Sunday, February 7, 2016

Income Inequality and Democracy

We live in a post-Enlightened society that strives for itself to be egalitarian. We promote democracy to all shores, and look down upon nations who lack in democracy. We sneer at the "un-democratic," while praise nations that have a well established democratic process. Meanwhile, an issue keeps popping up: income inequality. So, in this egalitarian push for more democracy, what is the connection between democracy and income inequality? Is there even a connection between democracy and income inequality?

To be honest, it took me awhile to figure out what income inequality was even referring to. As one who works in the financial sector and working towards both a finance and a philosophy degree, inequality was merely a symbol on a balance sheet. Therefore, income inequality must merely a symbol on a balance sheet showing two or more incomes that are not equal. So, dear reader, to avoid the same confusion that I had of this otherwise seemingly broad term, I will narrow the definition to: "the degree of inequality in the distribution of family income in a country" taken from the CIA Factbook.

The above link ranks 144 nations by their GINI index, or the index of which income is distributed equally. Rating from 0 to 100, the higher the index, the more unequal the distribution. A brief summary of the list is seen as:

Sample GINI Indexes
Rank
Nation
Index Rating
1
63.2 highest
43
45.0
144
23.7 lowest

 It is almost a given in post-Enlightenment Western society that democracy is a great thing, something all people should strive for without question. The Economist publishes an index that ranks how democratic a nation is. [Note: that link goes directly to the Economist page, but to see the published file, you have to register. Registration is free, but only after having registered, then you can download the pdf. Luckily, someone has done that, and reproduced that PDF without the need to register here.] The index of 167 nations is broken up into four groups:

  • Full democracies: 24 countries, and most are comprised of the majority of the OECD countries.
  • Flawed democracies: 52 countries, mainly Latin America and Eastern Europe
  • Hybrid regimes: 39 countries
  • Authoritarian: 52 countries, mainly Africa and central and east Asia

Therefore, if a country is labelled as a democracy, no matter how flawed, the country ranks in the top 50th percentile, i.e. better ranked than the other half of the world. Even more so, about half of the population lives in the democratic societies, and a third live in the authoritarian societies.

True, direct, or pure democracy is supposedly egalitarian by nature: it attempts to take power from the few and gives it to the majority. This makes those in the majority equal to each other. On the contrary, income inequality is by nature anti-egalitarian: wealth flows upward towards the minority and leaves behind the majority in poverty. The strange phenomena is that most of the countries with a democracy rating in the Economist Democracy Index (an alleged good) also have a high GINI index (an alleged not good). So what is the deal? Would the majority (who has the power) not also strive for the majority of the wealth? Would they not use the power they hold to enforce a legislation of a more equal distribution of wealth?

It turns out that the World Bank also asked this question and released a study of their own, attempting an answer. By looking at Latin American countries (both relatively high in the Democracy and GINI indexes), the study compares the growth of democratic elements, such as education, with the growth or decline of income inequality. Their conclusion? Income inequality trends towards more inequality before trending towards less inequality.

I am not entirely convinced by that answer. Our democracy is more established than most of Latin America and Eastern Europe, plus we rank higher on the Democracy index (19 out of 167), and yet we rank 43 out of 144 in the GINI index; we rank higher than even some of those Latin American and Eastern European countries. Do they educate their citizens better, as indirectly implied by the World Bank study? No, that is not it either, as we rank 5 out of 187 in a United Nations Education index, ranking much higher than those other countries in question.

There is a saying that "absolute power corrupts absolutely." If, in democracies, the power belongs to the majority of the people, then should it not follow that the majority could then be corrupted? The issue is not necessarily with whether the people are educated properly, but whether the people wield their power properly. We continue to utilize our power of the majority to wage war on drugs, on the Middle East, or even on the un-democratic. We clamor for a greater aid for the impoverished, but never actually legislate any real change. We continue to use our power to create a comfortable life, an easy life, and a self-privileged life. Maybe the deeper issue is not necessarily with the rich and the poor becoming more divided, but with the power of the majority finally having been corrupted and squandered.

I am not trying to imply that democracy in and of itself is a bad thing, although I am going to be critical of any idea that gives the power to the masses. Nor am I fully convinced that income inequality is as big as a problem as the media pushes. Yes, a CEO should make more than an entry level worker. Yes, the owner should take home more income than the employee. Yes, the more qualified employee should earn more than the less qualified even if the job is the same. However, I will also scrutinize any employer who fails to provide a full time employee a living wage, a board of directors who gives the CEO a raise then tells lower management and the employees that not only will they not get a raise, but that there may be layoffs because the company cannot afford that much in its Wages Payable budget, or even a manager who pays an employee more than another because one is a woman of color and the other is a white male. It just strikes me as odd that there are enough democratic societies, especially the US, Latin America, and Eastern Europe that still fail to look after our poor. Why to we continue to claim to be democratic and egalitarian, and then continue to use our democratic processes to vote in the politicians that do nothing to change the status quo?
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