Who is responsible for individuals’ lives? What kind of life do people want? The duality of economic inequality.

Who is responsible for individuals’ lives? What kind of life do people want? The duality of economic inequality.


In recent years, there has been an increased interest in economic inequality, especially in developed countries. In a number of places, demonstrations pitting “the 99%” against “the 1%” have occurred, and Capital in the Twenty-First Century by Thomas Piketty has become a best seller. So, what exactly is economic inequality?
The term “economic inequality” refers to differences in the amount of money and highly-priced items that people can get hold of. Specifically:

• Differences in pay (inequality in earned income)

• Differences in profit from investment (inequality in unearned income)

• Difference in possessions such as houses or cars (asset inequality)

*The economic inequality that exists in different countries. (The closer the Gini coefficient is to one, the larger the inequality is.)

Reading Piketty In Japan

Source:Reading Piketty In Japan

Gini Coefficient World CIA Report 2009

Source :Gini Coefficient World CIA Report 2009

Next, let’s look at specific advantages and disadvantages of having large or small amounts of economic inequality.

*The specific examples given below are assumed to occur under a democratic and capitalist political system.

*The examples given are extreme, the reality is complex.

Where there is a large amount of economic inequality.

Limited Government

High levels of economic inequality mean that different people have different incomes. If people have different values and attitudes, differences in their lifestyle will naturally appear. People who want a large amount of wealth, or want to enjoy a lot of high quality services or products will work hard, while people who are happy with less, will work less. In this way, each individual can choose to live in the way that they wish. This kind of system is called “small government”. The advantages and disadvantages of this system are outlined below.

• Advantages for different groups

Overall: Competition between businesses combined with consumer demand supports the quality of goods and services, and solves various problems.

Workers: By increasing the value of their work they can get higher wages. For example, by working long hours or gaining high level skills.

Management: If they sell lots of products or services then they can get higher profits.

Consumers: The burden due to taxation or medical costs is small, therefore, dependent upon their income, each individual person can live as they wish.

Investors: If the value of their assets rise, they can get a large return.

Voters: If they have economic power it is possible for them to change political policy through lobbying.

Families: Valuable assets can be gained through inheritance from parents. They can give their children a good education.

Government: The government’s job is entrusted to business, and because of this, tax money is not wasted.

Between nations (trade): By eliminating customs duties, good products and services can be sent across national borders. It is possible to export the country’s culture.

*Invented in the US between 1946 and 1991.

*Invented after 1991 in the US.

*The top 100 highest paid occupations.

*Which occupation is the most satisfying?

Which are the most satisfying occupations?

Source:Which are the most satisfying occupations?

・Disadvantages for different groups

Overall: There are few government regulations, so the ethics and morals of each individual determine the products and services sold and the treatment of workers. This leads to a number of problems (for example, environmental problems). If the number of poor people increases, the capacity to purchase goods decreases, and the circulation of goods in the economy comes to a halt.

Workers: Money needs to be spent to get the training and education to develop high level skills. If they don’t have high level skills, they may have to work for long hours at low pay. They are treated unfavorably by management.

Management: Traditional shops that have a long history will lose out to the competition and go out of business. When they go bankrupt, there is no compensation from the government.

Consumers: The money needed for everyday life is a basic necessity even as they become old, or if they get injured or sick. They have to get that money. If they don’t have money the products and services they can make use of are severely limited.

Investors: Due to events such as the bursting of asset bubbles, there is a high risk of a collapse in asset prices. An example of this is the collapse of Lehman Brothers.

Voters: Minority groups who don’t have the power to lobby will not be able to influence politicians.

Families: Where they receive only a small inheritance, their ability to choose an education for their children is limited in comparison to most families.

Government: Due to the relaxation of regulations, there is the risk that social problems related to a disregard of ethics and morality will emerge.

Between countries (trade): The traditional industries of a country may decline. Alien cultures may gain strength within a country.

*The number of states that have already legalized the recreational use of marijuana, and the number of states that seem likely to legalize by 2020.

Here's How Fast The Marijuana Industry Is Growing, In 5 Charts

Source:Here’s How Fast The Marijuana Industry Is Growing, In 5 Charts

*American prostitution

US and State Prostitution Arrests, 2001-2010

Source:US and State Prostitution Arrests, 2001-2010

*Climate change: Within the next few decades, areas where there is a risk of drought.

CLIMATE CHANGE: DROUGHT MAY THREATEN MUCH OF GLOBE WITHIN DECADES

Source:CLIMATE CHANGE: DROUGHT MAY THREATEN MUCH OF GLOBE WITHIN DECADES

*Decline of traditional culture: Businesses with an operational history of over thirty years make up 30% of the total number of companies that go bankrupt.

