Mon | Aug 21, 2017

Peter Espeut | Inequality as policy choice

Published:Friday | July 21, 2017 | 7:00 AM

Being a staunch anti-communist and anti-socialist, my late friend, Motty Perkins, would often argue that economic inequality is a normal, natural and inevitable phenomenon, because human beings are born with different talents and aptitudes, and therefore some will be able to earn more than others; therefore income equality is an impossible and romantic ideal.

Motty's line of reasoning certainly explains a natural variation in income levels between people who have access to the same opportunities and resources for education and training; but it does not explain how eight men now living have come to own between them the same amount of wealth as the bottom half of humanity now living on planet Earth.

For those economic fundamentalists who believe in the religion of the market, inequality is natural and inevitable and cannot be reversed or combated. Market fundamentalism is a type of fatalism, claiming that the realm of economics is governed by powerful forces which cannot be tamed; nations and individuals must not challenge the status quo, but must surrender to market forces, and go with the flow.

Today, not even the World Bank and the International Monetary Fund (IMF) subscribe to this view. Ahead of its 2016 Annual Meeting with the IMF in Washington DC, the World Bank called for a fresh drive to tackle inequality after warning that the gap between rich and poor risks thwarting its ambition of eliminating extreme poverty by 2030.

Nowadays, the received wisdom is that the market must be regulated, to remove some of its most negative influences. Two days ago (July 19) the UK-based Guardian newspaper featured an article entitled: 'Inequality is not inevitable, it's a policy choice. For proof, look at Namibia'. The author - Max Lawson, head of Inequality Policy at Oxfam International - argues that even though the forces of globalisation and technological change are powerful and seem immutable, inequality within countries and between countries is not inevitable, but is the result of government policies.

 

Unequal country

 

That certainly is true for Jamaica, one of the most unequal countries in the world. In a World Bank ranking of 141 countries, only 35 are more unequal than Jamaica, including Haiti, Honduras, Belize, Rwanda, South Sudan, and Botswana (see World Bank gini coefficient rankings at //en.wikipedia.org/wiki/List_of_countries_by_income_equality). Over the years, overt Jamaican government policy has supported and increased inequality, which suits those who rule us.

In his article in the Guardian, Lawson discusses Oxfam's inequality ranking of 152 countries, in which Jamaica falls at number 124 (only 28 countries are more unequal than we are). Many of us who live here consider Jamaica's inequality to be normal because we have got used to it; but we are decidedly not normal: Jamaica's inequality ranking is a symptom of deep social sickness.

In Oxfam's view, inequality may be measured by the weighted average of three indices, each pointing to government policies which either increase or reduce inequality: spending on health, education and social protection (we rank 106), the progressive/regressive structure of taxes (we rank 126), and the presence of labour market polices that address inequality (we rank 95).

The Oxfam rankings also indicate the policy shifts which, if made, will reduce inequality.

Jamaica's almost apartheid education system - a creation of government policy - perpetuates social and economic inequality in Jamaica from generation to generation. Should the Government genuinely reform its public school and health care system, and widen the social safety net, inequality will decline.

 

Direct to indirect taxation

 

Jamaica used to have a progressive taxation system, where high-income groups (which have a greater ability to pay) paid a larger percentage of their income in taxes than low-income groups; Mr Seaga changed that in the 1980s to a flat (regressive) taxation system. The shift from direct to indirect taxation (on consumption) is even more regressive, placing a disproportionate tax burden on the poor. This policy choice, more than any other factor, has caused Jamaica to experience world-beating income inequality.

Should we change our taxation policy towards a more progressive system, inequality in Jamaica will decline.

Our best showing on the Oxfam index is in labour market policy, where we rank 95 out of 152 countries, which is still quite poor. It is the level of our much-maligned minimum wage which saves us the embarrassment of a much lower inequality ranking. Raising the minimum wage would reduce income inequality in Jamaica.

In an article in last Wednesday's Gleaner entitled 'Income inequality bad for economic growth' UWI economist Dr Andre Haughton argues that Jamaican government policy directs resources towards supporting firms rather than supporting households; this trickle-down approach is another source of inequality in Jamaica caused by government policy.

Surely, if our goal is prosperity, the Government must implement policies that decrease inequality, rather than increase it?

- Peter Espeut is a sociologist and development scientist. Email columns@gleanerjm.com.