Op-Ed: Extreme Inequality not Driven by Merit, but by Rent-Seeking and Luck

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From an article in Evonomics by Didier Jacobs,special advisor to the president at Oxfam America. Full text at http://evonomics.com/extreme-inequality-not-driven-merit-wealth/. Based on an interview by  Sam Pizzigati, veteran labor journalist and Institute for Policy Studies associate fellow

Defenders of our deeply unequal global economic order had to put in a bit of overtime last month. They had to explain away the latest evidence — from the global charity Oxfam — on how concentrated our world’s wealth has become. A challenging task.

Back in 2010, Oxfam’s new stats show, the world’s 62 richest billionaires collectively held $1.1 trillion in wealth, far less than the $2.6 trillion that then belonged to humanity’s least affluent half.

Now the numbers have reversed. The world’s top 62 billionaires last year held $1.76 trillion in wealth, the bottom half of the world only $1.75 trillion.

Jacobs: Put simply, economists define rent as the difference between what people are paid and what they would have to be paid to do the work anyway. In other words, a rent is excess income, income that does not generate any effort.  So if your farmland happens to be more fertile than surrounding farmland, you get more production out of it for the same effort, and that extra income you get is a rent. Rent-seeking entails getting hold of wealth produced by others. Lobbying government to obtain a subsidy is an example.

“Far from trickling down,” Oxfam concludes, “income and wealth are instead being sucked upwards at an alarming rate.”

Flacks for grand fortune have a justification for this top-heavy state of affairs. We live, they assure us, in a meritocracy. Those with great wealth have made great contributions. They merit their “success.” If we want to encourage talent and hard work, we simply have to accept the inequality that meritocracy will inevitably produce.

Do our grandest fortunes really reflect merit? Oxfam economist Didier Jacobs last year set out to examine that question, and he has just published a paper that offers a fresh new take on meritocracy and the rhetoric and reality behind it. Too Much editor Sam Pizzigati last month asked the Boston-based Jacobs to share the thinking that underlies his innovative new research.

Too Much: People who defend grand fortunes typically don’t defend all grand fortunes. They’ll readily acknowledge that some rich people haven’t done anything that makes their riches merited. But then they’ll argue that most of our wealthy do owe their wealth to personal talent and effort. What do modern philosophers like John Rawls have to say about this “meritocracy” defense of inequality?

Didier Jacobs: Many philosophers see talent as genetically or socially inherited. Even effort, Rawls contends, stands largely — if not completely — out of an individual’s control. Gifted people raised in supportive environments with access to great opportunities will find working hard to nurture their talents much easier than folks who lack a supportive environment.

Proponents of meritocracy don’t consider inherited wealth to be merited. So why should the wealth that comes from inherited talent be merited?

TM: But your research doesn’t rest on this philosophical critique of meritocracy. Your new paper essentially takes the notion of meritocracy at face value. You accept that some grand fortunes could reflect individual talent and effort and then you go on to examine how much true talent and effort specific sorts of fortunes involve. Why take this approach?

 * Article continues at http://evonomics.com/extreme-inequality-not-driven-merit-wealth/

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About the author: 

Didier Jacobs is special advisor to the president at Oxfam America. He was previously a researcher in Oxfam America’s Policy Department, specializing in global governance and international finance. He is the author of Global Democracy: The Struggle for Political and Civil Rights in the 21st Century

 

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