1) The document discusses inequality as a major theme at the World Economic Forum in recent years. It focuses on Thomas Piketty's argument from his book "Capital in the 21st Century" that inequality will worsen over time if the rate of return on capital exceeds economic growth. 2) There is disagreement over how to address inequality, with debates around whether more economic growth or redistribution is the best solution. Supporters of growth argue everyone will benefit, while redistributionists say distribution cannot be disregarded. 3) The document argues that natural differences like ethnicity do not justify unequal outcomes and that capabilities are influenced by environment and luck. It proposes addressing inequality through inclusive growth and redistribution funded

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INEQUALITY, SUCCESS, AND SUSTAINABILITY:
AN INTRODUCTION
For two years in a roll, inequality was the overriding theme at the World Economic
Forum in Davos Switzerland, a global conference for business leaders and
policymakers. Many might wonder why this is such a big issue, given all the other
myriads of problems the world currently face. Oil price downward spiral (or what
this writer would call a correction) is sending many developing markets and
exporters into fiscal delinquency, Europe and the West is severely threatened by
economic stagnation and deflation, and there are indications that the eastern
economic engine powered by China may be slowing down. So why is economic
inequality a source of global concern?
Well, there are many explanations but one is of particular significance over the
past year. Ever since Thomas Piketty , a French economist published his book
Capital in the 21st Century , a global conversation has been happening on the
ramifications of economic inequality (income and wealth) and its implications.
There have been many ideological divisions over the merit of Piketty’s central idea
that given the relationship between rate of return on capital and economic growth
(r>g), inequality is a real problem as the gap between the rich and the poor will
expand faster than economic growth can support. This disparity will matter for
consumption, poverty, human capital, education and other metrics of social well-
being, as it puts them within the grasp of the rich easily than the rest. However
the discussion has failed to capture much of public discourse in Asia and Africa for
different reasons. One is that people (both lay and experts) never seem to worry
about inequality when the economy is doing well. The Asian and African economic
growths conveniently outpaced most of the developed world in the years after the
2007 global financial crisis. Secondly, talking about issues like wealth and material
possession (the usual measures of economic inequality) is culturally frowned upon
in Asia as a part of a long Confucian tradition. Lastly, there is a huge measurement
problem in Africa where basic data on most economic metrics cannot be accurately
obtained.

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Most analysts agree that unequal distribution of a society’s economic resources and
returns is both morally objectionable and economically unproductive. Where
disagreements lie are usually in three areas. Many believe no society can be truly
egalitarian and so discussing inequality is really about how much inequality is
tolerable in a society. Others have contended that the only inequality that matters
is that of opportunity and it is the concomitant of other kinds of inequality. Hence
the focus should be on creating a meritocratic society where everyone has equal
chance of success or failure. There are flaws (mostly philosophical) with each of
these points of views but my focus is really on the third layer that usually
generates the fiercest debate; income inequality and what should be done about
it.
While many rarely contend the causes and effects income inequality, there is a
huge disagreement over how it can be fixed. Opinions can largely be divided into
two camps. Either we facilitate more economic growth or income redistribution.
Defenders of the former argue that increasing the aggregate economic wealth of a
nation is what really counts, as everybody’s share will grow with it regardless of
distribution. Opponents contend that there can be no moral basis for disregarding
distribution, for that implicitly means that we are granting some people a baseless
right to larger share than the rest. Another critique of this view that avoids
normative complications is that economic growth is not limitless and we cannot
run a just society on the presumption that growth will continue forever.
Redistributionists on the other hand, are criticized for trying to enforce sameness
where natural difference and everything that come with it is a better way of
organizing a society. For them, to attempt to redistribute is a desire to engineer
nature in an artificial way. Most of the disagreements we have considered so far
are merely false differences or at best blurry ones.
First let us analyse the argument about natural differences. That people are
different is axiomatic, whether all measure of life should reflect those differences
is a tougher argument to endorse. Consider natural differences like ethnicity,
gender or nationality. I came across a paper (which would be fully discussed later)
recently on ‘’Oil and Ethnic Inequality in Nigeria’’. It’s an exhaustive discussion on

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how the returns on a particularly enriching commodity can have different
economic outcome for different people by the sheer luck of the geographical
region they were born. Hardly anybody would defend such a status quo, yet
ethnicity is a natural human difference. Same way you cannot find anyone
defending colonialism on the grounds of the needed expansion of global trade.
Arguing for inequality on natural differences is indefensible. But some would
contend that what is meant by ‘’natural differences’’ are not unchangeable
biological facts like race, gender and ethnicity. Rather it’s a difference embedded
in ability. People have different capabilities, and they should be rewarded for
their efforts and capabilities accordingly. A variant of meritocracy (as explained
above). Observed keenly, this argument rests on shaky grounds. Efforts often yield
different outcomes, however this merely does not establish that such outcomes are
inherently justifiable. An abundance of empirical evidence already proved that
your parents, the environment you were raised, the schools you attended go a long
way into shaping your capabilities. These endowments are largely income-
dependent. Should people’s fate in life depend on genetic luck or generational
poverty? Again, hardly anyone can answer yes. The meritocracy argument fails in
this regard. People should not only have equal opportunities; they should be
sufficiently empowered to utilize them.
Now let’s turn to the most productive difference the inequality discussion has
yielded so far. Popular among development experts, is the choice between social
mobility; that is policies that empower people to utilized opportunities, and
redistribution. This was recently discussed by Harvard’s development economist
Ricardo Hausman. The reasoning goes that redistributive considerations are
secondary in economic development and the priority should be “inclusive growth’’
first and foremost. Put crudely in this manner, I agree with this view. But when
positioned as a form of alternative to redistributive considerations, my view is that
you cannot have one without the other. Most developing economies (including
Nigeria) under the influence of rising commodity prices shifted their economic
activities quickly into services from industries. You are now more likely to find
consulting firms, PR firms and banks in Nigeria than Tyre or Steel factories. This
phenomenon is what the economist Dani Rodrik calls Premature
Deindustrialization. The argument goes that rebuilding crumbled social

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infrastructures that will enable a new industrialization should be the primary
concern of development. What is often comfortably neglected in this argument is
how to pay for this “reindustrialization’’. Redistribution is often unhelpfully
conflated with cash transfers. While transfers are a form of redistribution, most
redistributive policies do not involves direct cash transfers. Africa has had an
uncomfortable relationship with debt and thus wary of debt finance. The
relationship with China is a form resource-colonization and will eventually end
badly, hence the need to look inward for generating revenue. This however, is not
without problems. Most African governments still abuse their use of the domestic
capital market, as evidenced by the unhealthy exposure of Nigerian banks to
fluctuations in Oil prices. So here is my simple redistributive proposal. Let’s start
raising revenue significantly from progressive taxation. It is simple, sustainable and
promotes good governance. Poor working people can benefit from Earned-Income
Tax Credits. A lot of revenue can be generated from various consumption taxes like
on luxury goods. Harmful activities like tobacco, alcohol, pollution and firecrackers
should attract Pigouvian taxes. I will discuss many of these in detail in a later post.
I also invite readers to discuss taxes they will be willing to pay to help fund
development. Here is an adorable picture that helps me think about equality
without the discrimination and segregation of people’s natural abilities and
capabilities.