In this episode of the International Resource Panel (IRP) Webcast Series: What does the Global Future hold, the IRP invited Facundo Alvaredo, professor at the Paris School of Economics and the École des Hautes Études en Sciences Sociales to discuss what he sees on the horizon in terms of the future of "Wealth and Income Inequality". He spoke about the key risks and opportunities and how the risks can be managed and opportunities achieved. The webcast included a talk and a Q&A session.
Key points from the webcast
Explaining historic patterns in the distribution of wealth
Since the years 2010 to 2015, the interest in the distribution of wealth and wealth inequality has re-emerged. Reasons for this include:
The increasing recognition that we need to look at capital incomes and not only earnings;(The fact that US and Western Europe both experience wide inequality gaps but show completely different patterns in terms of income concentration trends illustrates this point)
The average personal wealth in the developed world has increased substantially since 1980s (This is particularly driven by the rising real-estate prices as well as the transfer of public wealth to the private sector and the increase in the stock prices of this transferred wealth); and
The ratio of private wealth to income has been rising while the ratio of public wealth to income has been declining.
Alvaredo highlighted that, while data remains limited for developing countries, statistics from most developed countries show widened inequality gaps. Wealth shares of the top percentiles of wealth distribution have been increasing since 1980s in many countries. Furthermore, asset composition varies between wealth groups: the bottom 10%, the middle classes, and the top 5%, owning respectively mostly deposits, real-estate assets, and financial assets.
How we currently fail to address wealth inequality
Since the late 19th Century, most social scientists have abandoned their obligation to think and work in terms of a general theory. Instead, they have been trapped by doctrines -both of the right and left- that reflect capitalist ideologies. These doctrines do not seek nor are able to address the whole, leaving us with the feeling of not understanding the present. Alvaredo explains how we have come up with simple quick fixes to address huge problems that in fact require social transformations and radical systematic change.
For instance, while the idea to tax the rich could bridge the inequality gap to a certain extent, it does not overcome it. Indeed, the past proves how such policy measures are insufficient in tackling wealth inequality which today is prevalent in both developed and developing countries. Similarly, as rich people are usually considered as heavier carbon emitters and polluters than poor people, it is assumed that by reducing wealth inequality we also reduce environmental degradation, thereby making both society and the environment better off. However, Alfredo maintains that simple fixes such as imposing taxes for redistributive purposes are part of the discussion of the past, and not the future which should involve a social transformation.
Alvaredo further explains how we tend to assume that our current system does not have the means to protect itself and that we need an entity, such as the state, to step in and protect our interests. Indeed, demands are placed on the public sector, through petitions for instance, as if they are capable of providing solutions. However, Alvaredo suggests that considering the state is part of the capitalist system and not external to it, it is wrong to rely on it. He justifies this by mentioning the gap between our expectations and the realities of state actions and policy measures in addressing wealth inequality and environmental protection.
The need to understand the machinery of capitalism
In the face of environmental and social challenges, we feel the need to act, but without the proper theory, we will not have adequate policy tools to do so. In other words, if we do not understand the machinery, we cannot understand the system, which in turn means our policy actions may fail.
Alvaredo explains how the current state of the sciences of economics, sociology, and anthropology does not provide us with the tools to understand the challenges of the present. The responsibility therefore falls on current generations to build and develop a theory to contemporary social and environmental challenges.
He further dives into the concept of centralisation with de-accumulation, in which he discusses the case-study of soy production. While eighty years ago seeds were quasi-public goods which were available for successive uses; today, 70% of the world seed market is controlled by a handful of Gene Giants who impose all conditions, such as what and where to produce, who the local seed provider is, and which the exporting companies will be. The same situation of having one party of the transaction making and imposing all conditions also applies for pharmaceutical companies (for example in the context of COVID vaccine rollouts), as well as for major forest companies (for example in the deforestation context in Brazil, as pointed out by IRP Co-chair Izabella Teixeira who moderates the session).
Through this case study, which includes multiple relevant sectors, Alvaredo points out that it is crucial to ask ourselves what the concept of assets and wealth is. Beyond quantitatively examining whether assets are in the hand of an individual or in a company, we should understand the conflict of ‘who plans whom’ – the case study highlights the importance of this dimension considering that the individuals were not capable of making decisions even on their own capital. Therefore, Alvaredo argues that, while we should tax the rich and discuss the distribution of assets, the real problem lies in the fact that decisions are being made by the top capital (independently of the size) in the hierarchy of capitals and a general theory is needed to understand its essence.
The speaker - Facundo Alvaredo
Facundo Alvaredo is professor at the Paris School of Economics and the École des Hautes Études en Sciences Sociales, Co-Director of the World Inequality Database (formerly The World Top Incomes Database, which he created in 2011) and the World Inequality Lab, senior Fellow of INET@Oxford, and Researcher of IIEP-UBA-Conicet. He obtained a PhD in Economics from École des Hautes Études en Sciences Sociales, and an undergraduate degree in Economics from the University of Buenos Aires. He focuses his research interests on the fields of public economics, the inequality of income and wealth, the economic history of capitalism and the classical political economy project. He has published his work in the Journal of Public Economics, the Journal of Development Economics, the Journal of Economic Perspectives, the Journal of the European Economic Association, the Review of Income and Wealth, the Journal of Economic Inequality, etc. In the past, he was an economist at the UN-Commission for Latin America and the Caribbean, and at the Institute of National Statistics of Argentina, as well as a Research Fellow at Nuffield College, Oxford.
His current research seeks to show that only the continuation of the living yet dormant Political Economy project, i.e. the discipline embracing capitalism and its history as subject matter, offers the keys to understand the challenges of the historical present, which include inequality and climate change, but where the main conflict is who plans whom. This imposes a critical revision of the dichotomy between civil society and political society inherited from the Enlightenment, an illusion that lives today through the fiction of the state as the sphere of common good that should and could tame capital and foster development through properly evaluated parliament-decided public policies.