2017

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Some countries have found ways to reduce inequality without a catastrophe. Giant corporations also play massive roles in advanced democracies. In these countries, the military and the police are constrained by various institutions, and politicians must maintain popular support to stay in power. But it is one thing for citizens to have the right to boot out a corrupt administration and quite another for them to exercise that right. The U.S. tax system has plenty of loopholes that benefit the wealthiest 0.1 percent of Americans, but the other 99.9 percent, through their choices at the ballot box, have effectively allowed those privileges to persist.

Recognising this oddity, Scheidel suggests that voters act against their own interests because of the power of elites. And so inequality keeps rising—until, that is, a shock sends it back down. 


World War II reduced inequality mainly by obliterating assets that belonged disproportionately to the rich, such as factories and offices. As Scheidel notes, a quarter of Japan’s physical capital was wiped out during the war, including four-fifths of all its merchant ships and up to one-half of its chemical plants. Even though France was on the winning side, two-thirds of its capital stock evaporated. The war also depressed financial assets such as stocks and bonds, and it devalued surviving rental properties almost everywhere. In victorious and defeated countries alike, the rich lost a greater share of their wealth than did the rest of the population.

But it wasn’t just destruction that lowered inequality; progressive taxes, which governments levied to fund the war effort, also helped. In the United States, for example, the top income tax rate reached 94 percent during the war, and the top estate tax rate climbed to 77 percent. As a result, the net income of the top one percent of earners fell by one-quarter, even as low-end wages rose.

The mass societal mobilisations that the war required also played a critical role. Nearly one-quarter of Japan’s male population served in the military during the conflict, and although the share was lower in most other countries, nowhere was the number of enlisted men small by historical standards. During and after the war, veterans and their families formed pre-organised constituencies that felt entitled to share in the wealth created through reconstruction. In the United States, the Supreme Court put an end to whites-only party primaries in 1944, no doubt partly because public opinion had turned against excluding African Americans who had shared in the wartime sacrifices. France, Italy, and Japan all adopted universal suffrage between 1944 and 1946. The war effort also stimulated the formation of unions, which kept rising inequality at bay by giving workers collective-bargaining power and by pressuring governments to adopt pro-labor policies. Mass mobilisation for the purpose of mass violence thus contributed to mass economic leveling.

Revolutions equalise access to resources only insofar as they involve violence.

By this logic, modern wars fought by professional soldiers are unlikely to have a similar effect. Consider the wars in Afghanistan and Iraq: although some U.S. veterans of these conflicts have returned embittered, they constitute too small a constituency to command sustained attention, and few Americans feel compelled to support substantial transfers of wealth to citizens who enlisted voluntarily. 

Revolutions, The Great Leveler explains, act a lot like wars when it comes to redistribution: they equalise access to resources only insofar as they involve violence. The communist revolutions that rocked Russia in 1917 and China beginning in 1945 were extremely bloody events. In just a few years, the revolutionaries eliminated private ownership of land, nationalised nearly all businesses, and destroyed the elite through mass deportations, imprisonment, and executions.

All of this substantially leveled wealth. The same cannot be said for relatively bloodless revolutions, which had much smaller economic effects. For example, although the Mexican Revolution, which began in 1910, did lead to the reallocation of some land, the process was spread across six decades, and the parcels handed out were generally poor in quality. The revolutionaries were too nonviolent to destroy the elite, who regrouped quickly and managed to water down the ensuing reforms. In the absence of mass violence concentrated in a short period of time, Scheidel infers, it is impossible to meaningfully redistribute wealth or substantially equalise economic opportunity. 

Workers demonstrate in Petrograd during the February Revolution, 1917.

Indeed, Scheidel doubts whether gradual, consensual, and peaceful paths to greater equality exist. One might imagine that education lowers inequality by giving the poor a chance to rise above their parents’ station. But Scheidel points out that in postindustrial economies, elite schools disproportionately serve the children of privileged parents, and assortative mating — the tendency of people to marry their socioeconomic peers — magnifies the resulting inequalities.

Likewise, one might expect financial crises to act as another brake on wealth concentration, since they usually hit the superrich the hardest. But such crises tend to have only a temporary effect on elite wealth. The 1929 stock market crash, which permanently destroyed countless huge fortunes, was the exception to the rule. The crisis of 2008 — which most wealthy investors recovered from in just a few years — was much more typical.

Scheidel argues that the democratic process cannot be counted on to reduce inequality, either. Even in countries with free and fair elections, the formation of bottom-up coalitions that support redistribution is rare. Indeed, the poor generally fail to coalesce around leaders who pursue egalitarian policies. Scheidel doesn’t go into much detail about why, but the problem is largely one of coordination. According to the theory of collective action (popularised by Olson, as it happens), the larger a coalition, the harder it is to organise.

This means that because of numbers alone, the bottom 50 percent will always have a harder time mobilising around a common goal than will the top 0.1 percent. It’s not just that the incentives to free-ride are larger in big groups; in addition, priorities within them can be more diverse. Most Americans agree on the need for education reform, but that majority disagrees hopelessly on the details.

We would be continuing this discourse in the next article. For further details call on me for in-depth discussions, business advisory services and training – send a message via WhatsApp or SMS.

•Lawrence Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via (07066375847).

Source News Express

Posted 02/10/2017 9:43:44 PM


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