Who let the Gini out of the bottle?
By Charles McIntyre, IBIS Capital
Income inequality has been on the rise in developed economies since the 1970s, whilst in Latin America and Sub-Saharan Africa it has been decreasing albeit from much greater heights. Relative measures of prosperity mask a range of underlying issues but the distribution of the productive capacity of a nation is a fundamental factor. Education and training ease the distribution, but slowly, as yesterday’s education is today’s human capital.
So in the US, full-time workers with at least a bachelor’s degree earn on average twice as much as those with only a high school diploma. Not unsurprisingly there is good evidence that education and training make people better off. But the question is does it make the right people better off?
In Daniel Markovits’ latest book the “Meritocracy Trap”, the Yale law professor argues that meritocracy is a false god, where hard work is not the panacea for inequality. Meritocracy is the cause of vast inequality that has appeared in the work place, education and society at large. The rich have got richer and have preserved their position by ensuring that that they are super educated and can smooth the passage through the system for their offspring. Just look at the current US college scandal as an example. The victims are the broad middle class, who in the US have got stuck. They are unable to improve their education and skills and are working less hard (by about 20%) than their predecessors.
The spread of wealth depends, in large part, on the spread of skills to the right people in the right place. This is not happening. There is a massive mismatch between the supply of skills and what is demanded in the marketplace. The estimated cost of this mismatch to the global economy is $13 trillion of lost GDP, far worse than any oil shock. The ugly truth is that we are not providing the systemic solutions to deliver the rights skills for the 21st Century.
With the rise of automation, the distribution and ownership of workplace skills is likely to change again and if we are not careful, for the worse. Concentrating robot ownership and its resulting productivity amongst the already wealthy will exacerbate the Gini co-efficient even more. A lesson from the past is that the industrial revolution widened the gaps between countries and within them. The great industrialists reaped the rewards of building railways, steel mills and other transformative technologies.
In our own age, we need to ensure that we learn from the history of technology revolutions and ensure that humans adapt their skills at an equivalent rate of change. Technology is harnessed to enhance the productive capability of workers; cobots not robots. If we fail, then then the Gini will never get back in the bottle, and we will sow the seeds of discontent for generations to come.
