Wednesday, May 14, 2014

Inequality in the winner-take-all society

A recent op-ed by Joseph Stiglitz on "Innovation enigma" brought me to retrieve a book of 1995 by Robert H. Frank, "The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us". Nowadays, the issue of raising inequality is on headlines, and often it is considered as a consequence of economic crisis. 
Frank argued two decades years ago that more and more the current economy and other institutions are moving toward a state where very few winners take very much, while the rest are left with little. He attributes this, in part, to the modern structure of markets and technology. It was written before the impact of internet on business and it was a clear alert about what has happened.
Now Thomas Piketty in his book "Capital in the 21st century" argues additionally that when the rate of capital accumulation grows faster than the economy, then inequality increases. And inequality is not an accident but rather a feature of capitalism that can be reversed only through state intervention. The book thus argues that unless capitalism is reformed, the very democratic order will be threatened.
If you combine both perspectives, you must be convinced that it is not only an issue of state intervention, I can't imagine certain parts of global markets ("winner-take-all" ) being abolished or reformed without a global government. That's why I'm not sure about the size of the current threat and when it will explode.
Stiglitz adds an uncertain landscape for innovation, and therefore for future dynamic efficiency of markets (Shumpeter style).
Taking all these pieces together, there is no clear recommendation. Today I just want to state again that correlation is not causation. Inequality and crisis are a contemporary fact, though the trend goes back a long way and it is very much deeper. Avoiding reductionist perspectives is my first suggestion.

PS. Since the implications of wealth inequality and health are huge as I explained in this post, my today comment maybe adds more shades instead of light.

PS. "Health inequalities result from social inequalities. Action on health inequalities requires action across all the social determinants of health." The Marmot Review: Fair Society Healthy Lives

PS. If you want to know why Messi's salary has increased this week, have a look at Frank's book, the answer is there.

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