I am not going to explain what exactly is the Gini Coefficient or how it is computed for a country or society.
Suffice it to state that the Gini Coefficient is a good measure of income inequality – how wealth is distributed in a country. A perfectly income-equal country (where everyone earn the same amount of income) has a Gini Coefficient of 0, and a completely unequal wealth distribution leads to a Gini Coefficient of 1 (wherein one person has all the income, and the rest have none at all).
There is, of course, no country in the world with a Gini Coefficient of 0 or 1. The dispersion lies somewhere between these two figures, but the best “equal income” countries have a Gini Coefficient below 0.5. It is not practical to expect a figure better than that (like a 0.2 or 0.3) in a largely capitalistic world that we live in. Examples of such countries include South Korea, Canada, and many Western European countires. The Gini Coefficient has been deteriorating over the decades, as concentration of wealth in the hands of few people increases, as we have seen in many countries.
Governments are severely handicapped when it comes to tackling income inequality in their respective countries. Economic and taxation policies do not curtail the increase in the concentration of wealth. Many governments allow fixed capital formation in their countries with little tax impact, in order to attract investments and wealthy folks to their countries. As societies become prosperous in developed nations (in Asia that would include Hong Kong, South Korea, Singapore), the desire for further wealth accumulation increases in an unfettered manner based on past successes. Real estate prices go up in an uncontrolled manner, leading to a societal segmentation which segregates society into multiple fragments, and engender a more unequal income to be the cause of undesirable thinking in the disadvantaged populace. An “entry” price is eventually established for each such segment of the society, and the wealthier sections of the society become distanced from the so-called proletariat, even in advanced countries. This kind of “pricing” manifests itself in multiple ways – more BMWs, Jaguars, Bentleys, Ferraris, Lamborghinis on the roads is a good example; the other example is the inherent price fixation in real estate for exclusive high-end zones which precludes consideration by even the “above-average” dual-income couples who aspire to move into a better accommodation in such zones. General cost of living increases, and economic fundamentals adjust to serve the needs of the well-heeled. Gradually, the segmentation sets in firmly, and several enclaves form to cater to the respective segments, leading to even more dispersion.
While many of us have heard about the Gini Coefficient not so frequently, it is a commonly used economic term which concerns global multilateral economic and financial institutions. The global concern about unequal wealth distribution and concentration of wealth in the hands of few oligarchs is well placed and requires urgent tackling. Socially progressive governments in countries such as Switzerland are actively and very seriously considering various policy actions in this regard.
The problem with the fast developing countries such as China and India is more acute as the embedded inefficiencies in these countries allow for faster wealth accumulation in fewer individuals due to nepotism and favouritism, and other factors. Wealth created by family-run conglomerates far exceeds that by public sector corporations (or largely state-owned enterprises, which are publicly listed in the bourses). While it is commendable that the private sector wealth creation and capital formation is driving the business in India, it is also responsible for increased income inequality in a country with 1.25B people.
There are no easy answers for solving this rather intractable problem, I will let you think about potential solutions. In the meanwhile, I am returning to my usual weekend glass or red wine, while thinking about the solutions. What can we all do to reduce such inequality? Such thinking is even more important and relevant in wealthier countries such as Singapore, wherein the folks who earn far below the per capita income are very disadvantaged to sustain themselves in a fast-moving, economically-driven society.
Have a good weekend folks, and please think.
10th February 2018