Combating Inequality

The Global North and South

Alexander Gallas, Hansjörg Herr, Frank Hoffer, Christoph Scherrer, Alexander Gallas, Hansjörg Herr, Frank Hoffer, Christoph Scherrer

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317423850
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

Economic inequality has recently gained considerable academic attention. However, two important aspects of inequality have not been discussed systematically: its multidimensional nature and the question of what can be done to reverse it. This book offers insights from scholars representing the Global Labour University, which operates in Brazil, Germany, India, South Africa and the US. They analyse the various drivers of inequality, assess policy responses, and discuss counterstrategies.

The main findings of this book are that rising levels of inequality cannot be addressed only with the standard policies responses, namely education, redistribution and 'green growth'. In addition, the way markets currently function needs to be corrected. The chapters in this volume focus on specific fields of contemporary capitalism where important drivers of inequality are located, for example, the labour market; the financial system; the tax system; multi-national corporations; and gender relations. Other chapters discuss in detail where political opportunities for change lie. They critically assess existing countermeasures; the idea of a 'green economy' and its implications for inequality; and existing campaigns by trade unions and new social movements against inequality. In line with the global nature of the problem, this book contains case studies on countries both from the north and south with considerable economic and political weight.

This book provides academics, political practitioners and civil society activists with a range of ideas on how to drive back inequality. It will be of interest to those who study political economy, development economy and labour economics.

1
Introduction

Alexander Gallas¹

The inequality impasse

Economic inequality has gone mainstream. The list of critics of the increasing disparities in wealth and income in many countries around the globe is long; it reads like a Who’s Who in politics, business and civil society. Among those who have voiced concerns are Nobel Prize-winning economists like Paul Krugman, Robert Shiller and Joseph Stiglitz; business magnates such as Warren Buffett and Bill Gates; religious leaders, for example the Archbishop of Canterbury, Desmond Tutu and Pope Francis; and a significant number of political heavyweights, among them Hillary Clinton, Barack Obama, Vladimir Putin, Dilma Rousseff, Xi Jinping and Jacob Zuma. Furthermore, international institutions like the Organisation for Economic Co-operation and Development (OECD) (2015) and the International Monetary Fund (IMF) (Ostry et al., 2014) as well as the rating agency Standard & Poor’s (2014) have recently published studies critical of rising economic inequality, while Thomas Piketty’s book Capital in the Twenty-First Century (2014) has been a huge success among book-buyers and has received broad coverage in the news media (cf. Kaufmann and Stützle, 2015: 17ff.).

Some of the illustrious names listed may only be paying lip-service to an agenda aimed at curbing inequality for reasons of self-promotion or political tactics, and not because they are making a serious commitment to tackling the issue. And quite a few of them have been proponents of free-market agendas, which have contributed significantly to driving up inequality.² But the fact that they feel the need to comment at all is indicative of the attention the issue has been receiving lately. The recent debates differ markedly from those during the heyday of neoliberalism, when inequality was often presented as a lamentable but unavoidable side effect of economic growth that people simply had to get used to.³ It appears that there is a considerable number of forces in politics, civil society and academia agreeing that part of the broader economic crisis characterising our day and age is an ‘inequality crisis’ (Gallas, 2014). According to its critics, economic inequality is detrimental to economic growth,⁴ undermines social cohesion⁵ and threatens democracy (Gallas et al., 2014).

However, this shift in perceptions has so far failed, on the whole, to translate into groundbreaking material change. Quite the contrary: in most parts of the world, the levels of economic inequality are consolidating at a very high level – or are continuing to rise. At the same time, there are very few examples of successful government interventions tackling the issue. In fact, it appears difficult in some countries to mobilise people behind an agenda for change.⁶ In the UK, Ed Miliband, a critic of inequality, lost the general election of May 2015 against David Cameron, who had embarked on the deepest public spending cuts in the country since the inter-war period during his first term and had vowed before the election to cut a further £12 billion from the welfare bill. In March 2015, the Rousseff government in Brazil was faced with a huge demonstration, ostensibly against corruption but in fact directed against her presidency and the hold of the Workers’ Party (PT) on government (Saad-Filho, 2015). Notably, the Lula and Rousseff administrations are among the few examples of governments with a strong track-record in reducing inequality.

All in all, it appears that we find ourselves in a situation of political impasse (cf. Gallas, 2014) between the social-political forces of continuity and the forces of change. Political critiques of inequality, on the whole, remain ineffective – despite the fact that there are many people who are discontent with the existing economic divides and the fact that those hit hardest by the current global economic crisis are those who benefited the least from the long, credit-induced boom that had preceded it. It appears that the political forces of the status quo – sustained by transnational financial capital, the managerial strata of multinational corporations and members of the global ‘elite’ – are deeply entrenched in the structures and institutions of neoliberal capitalism. There is need for a debate on how to advance an egalitarian agenda in this situation.

The need for counter-strategies

The inequality impasse has not been covered much in the social science literature on the topic. Whereas there are numerous analyses of the causes of rising inequality, there is little systematic research on how this rise can be contained or even on how inequality can be reduced. Likewise, there are few systematic reflec­tions on the role of trade unions in the process – despite the fact that the labour movement is uniquely positioned to play an important role. After all, it has been acting as a force for equality for a long time and has a strong track record in the field. Correspondingly, various authors (Gago, 2013; Kimball and Mishel, 2015; Watt and O’Farrell, 2009) stress that the presence of organised labour in a country, measured in union density, is inversely correlated with the degree of inequality.

In light of these gaps in inequality research, this volume attempts to sustain the critique of inequality at the discursive level and to provide intellectual support to those inside the labour movement who are working to translate the critique into political action. It aims to:

• identify drivers of inequality;
• assess existing proposals on how to deal with the issue;
• develop alternative proposals that take into account the limits of existing proposals;
• discuss the political context of the debate;
• highlight opportunities, constraints and dilemmas for political forces fighting inequality;
• identify strategic paths for change.

On the whole, the objective of the book is to make a systematic contribution to debates on countermeasures and counter-strategies.

Defining and measuring inequality

There are different ways to define and measure economic inequality. In general, the term refers to the unequal distribution of economic resources (assets or income) within a specific social setting. Economic inequality can be distinguished from inequalities referring to other ‘regions’ of the social world, for example inequality before the law, which highlights differences in treatment by the judiciary, or political inequality, which refers to differences in influence over political decision-making. Inequalities emerging out of different ‘regions’ normally reinforce each other, and economic inequality tends to translate into legal and political inequality (cf. Gallas et al., 2014; Uslaner, 2008).

Economic inequality can be seen as representing a cleavage within populations, that is the cleavage between rich and poor. However, it can also be used to describe other such cleavages, namely those between ethnic groups, races, genders, town/country and so on. If this multiplicity of cleavages is considered, it also becomes possible to identify cross-cutting cleavages, that is cleavages explaining divides within certain social groups. Examples are the existence of an economic divide along gender lines among poor people, as well as economic inequality among women. For reasons of complexity reduction and consistency, this volume focuses on analysing the distribution of economic resources as such. Considering the multiplicity of existing cleavages, however, it may be worth expanding the scope of future research projects.

There are two main ways of measuring inequality: the Gini coefficient and inequality ratios. The Gini coefficient is a variable between zero and one, where zero denotes perfect equality (everyone has the same) and one denotes maximum inequality (one person owns everything). The lower the Gini coefficient, the more equal a society.⁷ Denmark, for example, has the lowest Gini coefficient in the OECD with 0.249; Chile the highest one with 0.503.⁸

Inequality ratios are based on dividing people in a society into groups of equal size (percentiles) according to their economic resources. This in turn allows for comparing any two percentiles and determining the factor by which the lower value needs to be multiplied in order to equal the higher value. It is common to measure economic inequality by comparing the top and bottom 10 per cent in a society, but it is equally possible to compare the top 20 and bottom 20 per cent (cf. Wilkinson and Pickett, 2009: 15ff.), or to measure middle-class inequality by comparing the fourth decile from the top with the third decile from the bottom (ILO, 2015: 24). If the top/bottom 10 per cent ratio is used, economic inequality in the OECD is highest in the Mexico with a factor of 30.5 and lowest in Demark with a factor of 5.2.