2014年「倒産企業の平均寿命」調査

Source:2014年「倒産企業の平均寿命」調査

*Of the 5586 companies that have an operational history of over 200 years, 3146 of them are Japanese (56% of the total).

*In Japan, in single parent families where cruelty has been discovered, about half of them were welfare recipients.

児童相談所が対応する虐待家族の特性分析~被虐待児及び家族背景に関する考察

Source:児童相談所が対応する虐待家族の特性分析~被虐待児及び家族背景に関する考察

*Income inequality damages economic growth: changes in inequality (1985-2005) and the influence of this upon cumulative growth (1990-2010) (estimation)

Source :OECD:Focus on Inequality and Growth December 2014

Where there is little economic inequality

Big Government

Low levels of economic inequality mean that there is not a large difference between people’s incomes. Through everyone’s hard work, the government can receive tax, and then it divides the assets up between everyone to ensure that everyone has equal access to a basic standard of living. Further, the government intervenes and controls the economy, rather than leaving everything to business. This kind of system is called “big government”. The advantages and disadvantages of this system are outlined below.

• The advantages for different groups.

Overall: As more tax is collected, the government is able to offer services that meet the shared needs of most people.

Workers: A minimum wage is guaranteed. Due to the availability of a good education, it becomes easier to get high level skills (public education). Under the law, they have a relationship of equality with employers. For example, same pay for the same work.

Management: Because of government investment in public works (fiscal policy), or subsidies, it becomes easier to carry out business.

Consumers, families: They can receive cheap or free social insurance providing things such as education, childcare, and healthcare. They can unconditionally receive regular payments enabling them to lead a basic lifestyle. (*This is called a basic income.)

Investors: Through monetary policy (the control of interest rates), where there is inflation, the price of assets increase.

Government: Economic conditions can be managed, through monetary or fiscal policy. By following a policy of nationalization, it is possible to provide equal access to public services.

Between countries (trade): There are customs duties, so the industry and culture of the country can be protected.

For example, Northern European countries have extremely high levels of taxation, therefore they can put greater effort into medical care and child care. Because of this, women are not tied to child rearing, they can go out to work in society.

*Tax income against GDP

OECD Tax Database

Source:OECD Tax Database

*Voter turnout rate by country: Can citizens monitor the government’s use of tax?

Society at a Glance 2011: OECD Social Indicators

Source:Society at a Glance 2011: OECD Social Indicators

*World infant mortality rate

The World Bank: Mortality rate, under-5 (per 1,000 live births)

Source:The World Bank: Mortality rate, under-5 (per 1,000 live births)

*World birth rate

The World Bank: Fertility rate, total (births per woman)

Source:The World Bank: Fertility rate, total (births per woman)

*North European countries (dark blue) have a fairly high level of gender equality.

World Economic Forum: The Global Gender Gap Index 2014

Source:World Economic Forum: The Global Gender Gap Index 2014

*Public contributions to child care by country.

Public expenditure on childcare and early education

Source:Public expenditure on childcare and early education

・Disadvantages for different groups

Overall: There are many areas that are regulated or managed by government, so it becomes difficult to lead a free life. There are many different ways in which tax can be used dependent upon the decisions of government. For example, increasing the pay of legislators.

Workers, management, investors: Even if they work a great deal and secure large profits, taxes must be paid. People who are motivated to work by the prospect of high wages, may lose the will to work; the quality of products and services declines; and technical innovation becomes difficult.

Consumers, families: It is possible that, in comparison to a situation where there is free competition, high quality goods and services will not be available.

Government: Compared to the situation under privatization, there are no competitors, so there is the possibility that the quality of public services will decline. There are imperfections in the tax system such as regressive taxes and tax havens. Candidates for election promise public works in order to get elected.

Between countries (trade): Due to customs duties, they cannot import high quality goods or culture from other countries.

*The types of tax are income tax, inheritance tax, capital tax, consumption tax, corporation tax, etc. Taxes that are charged at a higher rate as an individual’s income increases are called progressive taxes.

*Reference: Thomas Piketty has stated that international progressive taxation should be levied as a measure to combat tax havens.

*Export amount: Are good products being created? This is low for Northern European countries.

Economy - major exporting countries (2012 rankings)

Source:Economy – major exporting countries (2012 rankings)

*For example, in Denmark, there are a system of values known as “Jante’s Laws” regarding happiness. Because of this, there is less desire to win at competitions and become wealthy.

1. Don’t think that you are special.

2. Don’t think that you are of the same standing as us.

3. Don’t think that you are smarter than us.

4. Don’t fancy yourself as being better than us.

5. Don’t think that you know more than us.

6. Don’t think that you are more important than us.

7. Don’t think that you are good at anything.

8. Don’t laugh at us.

9. Don’t think that anyone of us cares about you.

10. Don’t think that you can teach us anything.

11. Don’t think that there is something we don’t know about you.

Summary

As I wrote at the beginning, these are extreme examples, and the reality is more complex. To be clear, the things written above are just systems, what a person will think of those systems is dependent upon their individual values. Below are the main points of discussion.

