The inequality of ownership

Inclusive Economy26 Jun 2014Annemarie van de Vijsel

A social contract may offer a sound basis for responsible development. Power relations are crucial.

The roots of inequality can lie not only in socioeconomic factors, but also in political issues and exclusive governance. However, as Dirk Messner, director of the German Development Institute (DIE), explained in his introduction to the plenary session ‘Tackling inequality through “responsible” development’ at the EADI conference in Bonn, Germany, there is a new factor affecting inequality, ‘planetary boundaries’. The speakers at this session supported Messner’s introduction with strong and well substantiated arguments.

Before the lively discussions started, Branko Milanovic of the City University New York and the Luxembourg Income Survey showed the main data on inequality and the middle classes. Even though the middle class is growing on a global scale, it does not yet represent the largest population group. According to Milanovic’s classification, most people in the world have a purchasing power of 2 to 10 dollars a day. These people, who he refers to as ‘the masses’, have more money to spend than the poor, but less than the global middle classes, which Milanovic defines as having a purchasing power of 10 to 100 dollars a day. The masses are more vulnerable to falling back into poverty than the middle classes. (Read here The Broker’s interview with Branko Milanovic during the EADI conference.)

Milanovic showed that, in contrast to very unequal areas where a middle class does not exist, urban China does not have a very rich or very poor group. Chinese cities are populated only by the vulnerable masses and the middle classes – with over 450 million people the largest in the world.

Peter Knorringa of the International Institute of Social Studies in the Netherlands noted that the debate on the emerging middle class is also about new patterns of global governance. Joyeeta Gupta of the University of Amsterdam took this argument further with her strong plea for responsible global governance. Increasing consumption, partly due to the rising middle classes, is putting more pressure on natural resources and the ecosystem, and thus on the equal distribution of these resources. According to Gupta, if these resources are to be used responsibly and sustainably, we need global rule of law and a global constitution. She added that these institutions should address tax evasion and tax havens as well.

Louka Katseli of the University of Athens also argued strongly against tax havens and the power of the financial sector. As a former Greek Minister of Economy, Shipping and Competitiveness, she understands the importance of power relations. According to Katseli, inequality of ownership is crucial. “If we want to tackle inequality,” she said, “we have to look more carefully at what is happening on the capital markets. Inequality does not only derive from differences in skills and opportunities, from the composition of the labour market, and from globalization, as we used to think.”

To achieve responsible development, Katseli continued, we need to tackle “global failures” by policy-makers. The most urgent action would be to establish a global financial register to overcome the failure to regulate the increasingly powerful global financial system, which strongly influences the decisions of policy-makers. In this context, she too argued for the abolition of tax havens.

The basis of responsible development, in Katsali’s view, is a social contract. “We thought, and think, we had a social contract,” she said, “but it has become irrelevant and defunct. This is mainly because the key players – including the financial sectors – are not sitting around the table.” Knorringa agreed that the social contract is still shaped by vested interests and not the middle classes, because of their heterogeneity. The absence of the relevant players at the negotiation table was an issue underlined by all speakers.

Something is happening, though, in the context of the social contract: the post-2015 discussion is essentially about establishing a social contract at global rather than national level.

The Broker is reporting from the EADI conference ‘Responsible Development in a Polycentric World: Inequality, Citizenship and the Middle Classes’, 23 – 26 June 2014 in Bonn, Germany. The Broker is the media partner during this conference.