Sometimes, some inequality does not matter much
Writer: Hafiz Noor Shams
Published: Fri, 28 Dec 2012
Wealth inequality does worry a lot of people. Malaysia’s Gini coefficient has been bandied around as a proof that something must be done to address the inequality that we see in the country. “We are the 99%” is the favorite rhetoric to pound in the message that wealth inequality is a problem.
Yet not all kinds of wealth inequality deserve the indiscriminate worry that it receives. What defines inequality as an issue of importance is its cause and causes of inequality are aplenty.
Some causes may warrant serious attention and more importantly, action. A particularly worrisome kind of equality is the one caused by monopoly of power. Such power tends to concentrate wealth in the hands of the few at the expense of the rest. The monopolistic few can become so powerful that they begin to amass further wealth through unfair means to create an excessively unequal society not merely in terms of wealth, but also in terms of rights.
But wealth inequality can also be caused by factors that we should inculcate in our society. Those factors are so desirable that we should tolerate inequality caused by them. For instance, some level of inequality is preferable simply because that inequality is a symptom of meritocracy. As long as we reward successes, there will be some level of inequality in our society.
In between lies inequality created by benign causes. It is a kind that nobody should go down to the streets shouting their lungs out in protest in the name of the people, whoever the people are really. In fact, so benign is the inequality that it should be discounted from any serious informed discourse on inequality.
One of these kinds of inequality is caused by demographics. Or probably in clearer language, it is inequality caused by age difference.
When the young enters the labor market, it is only expected they will not earn too much. But as they age and gain more experience, their income will grow and so too will their wealth. In the same line of reasoning, the older generations will likely be wealthier than their younger counterparts, controlling for other factors.
So when we place age profile and wealth side by side, it is reasonable to expect the existence of wealth inequality.
Wealth will likely concentrate in the hands of the older generations than in the hands of the younger generation. It is an inequality between the young and the old. It does not explain everything about overall wealth inequality but it does contribute to overall wealth inequality.
This phenomenon is particular important to a youthful society. In a society where the median age is low, wealth concentrates in the hands of the few members of the older generations. That fits the definition of wealth inequality: few rich old men (and women) and lots of not-so-rich young men (and women).
But as that society grows greyer – when there are fewer youth and more ‘older persons’ around – wealth will be more well-distributed among members of the society: lots of well-off middle-aged or old men (and women) and few not-so-rich young men (and women). To put it more concisely, as the median age grows older, one expects to see a reduction in inequality.
Coincidentally, Malaysia has a young population. Based on the Department of Statistics’ Population and Housing Census published in 2010, the median age is approximately 26 years old. The median Malaysian just entered the labor market and still developing their career, if they have chosen one to start with. Indeed, a consideration portion of the population is made up of young adults. One can expect to observe wealth inequality just because the demographics evolve just as such.
For Malaysia, that reduction inequality may happen in a decade or two when a significant fraction of the population enters their middle age era and experience considerable income growth.
The Gini coefficient however takes everything into account, regardless of the causes of inequality. Demographic-driven inequality will correct itself sooner or later and there is not much we can do to address the root cause without resorting to population control.
These benign types of inequality should be discounted from a discourse of inequality. If somehow we can correct the Gini coefficient to reflect that, then perhaps the hard numbers would show us that the situation is not as bad as some make it out to be, that it is not really a case of the 99% versus the one percent.
Besides, in many case, it is poverty that mostly matters and not so much wealth inequality. Why would inequality matters when everybody is living comfortably and a few persons live rather lavishly but ultimately of no adverse effect on others? Jealousy is not strong enough a reason for us to ‘correct’ wealth inequality in the society.