1. Is it problematic for inequality to be large?

There are people who are happy without money, and there are also people who don’t think that having money makes you happy. Having lots of money gives you more options, but whether or not that is a good thing depends upon your personal values. In reality, in countries where taxation is very high, there is data to suggest a higher level of happiness. (Even if the overall happiness level of the country is high that does not mean that every member of the society is happy)

*World happiness ranking

World Happiness Report 2013

Source:World Happiness Report 2013

2. Is poverty a problem?

There are people who can’t reach the basic standard of living and become homeless or die of starvation. Some people think “Poor them, we should help them,” while others think, “It is their own responsibility to do something before they reach that level of poverty.” If you were to take an extreme position, you could say it is possible to prevent failures in advance by reading lots of books, listening to what others say, and searching on the internet for information. The problem is the failure that there is no protection against.

*World poverty rate: Rather than work, education is important

OECD Child poverty

Source:OECD Child poverty

*World poverty rate of old people: Limited ability to wok

OECD Old-Age Income Poverty

Source:OECD Old-Age Income Poverty

*Countries in which it is easy to fall into poverty because of natural disasters.

The geography of poverty, disasters and climate extremes in 2030

Source:The geography of poverty, disasters and climate extremes in 2030

3. If you don’t have money, is it possible to get a good education?

At a minimum, if people can access the internet, then e-Education is available. If there is the desire, they can study to their heart’s content. It isn’t just about occupational skills, they can also search for and learn manners and customs. The only problem is whether they are aware of the option to study on the internet. They can gain skills in accordance with their plans, so it is important for people other than their parents, the community at large, to teach them how to plan.

※50 Top Sources Of Free eLearning Courses

*Reference: One reason why education is important is that by gaining skills, it is possible to get well-paying jobs, it is possible to start businesses, succeed, and get lots of money. Absolutely anyone can have an equal chance to reach the same level as the wealthy. If people are wealthy then the inheritance they can pass on also increases.

4. Is the existence of wealthy people a problem?

The rich certainly get a large return. As Thomas Piketty has shown, “Rate of return on capital (r) > rate of economic growth (g)”: the return from working is less than the return from investing. Why is that? It is said that this is the reward for taking a high risk. They took upon themselves the responsibility for a high risk, so they can receive a high return. The desire to take a large risk and receive a large return depends on personal values. Further, if there were no investment, it would be difficult to get the capital to start a business, and it would be difficult to start large businesses.

*America, where thanks to investors, the number of jobs increases.

Angel Investors – Critical Initiators of Startups and Job Creation

Source:Angel Investors – Critical Initiators of Startups and Job Creation

5. Can workers and management trust each other?

Workers believe that, in the future, management will increase their wages, and this is the reason why they work hard. The business’s profits then increase, and real wages increase. Management believes that workers will work hard and increase profits, so they raise wages and employ new workers.

*Change in each country’s minimum wage (dollars)

OECD Real minimum wages

Source:OECD Real minimum wages

Other perspectives

・Perspectives other than the ones given above.

Economic disparity occurs between more than two groups, so if we were to add to the above perspectives, we could also think about advanced and developing economies, men and women, white and non-white races, immigrants and indigenous populations, within families and outside of families, and city and country.

*Difference in male and female wages: If male wages are 100, female wages are about 80.

The Simple Truth about the Gender Pay Gap (Spring 2015)

Source:The Simple Truth about the Gender Pay Gap (Spring 2015)

・Development of technology

Further, through the development of technology, the majority of jobs that currently exist will be automated, and become easier to perform. The negative side to this is that jobs will disappear and wages will lower, but the advantage is that people will have more time to do different things, and the way people work will change.

*Due to automation it is possible that around half of the jobs in America may disappear.

Job Automation May Threaten Half of U.S. Workforce

Source:Job Automation May Threaten Half of U.S. Workforce

*Examples of jobs that may be taken by machines in the future.

The Future of Employment: How Susceptible are Jobs to Computerisation?

Source:The Future of Employment: How Susceptible are Jobs to Computerisation?” OMS working paper by Dr. Carl Benedikt Frey & Michael A. Osborne

・The existence of NPO/NGOs

Where the social guarantees of government are not sufficient, NPOs/NGOs that operate on donations from the middle classes and the wealthy can be relied upon. There are many examples of problems related to poverty and education being solved through their work.

*The American donation market.

Charitable Giving Statistics

Source:Charitable Giving Statistics

* If anyone has any other opinions or points concerning this issue, please let us know!