Saturday, 11 January 2020

The Inequality Paradox - a summing up

You can approach inequality from the macro level, looking at it through the prism of economics and sociology.

Another approach is to look at individuals. Back at school, as sixth-formers we were interested in 'what makes people tick' - what are the motivations that drive people, how hard, and in what direction.

Drive, determination, tenacity - these are all facets of human character which determine whether we spend out evenings watching serials on TV or working out at the gym, reading books or being otherwise creatively engaged. In the workplace, that drive is about getting things done - optimally, getting others to share your vision and purpose and to get them to help you getting things done. Organisation, self-discipline, goals. Fairly basic stuff, but on your shoulder you have this little devil telling you to slack off, to slow down, distracting you with something interesting on the internet.

Some folk give in too easily, choose a life-path of least resistance, starting at school.

There are top-down and bottom-up causes of inequality. I feel that Douglas McWillams' book has had to focus entirely on the top-down causes; behavioural economics isn't mentioned at all. And yet I feel that our individual life-choices at the granular micro-level (like 'shall I get out of bed this morning?') are just as important as a system that looks too favourably at bankers' bonuses or overpaid CEOs.

As I wrote yesterday, much of the cause of rising inequality in Poland in the 1990s was due to differences in personal-drive levels between the hard-working and those happy to take it easy. Once there was a true incentive to create wealth (and the legal system to ensure you kept it), the gap between those who wanted to achieve and those who were comfortable as they were, grew.

I would argue that in the same way that there are differences between individuals when it comes to drive, determination and tenacity, so there are differences in the mean drive level across nations.

The granular nature of behavioural economics suits it to a world of Big Data. Be it the Chinese state or GAFA (Google, Amazon, Facebook and Apple) will be building up a picture of individual behaviours in the economic sphere. How hard we work, how much we earn how much we spend, how much we save - and what factors trigger our behaviour. Are we striving for more - or are we just comfortable?

Comfort brings about complacency and laziness - it can be a conscious choice. I'd go back to the notion in the Inequality Paradox of superbabies and the preservation of wealth across generations by children born to a pair of self-selected (homogamous) university graduates. Homogamy was long practised by aristocracies to preserve and extend family wealth, and like many of their habits good or bad, it has drifted down to well-educated commoners. Whether this means I'm too deep in the bubble, but I do not - and never have done - mixed socially outside of university graduates. And I can see within this group extremes of 'drive quotient' - from the lazy to the hyper-driven. The lazy community have their rights too, you know!

In the same way that you can take 1,000 random people from a given country and weigh them measure their height, their IQ and their income, you should be able to see what is the level of their 'get-up-and-go', their 'oomph', their drive. My gut feeling is that Poland would rank quite high here, as would many of the Asian Tiger economies, and China. I also suspect that America would have a handful of individuals whose drive is stratospheric, but then a great many whose drive is modest or poor. As to the UK, I'd say that over my lifetime, I have seen it faltering. So many great British businesses have been sold to foreign buyers - iconic brands in motoring (Rolls-Royce, Bentley, Jaguar), consumer goods (Cadbury's), industrial manufacturing (Pilkington, Babcock, BOC), even new technologies (ARM). It's easier to sit back on a cash pile than to manage a business.

We are all different. We react differently to situations. One such situation is what I would call 'the comfort wall'. What happens when all your material wants are met. (Wants, not needs.) You have your nice house, your place in the country, a fine car, free time spent well - and you have a pile of cash that enables you to continue with this lifestyle until eventual old age and death.

Why should you push for more wealth when you've got this far? When it becomes an obsession. Some people are obsessed with collecting stamps or railway locomotive numbers; I'm obsessed with my heath data (walking, exercising, food & drink). Others can be similarly obsessed with wanting to grow their fortunes. An Alpha-mammal type thing, showing off, bragging.

But there's another answer, more sinister. It is the tipping point when you start converting money into power. The Mercers, the Kochs, the Barclays, Rupert Murdoch, George Soros (for the sake of political balance) - examples of ultra-high net-worth individuals using their billions to influence the political discourse.

