Subscribe now

Humans

How inequality is poisoning the world – and how to end it

From spending habits, to notions about hard work, and even who should end up in jail, inequality infests our world – so argue three new books

By Debora Mackenzie

13 July 2016

Dilapidated sofa in wasteland with tall city buildings in background

Inequality pits plutocrats against the angry nouveau poor

Carolyn Drake/Magnum Photos

IN 1776, American revolutionaries declared it self-evident that all men are created equal. Nice sentiment. In 2016, with all our unprecedented wealth, there is still massive inequality between the rich and the poor. This profoundly affects how societies and lives develop – and it fed the fury behind both the Arab Spring and the Brexit vote.

New Scientist Default Image

In his book Global Inequality, Milanovic charts economic inequality within and between countries – and finds something familiar to natural scientists. Like many processes that are subject to feedbacks, inequality runs in cycles. In the 19th century, the industrial revolution created vast new wealth, and the gap between rich and poor widened as the rich used their wealth to get richer. Like all positive feedbacks it had to end. Milanovic argues that extreme inequality at the turn of the century helped trigger the first and second world wars.

After 1945, the industrialised countries deliberately fostered equality. They shared the rocketing profits from yet more technological advance in pay packets and social benefits, especially healthcare and education, which further reduced inequality. Many economists thought that this process would go on forever.

“Economists’ predictions fail, partly because small changes have unexpectedly big effects”

They were wrong. Milanovic says that in the 1980s, economists were shocked when globalisation saw inequality worsen in richer countries. This cycle is due to reverse towards equality, and he warns that it might again be messy, as the plutocrats face the angry nouveau poor. Witness the rise, since the book went to press, of populism and Donald Trump.

Person sleeping on pavement underneath luxury items window display

Post-war efforts to share wealth have collapsed in disarray

Bruno Barbey/Magnum Photos

Inequality between – as opposed to within – countries, though, is plummeting, argues Milanovic. Asia, led by China, has generated a “global middle class” – still poorer than most people in rich countries, but much richer than, say, most Africans. We want this process to continue: less global inequality means more peaceful coexistence. But Milanovic calculates that it will only continue if countries other than China, especially India, also grow more prosperous.

Will they? Milanovic warns that economists’ detailed long-term predictions – some of which may be “a form of charlatanism” – fail partly because small changes have unexpectedly big effects. Yet this problem is not insoluble: complexity research is trying to discover why societies sometimes respond to small changes with big effects.

Meanwhile at least one major factor could prevent India and other emerging economies from emulating China’s success: climate change. Milanovic doesn’t really seem to get that.

Like many economists, he calls for more human migration to ease inequality between nations. Restricting immigrants’ rights in richer countries, he also suggests, may make host citizens more welcoming. He might have proposed this because, as he was writing, the UK government was trying to do precisely that to appease anti-immigrant sentiment. It didn’t work: the issue of immigration continued to dominate the EU referendum. Perhaps Milanovic would write that bit differently now.

New Scientist Default Image

But we cling to the “myth of meritocracy”. We want to believe that Joe earns 10 times more than Jill solely because he worked harder and is smarter – not that he also lucked out in things he had no control over, such as nationality, parents, gender, chance meetings, even his height. It feels fairer. It just isn’t true.

“While winners often need talent to succeed, they also require luck. Yet we cling to the ‘myth of meritocracy’”

Yet the myth feeds a pervasive political belief that people who “worked really hard” to become rich shouldn’t have to pay high taxes so the poor have healthcare and education too – as though the poor could buy these things themselves if they worked harder.

Frank, an economist who works with psychologists, describes experiments that reveal how ingrained our denial of luck is. Our attitude may have evolved because those who believe hard work pays off also work harder. A similar tendency to believe in a “just world”, where you get what you deserve, may have evolved because it makes us more positive. However, other research suggests the acceptance of luck also makes us happier, says Frank.

Our tendency to take credit for our good luck makes the successful unwilling to give the less lucky more chances, fraying the social contract our species needs to live well. In other words, it exacerbates inequality. Frank points out a little-mentioned effect of this: as the richest get richer and spend more, the less rich do the same, obeying the social imperative to keep up. The effect propagates down until it hits people for whom trying to keep up is disastrous. If the top consumers spent less, he says, we all would, and would be just as happy.

So instead of taxing income, Frank, like many economists, proposes a tax on consumption: your income minus savings and what is enough to live on. Unlike consumer levies such as sales tax, the rate would rise steeply with income, targeting the rich. People would save more, and, unlike income tax, says Frank, it might generate enough public funds to pay for crumbling infrastructure and retiring boomers. He doesn’t even mention the environmental dividend of less consumption.

So who could be preventing this sensible idea? Gosh, I wonder.

New Scientist Default Image

Historian Elizabeth Hinton documents how the US came to have the world’s largest prison population in From the War on Poverty to the War on Crime. Astonishingly, she shows it began as a result of the 1960s’ civil rights movement, when the federal government launched a “war on poverty”.

This was aimed at integrating urban blacks, but as ghettoes burned later that decade, it changed to militarising police, building prisons and targeting black youths – targeting that is literally and tragically still with us.

This summer, dig into Milanovic’s eminently readable and authoritative account of how inequality happens and Frank for innovative thoughts on fighting it. Hinton? Read it and weep.

Global Inequality: A new approach for the age of globalization

Branko Milanovic

Harvard University Press

Success and Luck: Good fortune and the myth of meritocracy

Robert H. Frank

Princeton University Press

This article appeared in print under the headline “Divided we stand – or fall”

Topics:

Sign up to our weekly newsletter

Receive a weekly dose of discovery in your inbox! We'll also keep you up to date with New Scientist events and special offers.

Sign up