Feiyang SHI compares the significance of talent and of opportunism & chance when studying economic disparity and explores new directions to reform policies for reducing inequality.
When someone says “inequality,” what comes to mind? Employment discrimination, differences in education opportunities, class discrimination? These are the talents-related issues that the majority of people would recognise as causing inequality in society. Besides that, people are also discriminated against due to their gender, ethnicity, or are provided with very different levels of opportunities for self-development and education despite initially they have the same level of merit. The government has a range of policies to deal with these issues, but in practice how effective are they for constructing more equal economies? With the gap between the rich and poor growing ever larger, it is time to look beyond the inequality among individuals and explore other factors that are causing inequality.
Until now, most of the studies done on inequality are focused on the talent side. Many countries have sanctioned policies to eliminate and prevent accumulated-wealth-driven inequalities, gender inequalities and racial inequalities. For example, on the education front, primary education is now provided for 92% of the children in the developing world, further target is already listed in the Millennium Development Goals. On the fiscal side, to combat inequality, the OECD countries have reformed the tax and transfer system. The new transfer system contributed to 3/4 of the reduction in inequality. For the more direct discrimination cases concerning race and gender, there is a rise of awareness on a global scale, leading to the introduction of development measurements such as the Gender Inequality Index (GII) measuring gender disparity.
Although on the action side the implementations seem very positive, outcomes still lag behind. In fact, recent development shows that the income gap between the rich and poor across the globe continues to grow, indicating that existing policies aimed at tackling inequality are not enough. In the US, the share of national income going to the top 1% has doubled since 1980s while the top 0.01% has quadrupled. So what is the missing piece to this extreme wealth and inequality puzzle?
Now, let us imagine that you are mistakenly being served with documents related to a lawsuit. Even though you are innocent, to make your stand in the courtroom requires you to find a lawyer. In this case, you not only need to endure the process, you also need to pay to get your justice. This small-scale rent seeking behaviour can cause some annoyance. But when it happens in society at large, chance-taking and rent-seeking behaviour often translate the same or lower level of merit into much higher return, causing complaints about systemic injustice and inequality. It may be argued that this only happens to a few individuals, thus the effect is negligible. But as Oxfam stated, the top 1% earns more than the rest of us summed up in 2015. When global income is so concentrated, it worth examining the effects of these behaviours on extreme inequality and extreme wealth accumulated over time.
Apple’s revenue, for example, is greater than Bangladesh’s GDP. But is it purely merit based? In other words, does Apple deserve greater returns than an entire country? Apple displays rent seeking behaviour via “intellectual property and tying” mechanisms. People purchase Apple device in hope to enjoy the full level of satisfaction it can provide. However, many software and hardware tied to the device for maximising its performance require separate payments. This functions in a way similar to that of two-part pricing. It indirectly presses consumers to increase their expenditure on the products and thus increases the producer’s share of surplus. Also, because the international market is growing ever more integrated, strong businesses, like Apple, Toyota and Samsung, are growing even larger by seizing the opportunity to appeal to a much bigger consumer group.
By simply riding on the wave of globalisation, strong businesses are able to generate much higher revenues with much less effort. By tying products, companies are generating more revenue from consumers’ dependency and need. More generally, research shows that rents of cronyism, inheritance and monopoly attribute to 65% of the global wealth of billionaires. Extreme wealth is getting stronger as income and wealth is “being sucked upwards”, it seems like only reforming the economy from the talent side is no longer enough.