Since the Northcote-Trevellyan reforms of the Civil Service in 1854, the British have had an unspoken dividing line between wealth and power. Early on in life, you make a decision - do you want to govern, or to make money? But things are changing. In other parts of the world money is power and power, money.

The poor and the uneducated are essentially powerless, other than en masse at the ballot box. Getting a message to them to vote for this party rather than that party becomes important in a world of haves and have-nots. The elections of Trump and Johnson shows how poor and uneducated people can be persuaded to vote against their best interests by election campaigns funded by the super rich (by no means all of them Americans or Britons!). With trade unions waning in political influence from the 1980s onward, there seems not to be an effective counterbalance to the voice of the super rich in Western democracies - and that is a threat. While I'd not wish to see a return to the situation we had in Britain in the mid-1970s, I do feel that the ability of the super rich to manipulate elections through Big Data is dangerous.

If we stratify society not by wealth or education or height or weight, we see a picture where there are those at the bottom who are striving to better themselves materially, those in the middle who've achieved a comfortable lifestyle and are happy there, and those at the top who have gathered large amounts of wealth and want to increase it. Then there are those with less drive...

I hold that biology is as much a determinant of success as being born at the right time in the right place. Humans have a pecking order, just as all animals do. The runt of the litter, the alpha male, the top dog; dominance and subservience. I have called this the Ladder of Authority. You can learn how to lead (countless courses and coaches will tell you this), but I posit that real leadership is mainly biological.

The self-regulating answer to inequality must come from an awareness of the very wealthy of their privilege. Some were either born into privilege - they need to be aware of those with less luck of birth. Or they earned it within a system that allowed them to create and keep their wealth. Those entrepreneurs who rail against high taxes and the state should be aware of who educated their employees, built and maintained the infrastructure that keeps society going, and who keeps order in society. An entrepreneur who behaves ethically, paying taxes, treating employees, suppliers and customers fairly, and who contributes to the overall wealth of society deserves our plaudits. But the rent seekers who use their wealth to get an easier ride are a problem.

Systems, even human ones, cannot tolerate absurdities too long. Situations where the imbalance between the ultra-rich and the poor in a given society can result in bloody revolutions.

A response from the truly wealthy has been the appearance of 'stealth wealth' as a thing. These two words, rhyming nicely to form a catchy phrase, have been around for a couple of decades. Here's an article of Lucia van der Post (she who edits the Financial Times' How to Spend It supplement) from nearly 20 years ago. (Interesting that Trump gets quoted, observing the switch from limos to SUVs). Part of what stealth wealth is about, says van der Post, is not so much that the super-wealthy want to hide their wealth by not being ostentatious, rather, it's that those aspiring to the status of wealthy can now afford those things - those brands - that until recently were the exclusive preserve of the rich. But times change. I suspect that today's stealth wealth is about keeping very quiet about one's fortunes. Not bragging about it for fear of those who'd want to take it away. But then if you can't brag about it, your place on the top of the Ladder comes to be questioned - all the more reason to convert money to power, so those below you won't become a threat.

And that is a threat to us all.

This time last year:
Familiarity, tradition and identity

This time two years ago:
Black hat merry-go-round 
(I've found four so far this season)

This time three years ago:
Skarzysko-Kamienna and Starachowice, by train

This time four years ago:
The world mourns the loss of David Bowie

This time six years ago:
Where's the snow?

This time eight years ago:
Two drink-free days a week, British MPs urge

This time nine years ago:
Depopulating Polish cities?

This time ten years ago:
Powiśle on a winter's morning

This time 11 years ago:
Sunny, snowy Jeziorki


student SGH said...

Why should you push for more wealth when you've got this far?

With a talent to earn money I would share what I could not spend on my own (living a comfortable, but modest life) with the ones in need, via causes such as Szlachetna Paczka, WOŚP, etc.

Michael Dembinski said...

@Student SGH - would that everyone with the talent to earn money would be so big-hearted!