Twice in the last seven days, Pope Francis has made major statements about the economy. Most recently he referred to systemic and endemic increases in inequalities. This is a continual theme of the Vatican and was reiterated by the former Justice and Peace Commission time after time.

It is common for people to think that inequality is rising. When asked basic questions in a survey about human progress such as reductions in poverty, literacy rates and inequality, 90 per cent of British graduates gave the wrong answers to multiple choice questions. As the late Hans Rosling has noted, if you wrote the possible answers on bananas and left a chimpanzee to choose one, the chimp would do a better job.

This misunderstanding about human progress matters because if we assume things are much worse than they are we will make bad policy choices – and possibly disastrous policy choices for the poor.

As Catholics we should take a global perspective. Global inequality is falling: and it is almost certain to continue to fall to 2035. The reason for this is largely down to globalisation. Integration into the world economy, as Pope John Paul II noted in Centesimus annus, has led previously poor countries to grow much more rapidly. Meanwhile the incomes of richer countries have grown less rapidly.

It is true that inequality has increased within some countries. This is to be expected. If a country starts with a high proportion of its population living on the edge of hunger mired in an equality of misery and the country starts to grow, all will not get richer at the same rate. But, even countries such as China have seen inequality level off and then fall for over a decade now.

Inequality is highest in those countries such as in South America and Southern Africa where protectionism is rife and where there is a central role for government in the economy, something which the Pope seems to support. Indeed, the list of countries which are most unequal and the list of countries where the government is most dominant bear a remarkable resemblance. Even in rich countries, whether it is labour market regulation in continental Europe leading to 40 per cent youth unemployment in many countries or restrictions on developing land for housing in the UK, the government often puts substantial barriers in the way of the poor advancing themselves.

Of course, interventions that increase inequality are not the type of policies the Pope would say he wants. However, the Pope often argues that he wants participants in markets to be restrained by regulation. The problem is that the power centres within governments are run by exactly the same kind of imperfectible human persons as those running businesses. As such, intervention can often give rise to effects which are the opposite of those intended. Indeed, policies that favour clean energy, which the Pope called for, may well be good in and of themselves, but an undesired consequence is that they tend to increase inequality as the poor spend a bigger proportion of their income on fuel than the rich.

Given the often perverse outcomes of government intervention in developing economies, at least one cheer must go up for the Pope who finished his talk by saying that civil society must play its role in civilising both the state and the market.

 

This article was first published in the Catholic Herald.

Philip Booth is professor of finance, public policy and ethics at St Mary’s University, Twickenham and senior academic fellow at the Institute of Economic Affairs. Philip was formerly the IEA's Academic and Research Director between 2002-2016.

2 thoughts on “Believe it or not, global inequality is falling”

  1. Posted 14/11/2017 at 07:27 | Permalink

    Whereas it is hard not to disagree with the Pope’s assertion that participants in markets (especially untrammelled markets) should be, in some way restrained by regulation, the problem lies not so much with the principle of intervention, but with the enactment – given that people in the pay of the State who are charged with performing the regulatory function are same kind of imperfect human beings, as those in the Private Sector.

    It would also explain why there is very little confidence in the ability of big government to fix market failures or use the instrument of regulation to curb anti-competitive behaviour.

    This is because there is nothing special about the skills, qualities or capabilities of people who perform the functions of government (or regulators) as they are drawn from the same array of ordinary citizens that make up the general population.

    Indeed, the reputation of people in the pay of the State is diminished by the fact that their ability to innovate, solve problems, learn from past mistakes and adapt to change, which is a distinctive characteristic of people in the Private Sector, has been erased in the Public Sector due to incessant conditioning of the mind from an early age.

    However, what is especially worrying about people in the pay of the State is that they haven’t got a clue about what it is that drives the behaviour of for-profit organisations in the free market – not least, because they have not spent a single day of their lives in the Private Sector – and yet they have been put in charge of spending taxpayers’ money to buy goods, services and labour from non-public sector organisations or performing regulatory duties.

    Worse still, in specialised markets such as that in military equipment for the Armed Forces, the role of the regulatory authority and sponsoring agency has been combined in one department of state – the Ministry of Defence – which means that the independent scrutiny function, free from political interference, is non-existent.

    So, successful capture of a department of state by the Defence Industry amounts to capture of both roles!

    Which would probably explain why the Defence Industry has failed so miserably to deliver equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life, for as long as anyone can remember.

    Instead of doing the decent thing and educating people in the pay of the State about the ways of the Private Sector, Defence Contractors are busy exploiting their ignorance, for one purpose only – relieving them of taxpayers’ money – which has, in itself, left the public finances in pretty bad shape.

    It’s not so much a lack of skills in the Public Sector that is the problem, but a surplus of people with the wrong skills. Some people say that they can be retrained to equip them with the necessary skills which will enable them to deal with today’s challenging public service tasks. But the undeniable truth is that these people are simply beyond repair!
    @JagPatel3

  2. Posted 14/11/2017 at 10:02 | Permalink

    Forget the poverty gap the real news here is that the gap between chimps and graduates is closing!

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