Is Inequality Inevitable

Understanding Wealth Inequality in South Africa and Beyond

In South Africa, one of the most unequal countries globally, the richest one-tenth of 1% owns almost 30% of the country’s wealth. This is more than double what the bottom 90% owns. However, income and wealth inequality are not new phenomena. Economists and historians who’ve charted economic inequality throughout history haven’t found a single society without it, raising the bleak question: is inequality inevitable?

The Gini Index: A Measure of Inequality

One way to estimate inequality is with a number called the Gini index. This index is calculated by comparing the income or wealth distribution of a perfectly equal society to the actual income or wealth distribution. A Gini of 1 indicates perfect inequality, where one person has everything, and everyone else has nothing. Conversely, a Gini index of 0 indicates perfect equality, where everyone has exactly the same income or wealth. However, neither extreme is seen in real life. Typical after-tax Ginis in developed countries today are around 0.3, though there’s a wide range from pretty equal to pretty unequal.

Limitations of the Gini Index

Before we delve deeper, it’s important to understand what the Gini index doesn’t tell us. It gives no information about how income and wealth are distributed across genders, races, educational backgrounds, or other demographics. It doesn’t tell us how easy or difficult it is to escape poverty. It also gives no insight as to how a particular society arrived at its present level of inequality. Economic inequality is deeply entangled with other types of inequality, such as discrimination, imperialism, and colonialism, which have created deeply rooted power and class inequalities that persist to this day.

Government Choices and Economic Inequality

Some countries are economically much more unequal than others, largely due to choices that governments make. These choices include the type of economy to use. In the 20th century, some countries switched to socialism or communism to reduce economic inequality. These changes did dramatically reduce economic inequality in the two largest non-capitalist economies, China and the Soviet Union. However, neither country prospered as much as the world’s leading economies.

Capitalism and Economic Inequality

Can capitalist countries choose to reduce economic inequality? It’s tempting to think not, as the point of capitalism often seems to be to amass wealth. China seems to provide the textbook example of this: after it became more capitalist, its Gini index shot up from under 0.4 to over 0.55. Meanwhile, its per capita yearly income jumped from the rough equivalent of $1,500 to over $13,000. However, there are many counter-examples: capitalist countries in which inequality is actually holding steady or decreasing. France, Ireland, the Netherlands, and Denmark have all managed to keep their Gini indexes relatively low.

Reducing Inequality: Taxes, Transfers, and Access to Services

How do these countries do it? One way is with progressive taxes, where the more money you make, the higher your tax rate. Another way is with transfers, where the government takes tax revenues from one group of people and gives it to another. A third way is to ensure that everyone has access to things like education and healthcare. A highly educated, healthy workforce can command a higher salary on the market, thus reducing inequality.

Addressing the Digital Divide and Extreme Wealth

The fourth way to reduce inequality is by addressing the digital divide: the gap between those who have access to the Internet and those who do not. A fifth way is dealing with extreme wealth. Multibillionaires can buy social media platforms, news outlets, policy think tanks, and perhaps even politicians, and bend them to their will, threatening the very fabric of democracy.

The Global Inequality Divide

We haven’t touched on the drastic divides in who has wealth and who doesn’t; the power structures that prevent social and economic mobility; and the drastic inequality between countries. For example, just three Americans have 90 billion more dollars than Egypt, a country of 100 million people. Power and wealth are self-reinforcing, which means that equality is not. Left to their own devices, societies tend toward inequality—unless we weaken the feedback loops of wealth and power concentration.