Battle Against Inequality

Like many of us, I watched the Vice Presidential candidate debate with interest.  Yes, the two candidates represented two very distinct viewpoints, but they are not as opposed as one may at first assume.  Most importantly, they agree that the US middle class is under pressure and needs to be done.  I agree that this is where the focus needs to be but not just for the US but also other areas of the world, including the UK and the Caribbean.

I remember sitting in a graduate’s development economics class back in the late nineties here in the UK as we evaluated economic inequality levels using Gini coefficients.  These ratios measure the extent to which income is unevenly distributed within any given country.  My lecturer pointed out that inequality was greatest in Latin America. This inequality was partly responsible for their high crime levels, poor overall economic performance, and other socio-economic challenges.  Ironically things have definitely changed since then.  This week’s Economist has a special report on capitalism and inequality.  One of the first things to hit me is how the Gini coefficient reveals that inequality is actually rising in the US and the UK but falling in much of Latin America, including Chavez’s Venezuela.

I consider myself part of this middle class that is the subject of debate by policymakers in many countries.  Growing up, we were taught that education was one of the most important tools we would have at our disposal.  Like an insurance policy, it would be the one thing that stands between us and destitution.  Education is the ticket to upward social mobility. Unlike a fancy car and stylish clothes, it is an asset that no one can ever steal.  Education is a passport to the world.  Like my school peers, my parents were almost obsessed with the four ‘safe’ professions – law, accounting, medicine, and engineering.  Today I can say that I finally understand what my parents were trying to explain to me as I continue my accounting/finance career path.  Now our task is to pass on this notion to our sons.
USA Tax Singapore

In Latin America and the Caribbean, a key component in expanding that middle class was the government’s effort to expand educational opportunity.  Similarly, a key component in increasing income inequality in the US has been the soaring cost of tertiary education and the public challenges facing primary and secondary school systems.  What is different is that not just ethnic minorities are being disproportionately affected but now are working-class whites.  Almost unique among rich countries, American men aged 25 to 34 are less likely than their fathers to have a college degree.  When Romney makes his 47% comments, it hits a very sore spot in the American psyche.
American Tax Singapore

Moving beyond the Gini coefficient is a ratio called the intergenerational elasticity of income.  It seeks to measure social mobility or the ease with which a son can do ‘better’ than his father.  Surprisingly the US and the UK are relatively immobile compared to Scandinavia or Canada.  In other words, it is harder to move up the ladder in the US or the UK than in mainland Europe (excluding Italy) or Canada.  The system effectively keeps us in our place.

Recently, I watched a science-fiction film called Looper.  I was less impressed by their time travel theory than I was about the socio-economic landscape that the Director painted of our future.  More ghettos in the US, more social disorder, and precious metals were the new currency.  The main character wanted a better life, and a time-traveler from the future was adamant that he would find that better future in China.

Good movie, but I am unsure whether I completely buy into the Asian dominance theory.  For me, one needs to factor in the power of innovation over imitation.  A Low-Cost advantage does not necessarily translate into a sustainable growth model.  In the US, nearly half of Fortune 500 companies were founded by immigrants or their children, which is amazing, given that immigrants make up only 23% of the population.  Despite the increasing challenges in securing immigrant visas (an area where I have first-hand experience), the US still appears to be the destination of choice for the world’s talent.

Good luck to all the policy-makers struggling with the biggest socio-economic-political issue of our time – growing inequality.  In the meantime, it still seems as if strong educational credentials, together with an open mind, represent as good an insurance policy as any.

Despite so many challenges, I continue to have the audacity of hope in a brighter tomorrow.

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