Three little things about inequality that struck me — and first a quick note on trend-spotting

cc Dieter Zinnbauer

I feel very privileged to be part of a really interesting bunch of civil society people that work on future trends of relevance to the sector, an initiative convened by by the International Civil Society Centre. Now one thing that I have learnt in this group is that for me personally the big excitement and inspiration from all the trend-spotting and horizon-scanning does not come from cycling through all these big epochal trends and transformational disruptors. Anything mega from digital revolution to climate change or the rise of populism seems to be very visible already, referenced by gazillions of trend reports and eminently google-able.

The very interesting messiness under the hood

But things get extremely interesting, when one starts to actually unpack these trends a bit more beyond the typical headline slogans (the world going urban, robots taking over, the middle-class turning angry…). This is something which most trend reports actually don’t do very well and which is not so easy to google either, since it is not exactly clear what types of more specific characteristics one would be really looking for and where to find good research on them.

I do not mean unpacking trends in the sense of jumping from headline factoid right into drawing out possible implications for a specific industry or policy field. This is something that most trend reports actually seek to do and in my view do too quickly and often too generally (digital revolution => let’s all go hyper-agile and native-digital).

By unpacking further I mean to take a specific headline trend and turn it over and then over again, slice it up and poke at it from different fields and perspectives. All this not only with the aim to understand each trend a bit better and figure out some of the more surprising, unexpected details, but also and very importantly to get a sense of some of the inherent contradictions, contrasting narratives, countervailing dynamics and perhaps blatant inconsistencies that will inevitably attach to each and every of these big headline trends. I passionately believe that it is this teasing out of the more granular and often stranger characteristics where we should focus in our trend sense-making. It will broaden the imagination about the range of opportunities, problems and action options that we can think up for each trend and thus also help us pivot more easily from trend-spotting to innovation/inspiration. Plus, it will prevent us from all drawing the same general conclusions and marching into the same direction, which besides unduly throttling much needed diversity and experimentation also risks to become self-defeating: if everyone leaves base to jump onto new opportunity A, the bigger opportunity for my organisation might actually be to remain on and expand my current strategic niche or jump to B, rather than follow everyone towards A. Betting on the same strategy as everyone else is prone to a classic fallacy of composition, it looks very promising if I am the only one doing it, but might back-fire, if too many jump on the bandwagon.

A bit more concrete please

Here a quick example for some of this: take rising inequality as one of the umbrella trends that by now seems to feature in all and every future forum and evangelist speech. We pretty much agree that it’s bad, it is getting worse and it makes people angry and unhappy. And then we usually move on to use this trend as validation and hook — I am exaggerating now — for re-iterating our long-standing favorite policy remedies that we have been pushing for quite some time in our specific policy corners — tax more, tackle corruption, empower women, strengthen unions… All these are no doubt highly relevant remedies. But perhaps unpacking the inequality trend a bit further could still help us fine-tune these policy-asks and enable us to engage in some sort of interesting socio-political acupuncture to figure out some new neuralgic points to tactically poke at in the hope to trigger more systemic and sustainable change.

So here just three little empirical observations about inequality that I have recently come across and that seem worthwhile mulling over in this context:

  • exploding prices of land and real estate in some urban areas seem to explain at least 80% of Piketty and his observations on rising wealth and income inequality

A growing number of so far not all too visible empirical studies have made that point (e.g. Rognlie 2014, Stiglitz 2015, Glaeser/Gyourko 2017), but this could change now since Richard Florida has very prominently include this in his new book that he just began to pitch. An urgent reminder to pay more attention to urban development and urban land issues, such as here (shame-less self promo) ?

  • the winner-takes-most economy seems to be more ubiquitous and more consequential than expected

The fairy-tale profits in some industries and the exploding pay for CEOs vs. average workers are typically high on the agenda when discussing inequality. Yet fascinating new research by N. Bloom suggests that pay differences between companies even in the same sector are surprisingly big and an overlooked driver of inequality, perhaps even more significant than inter-sectoral and intra-organisational issues. Could a stronger regulatory focus on curbing extra rents from gate-keeping, network-centrality, platform provision and other winner-takes-most situations in the digital and networked economy complement existing inequality asks? Would a much stronger focus on competition issues and the entire policy toolbox to assert the public interest and prevent/skim-off excessive monopolistic rents be a worthwhile area of engagement for CSOs concerned about inequality? Right now it seems to be mainly a small number of tech-focused advocates that fight this corner against a deep-pocketed and skillfully lobbying industry (and on a tangent, the winner takes-most dynamic nicely summarized here and most recently examined here is also a very nice antidote that surfaces when unpacking the trending myth of the digital revolution as ultimate disruptor and playing field-leveler)

  • the overall impact of public policies is shockingly regressive in several emerging economies

we typically expect and seem to find ample reassuring evidence that direct taxation in most countries is at least mildly progressive, i.e. has some re-distributive effect to help reduce at least to some extent pre-tax income inequality. So taxing the rich more can make a difference and could be a worthwhile advocacy ask.

Yet, a more comprehensive look at the implications of a broader host of direct and indirect taxes and transfers done by Nora Lustig and colleagues suggests that the aggregate effect of all these interventions is flat or even disturbingly regressive. This means overall government policies make inequality between households even worse rather than better in a number of emerging economies. In a way this is very shocking. The very policies that are meant to among other correct some of the unfair outcomes of the working of the markets are making matters worse. This means it might be very worthwhile to move beyond tax-the-rich narratives and look much more comprehensively into which indirect taxes and transfers are the other main culprits in a given context that make inequality worse and how to address this. In some instances, for example, we might find that vested interests have carved out and helped design policies to protect a cosy niche for extra profits. And this in turn would give us the opportunity — for example for governance-focused CSOs — to link concrete analysis of policy capture and related advocacy very directly to issues of inequality that matter in a specific country context.

These are just three little snippets that I have come across more or less by chance while researching other issues. And they really got me thinking about how the inequality agenda could further inform our programming here at Transparency International. Yet, these three snippets are only the tip of the iceberg. For sure many more interesting, challenging and inspirational things about inequality and related trends in social mobility could be dug up when probing these dynamics more deeply. And I look forward to much more of this prospecting with my fellow diggers under the auspices of the ICSC and beyond in the months to come.