The secret to getting rid of disparity is not to tax the rich, but to boost the lower rung of society
The New Year is a time to think about what we can do better in the coming 12 months.
Last year, “rock-star” French economist Thomas Piketty’s book on “Capital in the 21st Century” signalled the growing sense of inequality in an age of plenty.
When the richest 0.1 per cent owns as much as 90 per cent of the rest of the population, something is seriously wrong with capitalism.
However bad the inequality, it is not the static status quo that is the problem. It is the widespread belief that the system cannot be changed for the better that causes social unrest and protests. The young protesters in Hong Kong share the same frustrations as the young in Egypt and elsewhere – they feel that the establishment is not listening to them.
Moderation soon gives way to extremism. If you cannot change the system peacefully, then disruption becomes the norm.
Both sides of the political spectrum – spanning capitalists to socialists – agree that something must be done about inequality. One reader, whose opinions I respect, complained that in my last column I raised the problem of inequality but not the solutions. Being an idealist yet also a pragmatist, I admit that it is always easier to criticise than to construct. But “walking the talk” is tougher than just talking.
There are three solutions to inequality – the capitalist way, the socialist way or the status quo (ie: do nothing).
The capitalist feels the answer lies in reducing the role of the state (cutting bureaucracy and taxes) to encourage more entrepreneurship and the markets. The socialist way is to tax the rich, redistribute to the poor and needy as well as boost education and infrastructure spending to improve access and opportunities for all.
The “do nothing” faction is supported by three parties – those who hate change of any kind, those who are sceptical that change will be for the better, and those who feel that conditions will change on their own. This is why most politicians preach change, yet do little.
The problem with both capitalists and socialists is that to implement policy for change, you are dependent on the bureaucracy – the machinery of state. Herein lies the dilemma of change.
Speaking as a former bureaucrat, the bureaucracy will only implement change if it thinks that it is in its own interest to do so. Bureaucracies become corrupt because officials believe they are underpaid, even though they are more powerful than most. The Hong Kong bureaucracy, one of the most highly paid in the world and oft-praised for its efficiency, has just jailed one of its most powerful former civil servants for corruption. But this also tells the average bureaucrat not to do anything – you can’t be jailed for doing nothing.
Root of the problem
Both the cause and effect of inequality today lies in globalisation, urbanisation and education.
First, because talent and money is global, you can’t tax the rich and the talented – they simply move offshore.
Second, both wealth and poverty is created simultaneously in urban centres. The rapid pace of urbanisation all over the world is moving large numbers of unskilled rural workers to become the new urban poor. On the other hand, the clustering of knowledge and resources in cities means that wealth is being created faster in cities than in the rural areas. In the 1980s, the value of Tokyo as the manufacturing centre of the world exceeded that of California.
Today, the value of California as the world’s Silicon Valley is worth more than half the GDP of Japan.
Thus, to deal with inequality, the secret is not to cap the top of the wealth pyramid, but to raise the income and wealth of the bottom half.
Priority must be given to dealing with the new urban poor, especially providing jobs for the unemployed youth.
But technology has become simultaneously disruptive in wealth creation and job destruction. The old industries like manufacturing may be polluting and resource-depleting, but they created jobs. The new knowledge-based industries like information-technology and biotechnology do not create jobs en masse, instead employing a few skilled workers on high pay. And robotic technology is replacing both blue-collar workers and office workers.
Creating meaningful jobs is important to social stability. Hence, the solution to urban job creation lies in the service sector. But education today creates a mental block to higher-paid service jobs. Most graduates in emerging markets are conditioned to think that they will be entitled to a cushy air-conditioned office job. In reality, a trained plumber earns more money than most new graduates. Robots can do clerical jobs, but they can’t replace a good plumber, electrician or expert width specific skills.
Technology has made our present education system obsolete. You don’t need to go to the best local university. Anyone can access the Massive Online Open Curriculum lectures by Nobel Laureates and top professors via Facebook and YouTube. Meanwhile at business schools, lessons are often taught by academics with no real-life business experience, preparing young people for jobs with employers who are seldom consulted on curricula.
The challenge of the future is one of continual on-the-job education. Knowledge is expanding so fast that what we learn today will be obsolete within the next five years. Hence, we need to link education with businesses so our schools and universities adapt continually to rapid change. This means that employers get to choose talent much earlier and that the young have work experience far earlier.
Successful German manufacturers and Silicon Valley tech firms have one thing in common – they integrate on-the-job training with bold imaginative design and relentless pursuit of quality.
George Orwell’s dictum that “all animals are equal, but some are more equal than others” was never more true than today. Life is inherently unequal. To keep up with the best, you need to compete with and learn from the best. Family, community and the state can help, but the rest is up to the individual.
Happy New Year to all!
Andrew Sheng writes on global issues from an Asian perspective.