Felistus Mbole a member of our Emerging Fellows program believes that reversing inequality by means of taxation or regulating markets is possible, but so difficult. The views expressed are those of the author and not necessarily those of the APF or its other members.
Global wealth inequality has been rising for the last four decades. The trend is worrying and seemingly irreversible. It is unrealistic to expect total equality in a largely market-based society. Yet, the wealthy cannot continue to get richer at the expense of other members of society. Severe inequality hurts both the poor and the rich. The pertinent question is, how will this trend to greater global inequality be reversed?
There has been a lot of focus on economic growth. Understandably, the pie needs to be big for everyone to get a piece. But if the pie is not equitably shared, it will eventually stop growing. A sure way of attaining this is by giving the majority an opportunity to contribute to growing the pie and to proportionately benefit from it. In today’s technologically driven economy, human capital is equally - if not more - valuable than physical capital in production. Unskilled labour is thus a huge disadvantage and the key reason for current income inequality. Governments can address this by creating equal opportunities for all citizens by providing quality education, healthcare, and other public services. Generally, returns on capital outweigh wages. Highly skilled executives are, however, paid a lot more than the wealth they generate for the owners of the businesses.
Closely tied to this is the need to set a minimum wage for workers to meet their basics needs. This will be accompanied by the freedom for workers to associate and lobby for better terms and conditions of work where necessary. Workers shared-ownership of businesses with investors would also enable employees to share in the returns they generate. Representation of employees in the governance of businesses would further ensure that workers’ welfare is taken care off. These measures would collectively reduce the inequalities between workers and the owners of capital.
Taxation as a means of redistributing wealth will be a core tool for reversing inequality. Ironically, the tax rate of the top 10% richest has decreased in many countries while their wealth has multiplied several times. In such states, the promise to reduce tax rates appears to be the promise to win elections. Besides, the rich are the funders of political campaigns. Reduction of taxes has led to deterioration in quality of public services such as education and has deepened inequality. Sustained provision of quality public goods and services can only be attained through wealth redistribution measures such as progressive taxation of incomes and wealth and inheritance taxes. Governments will need to provide safety nets to guarantee minimum standards of living.
Moreover, governments will have to effectively regulate markets. Left on their own, markets will continue to serve the interests of capitalists and not the common good of society. It is the business of government to intervene in the economy whenever necessary. There will be a need for clear rules on what is acceptable market conduct and measures to ensure that all players play by these rules.
The inequality we see today hasn’t suddenly happened. It is the sum of decades of decisions by society. Similarly, the wrongs will not be righted in a day. Yet, action must start now to guarantee the future. Reversing the current inequality trend won’t be easy. It will require foresight – acting for tomorrow rather than today. It will take a very strong political will by governments.
© Felistus Mbole, 2019