The two American computer programmers Brian Acton and Jan Koum invented WhatsApp and sold it to Facebook for $19 billion in 2014. Two billion people around the world now use WhatsApp to not only send messages and files, but also to make free phone calls. Thanks to their idea, the two founders of WhatsApp have amassed a combined fortune of $16 billion. Has inequality increased because there are now two more multi-billionaires? Certainly. But did it hurt anyone, except maybe the expensive phone plan providers?
In China, thanks to the introduction of private property and market economy principles, the share of people living in extreme poverty has fallen from 88% in the early 1980s to less than 1% today. . At the same time, the number of rich has increased more than in any other country. Now, only the United States has more billionaires than China. Inequalities have increased, poverty has decreased. Does anyone think the Chinese want to come back to life under Mao just because people were more equal?
The fact that inequality is discussed more than poverty in public debate is an expression of envy, even if critics of inequality deny this motive. Envy is the most commonly denied, repressed and “masked” emotion. When the envy becomes recognizable as such or is communicated openly, the envious person automatically disqualifies his intentions. Anthropologist George M. Foster wonders why people can admit their feelings of guilt, shame, pride, greed and even anger without losing their self-esteem, when it is almost impossible for them to admit their feelings of envy. He offers the following explanation: Anyone who admits to themselves and others that they are envious is also admitting that they feel inferior. It is precisely for this reason that it is so difficult to recognize and accept one’s own envy.
Confusion between means and medians
The resounding success of economist Thomas Piketty’s book, Capital in the 21st century, showed how the topic of inequality and the “gap between rich and poor” inflames the media – and not only them. Piketty admits that inequality declined, not increased, for most of the 20th century. It was only from 1990 that there was a negative evolution towards more inequality. The particularly bad years from Piketty’s perspective were actually the best for hundreds of millions of people around the world. During the twenty years during which inequalities increased according to Piketty (1990-2010), no less than 700 million people emerged from extreme poverty.
Criticism of inequality in Britain, particularly high executive salaries, is often based on faulty figures. Damien Knight and Harry McCreddie have shown that many of the statistics published in the media on executive salary inflation or the evolution of the ratio of executive salaries to those of ordinary employees are grossly flawed because those who make these calculations often do not have even a rudimentary understanding of mathematical or statistical methodologies. For example, averages and medians are often confused, or no distinction is made between the remuneration granted and the actual remuneration. Taking the example of the UK, they explain how a real increase in executive salaries of 6% over a given period quickly becomes a 23% increase in the media, or a 2% increase becomes a 49%. Their conclusion: “We believe that poor research and analysis has damaged social cohesion more than the companies themselves have done by paying high salaries to their top managers.”
The American economists Phil Gramm, Robert Ekelund and John Early go in the same direction in their book The Myth of American Inequality. They criticize the fact that US statistics on inequality do not take transfers and taxes into account. If the substantial taxes paid by high earners are not reflected in the statistics, and the substantial transfers received by low earners are also largely ignored, this logically leads to data on rising inequality being flawed. If taxes and transfers are taken into account, the income ratio of the bottom 20% of Americans to the top 20% of Americans is 4.0 to 1, instead of the 16.7 to 1 shown in official census data. Inequality has therefore not increased as much as is often claimed. Anyway, I think we should worry less about the issue of inequality and more about the issue of poverty.
*Rainer Zitelmann is a historian and sociologist. His book In Defense of Capitalism has just been published in English.