Typical inequality measurement:
- The traditional measure of inequality is done through the
Gini Coefficient. Measured on a scale
from 0 to 1. The closer to 1 the less
equal the distribution of income.
Conversely the closer to 0 the more equal the income distribution with 0
being a state where the whole population had the same income.
- There are also less tangible measurements such as
resentment, violence and political instability.
The article gives the example of the Uganda entrepreneur who
receives “juju” sticks from resentful fellow villagers outside of his
home.
Gini problems.
1. One must be careful not to hold the Gini coefficient as
the assumed standard for which all nations should strive. It is only one measure. The U.S. after all shares a Gini coefficient
very similar to many African nations—but vastly different amounts of wealth per
capita
2. Furthermore, the Gini Coeff could rise in a poor
developing country at the same time as less people are living in poverty
(because the baseline could be raising).
3. For many African
nations there isn’t even a Gini coefficient!
12/55—there are not even coefficient’s available for over 20% of the
nations in Africa!
Influences on inequality:
- Government
graft and corruption, patrimonialism, neopatrimonialism, clientilism
This
cronyism can amplify problems by putting people in power without the knowledge
of education to do their job.
- inefficient economic policies (ex. Fuel subsidies in
Nigeria)
- Lack of transparency.
- lack of income tax
- Lack of global attention—much more focus on gap between
Africa as a whole and other nations or between different African nations—both
ignore the inequality within a nation’s borders.
- Kuznets Hypothesis: in poor localized agricultural
economies, incomes are relatively equal but an relative income gap widens as
the economies grow and urbanize
Solutions for to bridge the gap?
- This question assumes something should be done or must be
done! This should not be assumed nor
should it necessarily be the focus of economic reform in a nation.
- While wide income gaps may be morally repugnant, the
evidence that they promote political instability and violence is
inconclusive. There is equally
persuasive arguments (Walker Connor for instance) to be made that relative political inequality
contribute to instability and violence more so than economic. There is a big difference between resentment (a
mental state) and violence (a physical state).
- That said, to answer the question, there needs to be an
increase in government capacity and accountability and transparency. Instead of regressive sales taxes and import
duties, fairly delineated income taxes could be instituted. In many nations this isn’t done because of
infrastructure limitations (both physical—roads etc…) and banking limitations. However, with the dominance of the mobile
industry (and mobile banking) this offers methods for governments to implement
and collect taxes efficiently and with accountability (fairly).
- reduction in general subsidies (these unnecessarily
benefit the affluent)
- refocus revenues to baseline raising services like clean
water, better roads, primary education, prenatal vitamins and immunization—this
is an interesting assertion by the author since it runs counter to addressing
the inequality itself and is more focused on raising the baseline.
- the poor must be given a greater stake.
-->
SUMMARY:
A non-traditional measure of income inequality is given at
the outset of the article. For one
Ugandan entrepreneur that started a business that expanded far beyond his small
village, the inequality was measured through resentment and “juju”sticks. Despite employing many villagers and bringing
development to his region, his neighbors begrudged him for owning a nicer house
(and the only one with a generator).
Traditionally income inequality
is measured, however, by using the Gini Coefficient (GC). The GC measures the distribution of income
across the population of a country. The
GC is on a scale from 0 to 1—0 being a nation where everyone had the same
amount of income and 1 being a nation where one person had all the income. Most African nations score poorly (values in
the .45 to .65 range). There are three
considerations, though, with the GC.
First, one must acknowledge that it’s only one economic measure. This limits its utility—especially when one
considers that the U. S. is routinely grade with a GC in the .5 range. A secondary consideration builds on the first
limitation—a nation’s GC can rise (typically considered a bad thing) while the
number of people in poverty can lessen.
This means that a developing country can have a small group of people
receiving more income (thereby raising the GC) but also at the same time
increasing the amount of wealth within a country. Finally, is the problem that 12/55 nations in
Africa don’t even have a GC! In 20% of
African nations there’s not even enough data (or access) available to determine
the income distrubtion.
The author
delves into the myriad factors that promote this inequality. Most of these happen to be the usual
culprits: government corruption, graft, cronyism, clientilism, patrimonialism
and neopatrimonialism. All of these
factors combine with a lack of transparency and physical infrastructure that
strands the poor in a permanent economic stratum.
The
question of what can be done to close this income gap is a valid one but it
must be considered as to whether this is the right question. Should a gap reduction be the economic focus? This question brings to the forefront a valid
argument made by Walker Connor who points out that perhaps political inequality
is a more significant driver of political instability and violence that
economic inequality. Connor makes a
persuasive argument worth considering—perhaps its better to work to bridge
political equity and avoid violence than it is to focus on economic equality
which may only serve to avoid resentment.
That said, to bridge the gap Zachary advocates striking regressive sales
taxes and import duties in favor of a more fairly delineated income tax. This serves to give the poor in a better a
greater stake in its future. There is
little government expectation by a nation where no one pays income taxes. Practically such a move requires significant
physical infrastructure so that the government can reach its population in the
hinterlands. Most significantly, on a
continent where most people are unbanked it requires harnessing existing
technology. This means embracing mobile
banking (a move already being done in many nations) to collect and levy
taxes. On a larger scale bridging the
gap requires a global shift in focus.
Too often Africa is treated as a country—monolithic nations that all
require the same solutions to their problems.
The reality is that each nation needs a tailored and separate
approach. The focus needs to shift to
the gaps inside each nation’s borders and not on comparing them to other
nations.
http://www.milkeninstitute.org/publications/review/2010_7/16-23MR47.pdf
