Social Inequality:

Inequality means different things to different people: whether inequality should encapsulate ethical concepts such as the desirability of a particular system of rewards or simply mean differences in income is the subject of much debate. Here we will conceptualize inequality as the dispersion of a distribution, whether that be income, consumption or some other welfare indicator or attribute of a population.

Social Inequality

The richest 1% of the world have income equivalent to the poorest 57%. Four fifths of the world's population live below what countries in North America and Europe consider the poverty line. The poorest 10% of Americans are still better off than two-thirds of the world population. The assets of the 200 richest people in 1998 were more than the total annual income of 41% of the world’s people. Three families – Bill Gates, the Sultan of Brunei and the Walton family – have a combined wealth of some $135 billion. Their value equal the annual income of 600 million people living in the world’s poorest countries. The richest 20% of the world population now receives 150 times the income of the poorest 20%. The share of the poorest 20% of the world's people in global income now stands at a miserable 1.1%, down from 1.4% in 1991 and 2.3% in 1960. It continues to shrink. And the ratio of the income of the top 20% to that of the poorest 20% rose from 30 to 1 in 1960, to 61 to 1 in 1991 - and to a startling new high of 78 to 1 in 1994.

What Exactly is Inequality

People around the world are becoming more aware of – through the growth in radio, television and other media – and more vocal about the gap between the rich and the poor. Policy makers, researchers and academics are also increasingly recognizing the links between inequality and other social and economic phenomena. Despite the predictions of Kuznets (1955), high levels of inequality persist in many high income countries today and, in some of them, they have in fact recently risen further (see OECD, 1995). In addition, the links between inequality and economic performance are being investigated through models that incorporate voting behavior, imperfect capital markets and uncertainty over property rights, where the causality runs from inequality to growth, rather than the reverse. This combination of increased social and political pressure and academic interest, together with the considerable recent expansion in the availability of household survey micro-data, means that the study of income distributions has more recently gained enormous impetus.

But what exactly is inequality? How is it measured? How can we make meaningful comparisons over time, or across space? How can we begin to analyze the underlying structure of inequality? What policies can successfully reduce inequality? These questions are fundamental to any study of income distribution. 

Basic Concepts: Poverty and Welfare

Poverty reduction takes place inherently within a broader process of distributional dynamics. Obviously, poverty and inequality are very closely linked – for a given mean income, the more unequal the income distribution, the larger the percentage of the population living in income-poverty,

Inequality is often studied as part of broader analysis covering poverty and welfare, although these three concepts are distinct. Inequality is a broader concept than poverty in that it is defined over the whole distribution, not only the censored distribution of individuals or households below a certain poverty line. Incomes at the top and in the middle of the distribution may be just as important to us in perceiving and measuring inequality as those at the bottom, and indeed some measures of inequality are driven largely by incomes in the upper tail. Inequality is also a much narrower concept than welfare. Although both of these capture the whole distribution of a given indicator, inequality is independent of the mean of the distribution (or at least this is a desirable property of an inequality measure) and instead solely concerned with the second moment, the dispersion, of the distribution. However these three concepts are closely related and are sometimes combined in composite measures such as those proposed by Amartya Sen.

Why Should We Be Interested in Inequality

There is a renewed interest in inequality for a number of reasons. First, recent empirical work re-examines the link between inequality and growth. If at all, it tends to find a negative relationship, especially when looking at the impact of asset distribution and growth. They assert that the more equal the distribution of assets such as land, the higher growth rates tend to be. Second, with poverty reduction in many countries being slow at best, the scope for public policies to have a poverty-reducing impact through redistributive effects – from safety nets to social expenditures – needs to be examined. Third, several empirical studies also examine the impact of inequality – independent of the poverty level – on health outcomes, such as morbidity or mortality rates, or as a cause for violence.

There are several channels through which inequality influences economic and social outcomes. With imperfect capital markets, citizens with low incomes and little ability to provide collateral may find their access to capital curtailed. This will hinder them moving out of poverty while at the same time distorting resource allocation within economies – and thereby lowering growth rates. Economic growth prospects can also be negatively influenced by inequality through the tax system. This would be the case if -- from a political economy perspective -- inequality leads to an inefficient tax structure. Further, it is now discussed to what extent income differences between (and within!) households create psychological stress for the relatively poor and are factors that explain higher morbidity, mortality and violence rates.

