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"The Inequality Dodge"

wo participants pass by a mirror with the logo of the World Economic Forum, the day before the opening of the 42nd Annual Meeting of the World Economic Forum, WEF, in Davos, Switzerland, Tuesday, Jan. 24, 2012.
AP Photo/Keystone/Jean-Christophe Bott

"The Inequality Dodge"

Op-Ed, Newsweek

January 30, 2012

Author: Niall Ferguson, Member of the Board, Belfer Center for Science and International Affairs

 

Everyone’s talking about inequality these days. President Obama made it a central theme of his State of the Union address: “We can either settle for a country where a shrinking number of people do really well while a growing number of Americans barely get by, or we can restore an economy where everyone gets a fair shot, everyone does their fair share.”

The Republicans have yet to come up with a credible answer to this. Mitt Romney complains that it’s “class warfare” to complain about his 15 percent tax rate. If so, Newt Gingrich is joining in the war. “We aren’t going to beat Barack Obama with someone who owns Swiss bank accounts, Cayman Island accounts,” he declared in Florida last Thursday. “I’m running for president to represent you ... not to represent Goldman Sachs. People matter more than Wall Street.”

Yes, in this debate everyone gets a fair shot ... at Romney.

Inequality was also a surprisingly hot topic at last week’s World Economic Forum in Davos. You wouldn’t expect a gathering of plutocrats, oligarchs, and C-suite supremos to shed much light on the subject, least of all between tastings of vintage Bordeaux and excursions to the finest pistes in Switzerland. And yet one night in Davos taught me more about the true meaning of inequality than anything I’ve read or heard in the United States since the launch of Occupy Wall Street. It was the night I met Leymah Gbowee.

Forty years young this week, Gbowee won last year’s Nobel Peace Prize for her extraordinary efforts to bring peace to Liberia. Despite all the misery she suffered during her country’s hellish civil war—which raged for 14 long years—she radiates warmth and humor. The story of her showdown with the Liberian tyrant Charles Taylor is an astounding one (check out the documentary film about her, Pray the Devil Back to Hell).

Yet it was what Gbowee had to say about Liberia today that left me thunderstruck. Despite the coming of peace and her efforts to promote reconciliation, the Liberian economy is a mess. Youth unemployment is off the charts. Practically the only jobs for young men are in mining. For women? Prostitution. According to Gbowee, a girl needs to have sex with seven men to earn a single U.S. dollar.

To hear a story like that while nibbling veal cutlets in a high-end Swiss ski resort is to know the meaning of inequality.

Liberia is one of those wretched countries where the “bottom billion” live, to borrow a phrase from Oxford economist Paul Collier. Mainly because of bad government and worse civil war, people there are actually poorer than they were 30 years ago: according the World Bank, per capita income has declined 56 percent since 1980.

But here’s what’s truly amazing. Thirty years ago the average Liberian was three times richer than the average Chinese. In 1980, just two years into the reforms of Deng Xiaoping, the Chinese were still among the world’s poorest people.

The big story of our time cannot therefore be reduced to “increasing inequality.” That may be true inside many countries—not only the United States but also most other English-speaking countries, as well as many successful developing nations like China. But inequality among countries has declined dramatically in our lifetimes. And the reason is that the world’s most populous regions—East and South Asia—have at last emerged from centuries of economic stagnation.

Thirty years ago the average American was around 43 times richer than the average Chinese. Today that figure is down to six. When a fifth of humanity achieves economic liftoff, the income gap between the West and the Rest is bound to shrink.

China’s economic miracle has been based on exporting cheap manufactured goods to the rest of the world. So the flip side has been the loss of jobs and pricing power among unskilled workers in the West. Globalization is not the sole explanation for the fact that middle-range and lower incomes in America have essentially stagnated since 1980. But it’s a pretty big part of the explanation.

President Obama wants our debate on inequality to focus on taxation. We now know that higher taxes for the rich will be at the top of his second-term agenda. Yet very few economic success stories of the past 30 years have been based on raising direct tax rates. China’s certainly wasn’t.

Talk of class warfare is overblown. Liberia had warfare; America is just having an election. What this election needs now is a grown-up debate on inequality. Republicans could do worse than revive Deng Xiaoping’s most famous slogan: “To get rich is glorious.”

 

For more information about this publication please contact the Belfer Center Communications Office at 617-495-9858.

For Academic Citation:

Ferguson, Niall. "The Inequality Dodge." Newsweek, January 30, 2012.

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