In today’s column I propose to take last week’s discussion concerning the impact of massive wage and salary spreads along with the prevalence of the phantom economy on Guyana’s inequality and poverty one step further, through engaging an important emerging global line of thought on these matters. As was observed in standard mainstream neo-liberal economic analysis growth does not normally generate income and wealth inequality. Why is this unlikely? The answer is that in capitalistic market econo-mies there are so-called built-in automatic stabilizers to prevent this from occurring. Indeed these stabilizers are considered to be intrinsic to the operation of all competitive markets.
Growing divergences or inequalities can result only if there are market imperfections. And if these occur there are trusted public policies for correcting such non-egalitarian forces, provided they are directed at securing an environment suitable to competitive market outcomes. In an environment of competitive markets for the productive factors, these will always earn the income produced by their marginal value added; wages and salaries for labour and profits for capital owners.
From a long-run growth perspective these notions are embodied in one of mainstream economics most celebrated ideas: the Kuznets Curve. As previously indicated this curve is bell shaped and purports to show that in the early stages of economic growth inequality worsens; however, in later years, as growth and development proceed, inequality decreases. The bell shaped curve of inequality implicit to this formulation was originally derived from Kuznets’ empirical study of the US economy for the period 1913 to 1948.
11In other words we can say neoclassical long-run economic growth and development will secure a rising tide of well-being, which lifts all boats, thereby making the early growth generating inequality and poverty historical relics. Competitive markets secure this outcome because in equilibrium productive factors will receive fair value based on their respective marginal productivities. This formulation has been endorsed by the new growth theorists (Solow) of more recent years, who predict a balanced growth path with the respective shares of total income (GDP) going to capital and labour being held constant over time.
Inequality analysis revolution
Earlier this year witnessed the publication in English of what is perhaps the most highly acclaimed book in the social sciences for the millennium thus far. That is the French economist Thomas Piketty’s, Capital in the 2ist Century. To be clear, readers should be informed that I share the view that this work is truly transformative and paradigm shifting. It is fully deserving of its celebratory status. The purpose of the remainder of this and next week’s entire column is to explore this work in order to offer insights to what is occurring in Guyana.
Despite the pompous title of Piketty’s book he is no Marxist. Indeed he has said this himself, going further to volunteer that he has never read Marx’s Capital! He is also no mainstream neoliberal economist, although he has undoubtedly made quite generous use of neo-classical statistical and econometric methodology.
Before going into the details of Piketty’s work, there are three important features of it that readers should note at the outset. First, while Kuznets’ formulations (as indicated above) are based on an empirical examination of US income and wealth distribution data for the period 1913 to 1948, Piketty and a team of collaborating researchers have examined centuries long time series data for a number of nations including the USA, Europe (mainly France and Britain), China, India, Japan, Malaysia, South Africa and Uruguay. Piketty and his collaborative team of researchers have established the online database, The World Top Incomes. The empirical data generated for his publication is therefore incomparable.
Second, this wide dataset coverage allows Piketty to study in some considerable detail varied historical patterns and changes in the way incomes and wealth are created and distributed in many nations and the international capitalist economy as well. This has facilitated cross country comparisons and the worldwide exploration of variations, commonalities and uniformities.
And thirdly, this richness of data has encouraged Piketty’s search for linkages between income and wealth generation to the sociocultural, political, cultural and geophysical attributes and processes in a rich variety of states. The result has been summed up as follows: “The history of inequality is shaped by the way economic, social and political actors view what is just and unjust as well as the related power of those actors and their collective choices that result.” Readers should note carefully that this formulation represents inequality as the instrumental outcrop of human actors and their behaviours; it does not reside in crude deterministic societal forces. In other words, poverty and inequality are the deliberate products of the collective choices those who hold power make.
Too big to jail
For myself the great tragedies I perceive in all this are that 1) inequality in incomes and wealth inexorably perpetuates inequalities in political and social power; 2) in turn these foster corruption and criminality; and 3) like big corporations in rich countries (considered nowadays as too big to fail) the cabals in whom this political and social power is centralized in poor countries like Guyana operate with good reason as if they are ‘too big to jail.’
Finally, I wish to record two words of appreciation: first to a much travelled friend, colleague, and former student for presenting a copy of the book to me, literally within days after its publication in the USA; thanks Barney. Shortly thereafter, fellow columnist Freddie Kissoon graciously forwarded an online reference to the text with a note enquiring if I had been aware of it; thanks Freddie.
Second, I have read several reviews of this book and heard several interviews/discussions rebroadcast locally from television stations like the BBC, CNN, Al Jazeera and MSNBC on the occasion of the publication of the American edition. The book has been so widely discussed that its themes resound today in global commentaries on the ‘one percenters’ with frequent references by global leaders to the threat of worldwide instability posed by rising inequality.
I conclude from this circumstance that no public spirited citizen, elected official, trade unionist, community activist (civil society or faith- based), or conscientious professional should be excused from familiarizing him or herself with this paradigm shifting work.
Next week I shall try some spoon feeding and attempt a highly simplified exposition of the book’s central thesis for the benefit of readers, while striving to maintain a fair degree of accuracy.
