In South Africa, one of the most unequal countries globally, the richest one-tenth of 1% owns almost 30% of the country’s wealth. This is more than double what the bottom 90% owns. However, income and wealth inequality are not new phenomena. Economists and historians who’ve charted economic inequality throughout history haven’t found a single society without it, raising the bleak question: is inequality inevitable?
One way to estimate inequality is with a number called the Gini index. This index is calculated by comparing the income or wealth distribution of a perfectly equal society to the actual income or wealth distribution. A Gini of 1 indicates perfect inequality, where one person has everything, and everyone else has nothing. Conversely, a Gini index of 0 indicates perfect equality, where everyone has exactly the same income or wealth. However, neither extreme is seen in real life. Typical after-tax Ginis in developed countries today are around 0.3, though there’s a wide range from pretty equal to pretty unequal.
Before we delve deeper, it’s important to understand what the Gini index doesn’t tell us. It gives no information about how income and wealth are distributed across genders, races, educational backgrounds, or other demographics. It doesn’t tell us how easy or difficult it is to escape poverty. It also gives no insight as to how a particular society arrived at its present level of inequality. Economic inequality is deeply entangled with other types of inequality, such as discrimination, imperialism, and colonialism, which have created deeply rooted power and class inequalities that persist to this day.
Some countries are economically much more unequal than others, largely due to choices that governments make. These choices include the type of economy to use. In the 20th century, some countries switched to socialism or communism to reduce economic inequality. These changes did dramatically reduce economic inequality in the two largest non-capitalist economies, China and the Soviet Union. However, neither country prospered as much as the world’s leading economies.
Can capitalist countries choose to reduce economic inequality? It’s tempting to think not, as the point of capitalism often seems to be to amass wealth. China seems to provide the textbook example of this: after it became more capitalist, its Gini index shot up from under 0.4 to over 0.55. Meanwhile, its per capita yearly income jumped from the rough equivalent of $1,500 to over $13,000. However, there are many counter-examples: capitalist countries in which inequality is actually holding steady or decreasing. France, Ireland, the Netherlands, and Denmark have all managed to keep their Gini indexes relatively low.
How do these countries do it? One way is with progressive taxes, where the more money you make, the higher your tax rate. Another way is with transfers, where the government takes tax revenues from one group of people and gives it to another. A third way is to ensure that everyone has access to things like education and healthcare. A highly educated, healthy workforce can command a higher salary on the market, thus reducing inequality.
The fourth way to reduce inequality is by addressing the digital divide: the gap between those who have access to the Internet and those who do not. A fifth way is dealing with extreme wealth. Multibillionaires can buy social media platforms, news outlets, policy think tanks, and perhaps even politicians, and bend them to their will, threatening the very fabric of democracy.
We haven’t touched on the drastic divides in who has wealth and who doesn’t; the power structures that prevent social and economic mobility; and the drastic inequality between countries. For example, just three Americans have 90 billion more dollars than Egypt, a country of 100 million people. Power and wealth are self-reinforcing, which means that equality is not. Left to their own devices, societies tend toward inequality—unless we weaken the feedback loops of wealth and power concentration.
Research and create a visual representation (e.g., pie chart, bar graph) of wealth distribution in South Africa. Compare it with another country of your choice. Discuss the differences and similarities in small groups and present your findings to the class.
Using hypothetical income data for a small community, calculate the Gini index. Discuss what this number tells you about the level of inequality in that community. Reflect on the limitations of the Gini index and what additional information might be needed for a fuller understanding of economic inequality.
In groups, role-play as different countries’ governments. Decide on policies to reduce economic inequality, such as progressive taxes, transfers, or improving access to education and healthcare. Present your policies and predict their potential impact on your country’s Gini index and overall economic health.
Hold a debate on the topic: “Can capitalist countries effectively reduce economic inequality?” Use examples from the article, such as China, France, and Denmark, to support your arguments. Reflect on the role of government choices in shaping economic outcomes.
Research the digital divide in your own country or another country. Create a report or presentation on how access to the Internet impacts economic inequality. Propose solutions to bridge the digital divide and discuss how these solutions could reduce overall economic inequality.
Inequality – The state or condition of being unequal; a lack of equality. – The growing inequality between the rich and the poor is a major concern for social activists.
Wealth – An abundance of valuable possessions or money. – The billionaire’s immense wealth allowed him to live a life of luxury and extravagance.
Gini index – A statistical measure of economic inequality in a population, ranging from 0 (perfect equality) to 1 (perfect inequality). – The Gini index revealed that the country had a high level of income inequality.
Income – The money received on a regular basis, usually through work or investments. – She earned a decent income from her job as a software engineer.
Distribution – The act or process of sharing or dividing something among a group of people. – The distribution of food and supplies to the hurricane victims was organized by the relief organization.
Poverty – The state of being extremely poor, lacking basic necessities and resources. – Many families in the rural area lived in abject poverty, struggling to afford even a proper meal.
Government choices – The decisions made by the governing body of a nation or state that impact policies and actions. – The government’s choices regarding healthcare greatly influenced the accessibility and affordability of medical services.
Capitalism – An economic system characterized by private ownership of resources and the means of production, and the pursuit of profit. – Capitalism encourages entrepreneurship and competition in the market.
Taxes – Mandatory financial charges imposed by the government on individuals and businesses to fund public services and programs. – The company had to pay a significant amount of taxes on its annual profits.
Transfers – Financial assistance or benefits provided by the government to individuals or groups in need. – The government implemented a program of cash transfers to support low-income families.
