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Why inequality matters – for the rich and the poor

Workers in a bank watch as Occupy Wall Street protesters march in New York as part of the populist movement protesting economic inequality. Reuters/Joshua Lott

In the last decade there has been a renaissance in studies stressing the relevance of inequality worldwide, particularly in the aftermath of the 2008 global financial crisis. The loud cry of the Occupy movement gained worldwide attention in its denunciation of the increasing polarisation of incomes and assets in the hands of an infamous 1%.

Thomas Piketty’s Capital in the Twenty-first Century has largely supported the claims of global social movements that capitalism is moulding a world for the few against the many. It is not a coincidence that the name of his book recalls Karl Marx’s famous critique of political economy.

Since the 1950s, mainstream economic narratives have been obsessed with modelling the relationship between inequality and growth. They also deployed questionable indicators of inequality based on an “average” distribution (the Gini coefficient).

Piketty has broken this mould. His work has focused on the extremes of the distribution and on elite’s capture since the origins of capitalism in western economies.

This enabled him to highlight what capitalism does best if left unchecked: namely, increasing returns to capital, rewarding and reproducing the creation of wealth. The book has been widely reviewed – favourably and unfavourably. Truth is, whatever one thinks about it, it returned inequality to the core of political economy debates on capitalism where it belongs.

Roots of inequality

In many instances, the historical roots of intercountry inequalities lie in slavery and colonialism. This is too often overlooked by contemporary economic analyses whose timeline is generally quite narrow. The Jamaican government is currently reminding the UK that slavery can hardly be dismissed as a “thing of the past”.

Intracountry and intercountry inequalities interplay in the world economy. The increasing polarisation of the income shares of capital and labour is embedded in an equally polarised global division of labour.

This counterpoises countries hosting the majority of the world’s rich, led by the US, and those gathering the majority of the world’s working poor – Asia, Africa and Latin America. In the post-colonial era national capital has played its own role in processes of exploitation and dispossession against the working poor.

British-Indian writer Rana Dasgupta has illustrated how these processes unfolded in the making of Delhi as a modern metropolis. Intriguingly, he has done so in a book also called Capital - a portrait of Delhi in the 21st century.

Even emerging economies like India or China, which are experiencing “global convergence”, are building their economic fortune on the shoulders of the working poor.

The cost of inequality

The human and social cost of highly unequal processes of capitalist development for low classes and for the working poor is substantial. This should be the primary reason for our interest in inequality.

The Marikana tragedy, which saw South African police firing on striking miners with live ammunition killing thirty-four, has indicated the violent nature of the struggles over resources and income shares. Piketty himself refers to the Marikana case to highlight the extreme consequences of fights over redistribution.

In Cambodia in 2014, workers were shot in the streets of Phnom Penh as they asked for an increase in their minimum wage. Inequality must be fought because it perpetuates social injustice.

Even those hardly moved by these arguments are increasingly aware of the challenges highly unequal distributions of income and wealth imply. Inequality was high on the agenda at the World Economic Forum 2015 in Davos, certainly not your average activists’ network. This is because high levels of inequality have clear economic and social costs.

High inequality may undermine growth, as in South Africa. It can lead to violence and tensions, compelling the rich to live in gated communities, like in Brazil. In Buenos Aires there were 90 gated communities in the 1990s. They became 285 by 2001, and 541 by 2008.

The proliferation of borders, fences and walls, not only in urban spaces, is gaining momentum across the world, even in developed countries, leading to increasingly segregated livelihoods. In the end, also the rich may not want to live like this.

What to do about it?

This is hardly an easy question to answer. Economics studies, even bestsellers like Piketty’s, still tell us little about who is more likely to bear the brunt of inequality. This is a crucial issue as inequality is a “horizontal”, “group phenomenon” experienced collectively.

And income and wealth – material inequality – may only represent the final outcome of far more rooted structures of oppression.

Ultimately, inequality is experienced on the basis of class, gender, race, caste or geographical provenance. In South Africa, one cannot understand inequality without addressing the legacy of apartheid. In India, one cannot decouple inequality from colonialism and caste. In the US, inequality is linked to racial discrimination. In Europe, it is increasingly linked to migration, as many undocumented migrant workers are subjected to “slavery-like” working conditions.

The fight against inequality must be fought on many fronts. It is a fight worth fighting. As highlighted in all books of the Capital “trilogy” mentioned here, from Marx to Piketty and Dasgupta, inequality is a key functioning mechanism of capitalism. It must be addressed as a matter of social justice.

Furthermore, it may also soon become both economically unviable and socially undesirable for the few to exclude the many. As the few reinforce fences and gates, the many may be really becoming too many, particularly across the developing world. They may even start demanding their share.

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