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A world plagued by poverty: How to reduce inequality

Yale University professor of economics John Roemer lectured on inequality and cooperation in Cairo this week

Niveen Wahish , Monday 26 Mar 2018
US poverty NYC
A homeless person (L) sleeps on the steps of Federal Hall on Wall St. in New York City, U.S., February 28, 2017. REUTER
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When some people have far more money than other people, as well as far more income and far more wealth, and as a result can live much better than other people can, this situation is what John Roemer, a Yale University professor of economics and political science, calls a case of toxic inequality.

He is a firm believer that societies should aim to equalise opportunities for their citizens, something he was explaining this week in Cairo.

Many people think of inequality as being much lower than it really is, Roemer said. In the US, for example, the wealthiest one per cent of the population owns 40 per cent of the wealth, meaning they own on average 40 times the wealth of an ordinary family.

Meanwhile, the bottom 50 per cent of the population in the US together own only two per cent of the wealth.

 “People do not realise that wealth is extremely concentrated” in the world today, Roemer commented in an interview with Al-Ahram Weekly.

Eight individuals now own the same amount of wealth as the 3.6 billion people who make up the poorer half of humanity, according to a report by the international NGO Oxfam published early last year.

“That is huge inequality,” Roemer said, adding that if that wealth were redistributed it would more than double the income of those billions.

“There is no justifiable ethical reason why incomes should be as terribly different as they are today,” he told the Weekly. Roemer advocates a society in which wealth is distributed more equally than is the case in most countries today.

Those that come closest to his favoured model are the Nordic countries, where income distribution is far more equal than in other countries in the world.

Speaking at the AUC’s Alternative Policy Solutions (APS) forum, Roemer introduced an economic model based on cooperation instead of competition. In a presentation entitled “How we Cooperate: A Kantian Explanation”, he showed that though cooperation is a huge part of humanity’s “tool kit”, orthodox economic theory has rarely tried to model cooperation and has focused on modelling competition instead.

However, the economic success of our species is due in large part to the human ability to cooperate, he said.

He gave the example of cooperation in daily activities such as driving, recycling, queuing, voting and tax payments.

Roemer’s theory, which he hopes could get economists to see cooperation in more places than they currently do, could also come in handy in resolving inequality. “To get to a society where we have much more distribution of income requires cooperation among people,” he said.

Roemer discussed equality of opportunity as a way towards achieving greater social justice during a second lecture organised by the APS together with the Economic Research Forum (ERF), an NGO.

The top 10 per cent of the Egyptian population receives 50 per cent of the income in Egypt, Roemer pointed out. “That is a very unequal situation,” he said, explaining that each family in the top 10 per cent receives five times the average income of an Egyptian family.

The top one per cent of the population receives about 20 per cent of national income. “That is an extremely concentrated income distribution,” Roemer said.

Changing such patterns of inequality require a more competitive economy and better training and education for the population as a whole.

The education system in Egypt is deficient, Roemer said, with the result that people do not have the necessary skills to earn more money.

Subsidies are not the answer, he said. The first thing a developing country like Egypt should do if it is serious about reducing inequality is to improve the quality of education. Democracy can help, Roemer said, since people will be encouraged to vote to spend more money on education.

Spending on elementary education is the most important thing in the short run, as it is essential that people receive at least a good six years of education so they can read and write properly and do basic arithmetic.

Secondary school is the next most important thing, as it builds on basic skills and provides some degree of specialisation. Roemer suggested that developing countries, among them Egypt, should worry less about universities until they have a properly educated population through 12th grade.

He said that governments should find a way to make sure all children are in school. Some countries have had difficulties getting parents particularly in rural areas to send their children to school, but they had dealt with these by providing targeted incentives, Roemer said.

Children might get free meals, for example, which can be an incentive for poorer families to send their children to school.

Such schemes have been tried in Latin America, where the “Bolsa Familia” system in Brazil has been successful in giving resources to families to encourage their children to stay in school.

“You have to give people the incentive to send their children to school,” Roemer concluded.

*This story was first published in Al-Ahram Weekly  

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