INTERVIEW WITH Nick Galasso
In January 2014 Oxfam International published a Report, Working for the Few: Political Capture and Economic Inequality, arguing that, left unchecked, income inequality is a self-feeding phenomenon by which the rich are able to capture government policymaking and high-quality services. In October 2014, Oxfam published another Report, Even It Up: Time to end extreme inequality, substantially confirming the findings of the previous report. According to Oxfam’s Reports, ‘only 85 people in the world owns as much as the bottom half of the world’s population’ and ‘The past quarter of a century has seen wealth become ever more concentrated in the hands of fewer people.’ More recently, during the World Economic Forum meeting in Davos (January 21-24, 2015), Winnie Byanyima, Oxfam International Executive Director, showed the results of a new Report, ‘Wealth: Having It All and Wanting More:’ by 2016 The combined wealth of the richest 1 percent will overtake that of the other 99 percent. The fact that the distributions of wealth and incomes are becoming ever more ‘unequal,’ is also confirmed by other several studies (the European Central Bank, Credit Suiss, The World Top Income Database). Why is economic inequality such an important issue to face in the global political agenda? What are the causes and the consequences of the current upward trend in inequality? Is it possible to stop this negative tendency? How? Nick Galasso, co-author of Working For the Few: Political Capture and Economic Inequality, and other books on social issues, answered to these and other questions.
Nick Galasso: Nick Galasso is an American Council of Learned Societies Public Fellow, serving Oxfam America as a research and policy advisor. He leads Oxfam's work on economic inequality. Galasso is the co-author of Working For the Few: Political Capture and Economic Inequality, the report that calculated the 85 richest people in the world have the same wealth as the bottom half of humanity. He holds a PhD in Global Governance.
Oxfam International: Oxfam International’s vision is just a world without poverty, where people are valued and treated equally, enjoy their rights as full citizens, and can influence decisions affecting their lives. Oxfam uses a combination of rights-based sustainable development programs, public education, campaigns, advocacy, and humanitarian assistance in disasters and conflicts. It challenges the structural causes of the injustice of poverty, and work with allies and partners locally and globally. Oxfam works to face global challenges including climate change, famines and food price crises, increasing humanitarian crises, energy limitations, proliferation of weapons, urbanization, and natural resources shortages. See Oxfam’s reports on inequality:
INTERVIEW - (December 2014)
Interview made in December 2014 and published in January 2015
Subject: Economic Inequality and ‘Polictial Capture’
Where you are born or live has more to do with where you sit on the global income distribution than anything else!
The richest 85 people held the same amount of wealth as the poorest half of the planet.
The richest 0.7 percent of the planet holds approximately 41 percent of all the wealth.
The richest 1.75 percent of the planet have the same aggregate income as that of the poorest 77 percent of the planet.
Question 1: You are the co-author of the Report Working For the Few: Political Capture and Economic Inequality. In this Report, Oxfam International is highly concerned about the rising levels of economic inequality. Can you give us a snapshot on global inequality? Why should we fear so much inequality? What are its ultimate consequences?
I can try to offer a snapshot. While we now have the best data yet produced on global inequality, it’s still not an exact science. This is because the surveys used to assess income, wealth, and consumption distributions are problematic. Most importantly, the rich tend to be underrepresented in surveys. So, it’s hard to know about how much the rich really have. Tax havens and other ways to hide wealth make this even more difficult.
That said, we can estimate that a significant amount of the world’s wealth is concentrated into a few hands. As my co-author Ricardo Fuentes and I calculated in Working For the Few, the richest 85 people held the same amount of wealth as the poorest half of the planet last January (2014). Forbes re-calculated this figure a few months after our report, came out and determined it was actually fewer people, approximately 66 people. As Credit Suisse calculates in its Global Wealth Pyramid, the richest 0.7 percent of the planet holds approximately 41 percent of all the wealth. This 0.7 percent represents about 32 million people. In contrast, the poorest 69 percent of the planet share about 3 percent of all wealth. Branko Milanovic offers a different way to think about this, though with income. Imagine we took all the income in the world and separated it into five equal piles. The richest 1.75 percent of the planet own one pile, while the poorest 77 percent of the planet own another.
Why should we fear inequality?
We should fear such extreme inequality for a number of reasons:
1)Wealth is a form of power that can skew government decision-making so that the rules of the game are rigged in favor of those already economically privileged. Democracy breaks down as government only comes to represent the interests of economic elites. If this is left unchecked, we worry that inequalities can become entrenched as social, economic, and political gains are transmitted across generations, from parent to child. The outcome is that the best education, the best healthcare, and the best tax rates are gifted to the children of the rich, allowing them to hoard opportunities and making it harder for poor kids to ascend the economic ladder.
2) Highly unequal societies face greater levels of violence, discontent, and mistrust. Societies affected by high inequality are places where it is more difficult to live.
3) Finally, and this is a new element on the theme, as the International Monetary Fund (IMF) is confirming, extreme inequality actually hurts economic growth. It also infuses macroeconomic risks into economies.
In conclusion, basically, more equal societies are more harmonious and nicer places to live.
Question 2: We can distinguish inequality among countries and inequality inside countries. What is, in your opinion, much more worrying? What are the countries where inequality is rising more?
