By Dennis Shaughnessy
The latest story of global inequality comes from Oxfam International this week: 85 people own as much of the world’s wealth has the 3.5 billion poorest people, or the bottom half of the planet. As for inequality in the US: 95% of the income gaps in recent years have gone to the top 1% of the population, with one out of every five American children now living in poverty. A particularly telling example of inequality in the US is the fact that the six heirs to the Walmart fortune now own as much as the bottom one-sixth of Americans, or nearly 50 million people, while at the same time a small but growing number of Walmart employees requiring Supplemental Nutrition Assistance Program (SNAP), more commonly known as food stamps to feed their families.
Doubtless there will be political battles in the coming years over whether and how to address growing inequality. If nearly everyone agrees that every life has equal value, then why are so many people living lives that suggest the contrary?
Certainly policy decisions on things like more effective ways to create opportunity, to educate children at early ages, and to rethink tax policy will all be considered in the coming months and years. It will be challenging for our political leaders to pursue new policy paths given the intense division among the electorate on issues of taxation and spending.
In this context, we have one small but very useful tool that we can use as educators of college students, and particularly of business students, to focus the discussion on inequality. It’s called the Gini coefficient, a method of measuring with some precision the unequal nature of life around the world. While economics students may know this topic and tool well, my experience in teaching business students suggests we can do more to bring precision to difficult policy debates as well as business decision-making. In other words, we must try to shed light rather than heat on the topic of inequality.
The Gini coefficient measures national income equality, or inequality. Historical data allows us to examine trends in the distribution of income within a country. Here’s how: a score of 1.00, or 100 depending on the method chosen, would suggest that one person owns all of that fictional country’s income. On the other hand, a score of 0.00 means wealth would be evenly distributed among each citizen.
So, using the Gini measure, where do leading countries perform? The most equal countries typically come from Northern Europe – Denmark, Norway, and other Scandinavian countries. Most would suggest this is the result of both high income and strong government redistribution policies favoring free or highly subsidized education, healthcare and transportation. On the opposite side of the spectrum, South Africa typically leads as one of the most inequitable countries, even after the end of apartheid and the leadership of Nelson Mandela. Many of the world’s most unequal countries are as you might expect developing countries, with poverty as an intractable social problem alongside economies based on extraction (for example in the case of South Africa, mining) and low–cost labor.
What of the US and the Gini coefficient? First, the US is on the “good” side of the Gini measure of income inequality, with a score of 0.41 and a rank of 96th out of 152 countries examined by the World Bank. However, the trend is toward a higher level of inequality, most notably over the years since the “great recession” of 2008-09. The Gini data show that the US is or is becoming much more unequal generally, and the uplifting idea of the “American dream” becoming more difficult to convert into a reality for people starting at or near the bottom of income distributions. Comparatively, Denmark is ranked first as the most equitable country in the world with a score of 0.25, whereas South Africa’s Gini coefficient of 0.63 earns it a rank of 152 of 155; there are just three countries that are more unequal distribution of wealth.
What can business do, both globally and in the US? Business leaders need to begin to consider how their enterprise can diminish escalating inequality. Of course, each industry will have different opportunities and challenges, but adopting a business mindset and strategy that have a positive impact on inequality and the social justice problems that arise from it is a good first step; it all begins with the investment in people, communities and markets that have traditionally been ignored or underrepresented.
As for social entrepreneurs, a focus on developing new business models and innovative financing methods that are designed to make a social impact and reduce inequality, especially among the poor and within poor communities and nations.
The richest, beginning with those 85 billionaires that own half the world must, and have started to take action against growing inequity. Bill Gates and Warren Buffett, two of the world’s wealthiest people, created “The Giving Pledge” in 2010. Under the pledge, billionaires commit, in writing, to giving at least half of their wealth to charitable or philanthropic purposes. The list is long and growing and includes people like Facebook founder Mark Zuckerberg and Patrice Mostepe, South Africa’s first black billionaire businessman. However, data on philanthropy suggests that most giving, especially by the wealthy, tends to go to institutions that do not have as their central purpose a mission to create opportunity for the poor or to reduce inequality, like universities, museums, churches and hospitals.
Let’s encourage a change in the “giving” of these billionaires richest few, to focus their giving on organizations that create opportunity and reduce inequality and to “invest” in social enterprises through the emerging field of “social impact investing”. High-performing social enterprises supported by impact investors have the unique opportunity to create opportunity for people traditionally excluded from the “upside” of economic growth. As social entrepreneurs strive to enter markets with the highest need, we are confident that their actions will gradually and sustainably lead to greater equality.
Sources
http://www.oxfam.org/en/policy/working-for-the-few-economic-inequality
http://wdi.worldbank.org/table/2.9#
