Greed is good. That’s not just Gordon Gekko speaking, it’s also Britain’s new Prime Minister, Boris Johnson, who has argued that greed encourages innovation and entrepreneurship: “The harder you shake the pack, the easier it will be for some cornflakes to get to the top.”
Inequality is commonly thought of as a bad thing, but could it actually bring benefits to society? As long as there is also social mobility, could income inequality actually encourage greater productivity? If people think they will be well-rewarded for their efforts, could it spur them to work harder?
We had a comment from Polichronis, who associates social inequality with political instability. Is the rise of extreme political forces in contemporary European politics partly because the rich have grown richer, whilst the poor have stayed poor?
To get a response, we spoke to Professor Riccardo Leoncini from the University of Bologna. He’s an economist whose research (among other things) focuses on the impact of inequality on innovation. What would he say to Polichronis?
From my point of view, inequality by itself does not give rise to political turmoil. There are lots of psychological studies showing that people do not actually realise how unequal the society they live in is. For instance, I have seen an article from psychologists that were asking people in the US how much money they thought CEOs should earn with respect to workers. And the panel of citizens estimated that the current CEO-to-worker pay ratio was 30:1, and that, ideally, it should have been 7:1. What’s the reality? The reality is that the average CEO earns 354 times what his or her workers get…
The second reason is that we have ‘The American Dream’. The idea of the ‘self-made man’ is an important fantasy for many people. And these are two reasons why inequality is not an issue that will give rise to political unrest. Furthermore, and this is something that many other economists have been pointing out, the control of the media is crucial. Since the top 1% also controls the media, they control what is being said on inequality.
We also had a comment from Bastian, who wonders about the relationship between social inequality and innovation. Could inequality have a positive impact on innovation?
The idea that inequality has a positive impact on economic variables is probably one of the main reasons why people think a certain amount of inequality is good for societies. But all the data shows that the more unequal a country is, the less long-run growth it experiences. There is a negative relationship between inequality and growth. So the idea that inequality is a sort of incentive for people to become richer and richer and richer doesn’t represent a universally-held attitude among economists. In the vast majority of countries, inequality is a sort of obstacle to the growth of income.
Is inequality good for society? Does it encourage innovation? Or does entrenched poverty and prevent social mobility? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!
IMAGE CREDITS: CC / Flickr – Alexander Baxevanis
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