I’m concerned about both, but we should really recognize the great inequality that remains among countries. We’ve heard a lot about how developing countries are catching up to the advanced economies because of globalization and economic growth. This is true, but the divide is still enormous, and we certainly need to continue investing to eradicate poverty and increase standards of living among people living in most of the world.
The flip side to the economic growth (and catching up) by developing countries has been growing inequality within countries. Unfortunately, the benefits of globalization and growth are seldom shared equally across a population. We’ve seen certain segments of countries greatly benefit, especially those already in the upper middle and highest portions of the income distribution, while much less has trickled down to the poor. This has exacerbated economic inequality in many developing countries. China offers a stark example of this.
So, what are the countries were inequality is rising most?
As I said above inequality is affecting developing countries that have experienced growth in recent decades. It’s important to note that in many of these countries inequality was already high. Inequality, however, has also now been rising in advanced economies. We’ve been hearing a lot about this because of the data revealed through Piketty and Saez in places like the U.S. and other high income countries. The global picture, therefore, is the following:
a) The world has seen inequality increase in most countries around the world since the early 1980s.
b) Yet, inequality remains fundamentally a developing country issue.
c) While advanced economies should be worried about recent rises in inequality, they are taking off from lower levels than in developing countries.
d) Advanced economies also have the resources and institutional capacity to reduce this rising trend.
e) The trend we should be most concerned with, however, is not so much rising inequality within countries, but the enormous gap that remains between rich and developing countries.
Question 3: Now let’s talk about ‘inequality inside countries.’ There are two kinds of inequality: a) wealth inequality; b) income inequality. Which one do you consider more dangerous?
Wealth inequality is significantly more ‘robust’ than income inequality. I’m not sure I would use the word ‘dangerous,’ but wealth has the potential to entrench inequalities across generations through inheritance. Of course, this is something we witnessed in earlier centuries and many countries have taken steps to redistribute estates after death so as to prevent the emergence of ‘dynasties.’ Still, there is still a salient debate in the U.S. (where wealth is taxed significantly lower than income) and in developing countries where people are now seeing their first ultra-wealthy millionaires and billionaires.
Question 4: Drivers of Inequality. You have also written (with Oxfam) a specific Report on the drivers of inequality: The drivers of economic inequality: A primer. So, what are the causes of the rising levels in inequality around the world?
There are many drivers of economic inequality, and they usually are overlapping and self-reinforcing. It’s hard to untangle them and demonstrate any kind of discrete causality. Some drivers are based on social characteristics and beliefs, for instance concerning gender and ethnicity. Geography is probably the most salient driver of inequality, both among countries and within them. Where you are born or live has more to do with where you sit on the global income distribution than anything else. Children born in poor countries essentially experience a birth penalty that has nothing to do with their potential, skills, or intellect. The same is true within countries, as urban centers are associated with greater economic opportunities and higher wages than rural areas. Often, within country inequality layers nicely on top of geography. In Working For the Few, I and Ricardo Fuentes looked at the role of ‘political’ capture by economic and political elites as an important driver of extreme inequality that pervades rich and poor countries alike.
Question 5: As you said in your last answer, In its Report, Working For the Few, Oxfam introduces the concept of ‘political capture,’ by which the richest section of society (the economic élite) is able to ‘catch’ the ‘best’ from governmental rules and public institutions. Can you better explain how does this phenomenon work?
‘Political capture ‘deals with a phenomenon of politics that has been around since we began organizing ourselves into political units. Namely, those with the most resources use the influence those resources provide to make the rules affecting everyone in the group. As you can imagine, those rules tend to benefit those whom already possess the most resources, thereby making it possible to transfer inequality across generations. Representative democracies of the modern era are supposed to fix this by ensuring government representative is equal among citizens despite differences in wealth. In one sense, this struggle between ‘great wealth’ and ‘equal representation’ is a good characterization of the experience of democracy since the 18th century. When democratic systems become susceptible to the influence of extreme wealth, the political process may become ‘captured’ by those interests. When politics are ‘captured,’ we see the ‘rules of the game’ are overwhelmingly in favor of the wealthy so that policies work in ways that aggrandize them and take away from groups lower down the economic ladder.
Question 6: All that said, what do you propose to reduce inequality both inside the countries and between countries?
Governments must make tackling extreme economic inequality a fundamental priority. Unfortunately, I don’t see the right kind of effort being made within countries, or at the global level. Reversing extreme inequality is very hard and serious work, and sadly there is no big global commitment.
What are the best tools to reduce inequality?
It depends on the local context. That said, the suggested policies are not rocket science! They include many of efforts civil society has been pressuring governments and the private sector to do for a long time. For instance, a focus on supporting wages and incomes of the poorest is crucial. This entails 1) bringing more people into the formal labor market and 2) supporting wage floors with living wages that adjust periodically for inflation. Government cash transfers to the most poor have also proved salient in certain cases, too. Often, these are linked to ensuring children within a household are attending school and receiving regular medical attention. Likewise, greater resources should be devoted to boost ‘human capital’ by making education and skills training more accessible to marginalized groups. How will countries pay for this menu? At the heart of this is fixing our tax and government revenue systems. This entails 1) curbing tax evasion and 2) developing international agreements to abate illicit flows from leaving countries before paying their lawful due. In some countries, it also means that tax systems need to become more ‘pro-poor focus,’ eliminate ‘corporate welfare,’ and apply tax rates appropriate to what individuals bring home.
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