Our Inequality Anxiety

Moisés Naím / Foreign Policy

What should be a higher priority: reducing inequality or alleviating poverty? It is, of course, tempting to answer that they are equally important. Or, that the question is moot because reducing poverty will automatically shrink income disparities; or that policies that lower inequality will inevitably reduce poverty.

These answers may be tempting, but they are also wrong. Although China and India’s economic booms have lifted millions out of poverty, they have also led to markedly greater disparities in income. Cuba’s economic inequality is perhaps less severe now than when Fidel Castro took power 47 years ago, but the average Cuban is far poorer today. In the United States, poverty has not risen substantially, but the gulf between haves and have-nots is much wider.

For most of the past 50 years, global poverty was a chief concern for politicians, academics, and the media. Today, it is global inequality. The gap between rich and poor is constantly in the spotlight. And for good reason: The wealthy seem to be leaving the impoverished further and further behind. Twenty years ago, Forbes, in its first ranking of wealth, found 140 billionaires worldwide. Today, the total is 793, with an increase of 102 from just last year. The number of millionaires in Asia grew by some 700,000 between 2000 and 2004. In the same period, North America’s population of millionaires shot up 500,000, and Europe’s increased by 100,000. According to Merrill Lynch, China could become the world’s leading source of luxury shoppers by 2009.

The world has always suffered from acute economic inequality. But, despite all the conspicuous consumption, global inequality has not changed significantly. According to some measures, it may have even declined. The World Bank recently announced that "since the [Second World] War, international inequality between countries has decreased immensely." This conclusion will come as a shock to many, especially those who point out — correctly — that a century ago rich nations, which were nine times more affluent than poor countries, are now 100 times wealthier than their poor counterparts. This question is hotly debated among economists, and it is probably best left to them. (The problem is that the statistics tell different stories depending on the methodology one prefers.) In truth, in some places inequality has become far worse, and in other places the changes are fairly minor. But what is most clear is that whereas the statistics about inequality do not show major variations, our collective awareness about it has changed substantially.

There are several reasons for the world’s newfound anxiety over inequality. The most obvious is that we are all better informed today of the economic differences that divide us. You need only turn on a television or pick up a newspaper to be reminded of where you stand in the global economic pecking order. Inequality anxiety is heightened further by people’s fears of terrorism or booming illegal immigration; in both cases, someone else’s inequity, so the theory goes, may eventually pose a direct threat to your well-being. Furthermore, in the United States, inequality is increasingly dominating political debate. Thanks to its immense ability to spread its dilemmas to the rest of the world, America’s inequality anxiety has been exported to countries where inequality has not changed much at all.

The democratic wave that has swept the world since the 1980s has also pushed inequality toward the center of many national conversations. More democracy has meant freer media, which are prone to document economic disparities and expose public corruption. For politicians, few messages are as likely to gain the favor of voters as promises of redistributing a nation’s wealth from those who have too much to those who have too little. As a result, almost everywhere — from Hungary to Mexico, from Iran to the Philippines — denouncing inequality has become a surefire ticket to electoral success.

And herein lies the danger. Yes, inequality is morally repugnant and politically corrosive. But it is also stubbornly immune to direct government interventions. The world has a long history of failed attempts at fighting inequality, including changing the tax system, labor market interventions, reform of property rights, massive subsidies, protection from foreign competition, and price controls; the list is endless. Nothing has worked. Countries that are unequal have stayed unequal. In the last 25 years, no country that suffers unequal distribution of wealth has succeeded in permanently decreasing its inequality. Worse, more often than not, good intentions have led to waste, corruption, and even more inequality.

What to do, then? Let’s stop fighting a battle we can’t win and concentrate all efforts on a fight that can succeed. The best tools to achieve a long-term, sustained decline in inequality are the same as those that are now widely accepted as the best available levers to lift people out of poverty. Provide access to better education and healthcare, clean water, justice, steady jobs, housing, and credit. The recipe is well known, even boring. These goals are not good fodder for a rousing speech. And they will not bring down inequality as quickly as one would wish. But focusing on these indispensable goals will certainly close one important gap: the gap between our good deeds and our best intentions.