When economic inequality is analysed, the units of comparison can be individuals or households. It is often argued that comparing households is preferable because individuals, in particular children, may live in a household with substantial economic resources, but they may not control them directly. If the household represents the unit of comparison, economic inequality is still measured on an individual basis, but the value of economic resources at the disposal of individuals is equalised for members of the same household (Atkinson and Morelli, 2014: 3; Hills et al., 2010: 34).

Pay inequality refers to the inequality emerging out of employment. However, a considerable share of people in any population are not in employment and many people possess economic resources that are not the result of their working for a wage. In other words, pay inequality only explains economic inequality within the group of the employed and only insofar as the inequality within that group is caused by employment. Profit income, which is market income not originating from work, can also be more or less unequally distributed. A society with a large number of small companies and a strictly controlled financial system has a profit distribution different from a country with big corporations owned by a few families and a deregulated financial system with a powerful rentier class.

Income inequality can be measured in two different ways: functional income distribution refers to the share of aggregate income from capital as opposed to the share of aggregate income from labour and therefore captures the capital/labour cleavage neatly, but does not show the internal differentiation of the groups thus defined; personal income distribution provides a more detailed picture of different income groups, but covers up this cleavage. Furthermore, it is necessary to distinguish between personal income or gross income and disposable income, that is net income after tax including social transfers. In other words, the difference between personal and disposable income distribution shows the direct effect of state redistribution on economic inequality.

Wealth refers to all assets possessed by individuals or households, which includes both financial assets (such as shares or savings) and property (such as businesses or real estate). The more unequal the distribution of wealth, the more unequal the profit distribution will become.

The various chapters of the book discuss different measures of income inequality and different indicators depending on the dimension of income they discuss. All of them converge insofar as they agree that rising inequality has detrimental economic, political and social effects.

The combating inequality research project

This book represents the final publication of the Combating Inequality Research Project – an undertaking that was launched in January 2013 and that ended in May 2015, involving around 50 scholars and trade unionists from across the globe. The project was funded by the Hans Böckler Foundation, which is based in Düsseldorf and linked with the German trade union movement. It was hosted by the Global Labour University (GLU). The GLU is a network of universities offering MA programmes in global political economy and labour studies that are specifically designed for trade unionists. It has campuses in Brazil (University of Campinas), Germany (Berlin School of Economics and Law and University of Kassel), India (Jawaharlal Nehru University, New Delhi and Tata Institute of Social Sciences, Mumbai), South Africa (University of the Witwatersrand, Johannesburg) and the US (Pennsylvania State University, State College).

A whole range of publications emerged out of the research project, documenting the research findings of the scholars involved and providing analysis, political recommendations and strategic considerations. Apart from this book, they consist in a number of working papers,⁹ a special issue of the International Journal of Labour Research¹⁰ and a special issue of the Global Labour Journal.¹¹

A global issue

Considering the global nature of the problem of inequality, it is impossible to grasp it fully if it is examined exclusively at the national level. At least two of the key drivers of inequality emerge out of global configurations: the ensemble of transnational production networks co-ordinated and controlled by multinational corporations;¹² and the global financial system.¹³ In both cases, it has proven extremely difficult to regulate these configurations effectively at the national level. This suggests that achieving fundamental change in the area of inequality requires scholars and activists to explore transnational paths of intervention and linking them up with national campaigns.

At the same time, the uneven and combined development of global capitalism means that the transnational flows of capital, money and commodities are interiorised into national economies in different ways. Among the factors determining interiorisation are (a) the position of an individual country in the world market and the international division of labour; and (b) the economic and political institution...