Today, understanding the links between inequality and the performance of an economy has become an integral part of understanding the very process of development and the effects of different policies. Some of the questions pertaining to inequality are: 

• Do more equal societies grow faster than less equal ones?
• What are the linkages between income distribution and poverty?
• Do different ‘types’ of growth promote poverty reduction differently?
• How does inequality affect the effectiveness of anti-poverty programs?
• Is macroeconomic stability related to inequality in any way?
• Are more unequal societies and localities likely to be more violent?
• Does inequality have a direct and independent influence on health outcomes, such as morbidity or mortality?
• How do gender roles and public policy influence intra-household inequalities?
  

Quotes to Think About

"The form of law which I propose would be as follows: In a state which is desirous of being saved from the greatest of all plagues -- not faction, but rather distraction -- there should exist among the citizens neither extreme poverty nor, again, excessive wealth, for both are productive of great evil . . . Now the legislator should determine what is to be the limit of poverty or of wealth."
-- Plato, Greek Philosopher

"In our world of 6 billion people, one billion own 80 percent of global GDP, while another billion struggle to survive on less than a dollar a day. This is a world out of balance.”
-- James D. Wolfensohn, President of the World Bank

"What we have here is a form of looting... The rich don't need the money and are a lot less likely to spend it - they will primarily increase their savings. Remember that wealthier families have done extremely well in the US in the past twenty years, whereas poorer ones have done quite badly. So the redistributive effects of this administration's tax policy are going in the exactly wrong direction..."
--George A. Akerlof, 2001 Nobel laureate in Economics

"There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to male the masses prosperous, their prosperity will find its way up through every class which rests above them."
-- William Jennings Bryan, 1896

" An imbalance between rich and poor is the oldest and most fatal ailment of all republics."
-- Plutarch

"The greatest wealth is to live content with little, for there is never want where the mind is satisfied." 
-- Lucretius

"There are only two families in the world, as my grandmother used to say: the haves and the have-nots." 
-- Sancho Panza in Cervantes' Don Quixote de la Mancha

"Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another."
-- Plato, The Republic

"The man of great wealth owes a peculiar obligation to the state because he derives special advantages from the mere existence of government." 
-- Theodore Roosevelt

"We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can't have both." 
-- Supreme Court Justice Louis Brandeis

"The outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes." 
-- John Maynard Keynes, English Economist

"Americans (or at least the top few percent of the income distribution) have gotten into a sort of arms race of conspicuous consumption that, like most arms races, consumes huge quantities of resources, yet in the end changes little." 
-- Paul Krugman, Economist

"I personally think that society is responsible for a very significant percentage of what I've earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you'll find out how much this talent is going to produce in the wrong kids of soil." 
-- Warren Buffet

"Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services..."
-- Universal Declaration of Human Rights adopted by the U.N. General Assembly

"I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labor and live on." 
-- Thomas Jefferson 

"It is not enough to tell me that you worked hard to get your gold. So does the devil work hard." 
-- Henry David Thoreau

Make a Change---Kiva

Kiva's mission is to connect people through lending for the sake of alleviating poverty.

Kiva is the world's first person-to-person micro-lending website, empowering individuals to lend directly to unique entrepreneurs around the globe.

The people you see on Kiva's site are real individuals in need of funding - not marketing material. When you browse entrepreneurs' profiles on the site, choose someone to lend to, and then make a loan, you are helping a real person make great strides towards economic independence and improve life for themselves, their family, and their community. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates and track repayments. Then, when you get your loan money back, you can relend to someone else in need.

Kiva partners with existing expert microfinance institutions. In doing so, we gain access to outstanding entrepreneurs from impoverished communities world-wide. Our partners are experts in choosing qualified entrepreneurs. That said, they are usually short on funds. Through Kiva, our partners upload their entrepreneur profiles directly to the site so you can lend to them. When you do, not only do you get a unique experience connecting to a specific entrepreneur on the other side of the planet, but our microfinance partners can do more of what they do, more efficiently.

Kiva provides a data-rich, transparent lending platform. We are constantly working to make the system more transparent to show how money flows throughout the entire cycle, and what effect it has on the people and institutions lending it, borrowing it, and managing it along the way. To do this, we are using the power of the internet to facilitate one-to-one connections that were previously prohibitively expensive. Child sponsorship has always been a high overhead business. Kiva creates a similar interpersonal connection at much lower costs due to the instant, inexpensive nature of internet delivery. The individuals featured on our website are real people who need a loan and are waiting for socially-minded individuals like you to lend them money.

Websites that Make a Difference: