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OP-ED: A smaller gap

  • Published at 06:42 pm September 12th, 2020
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What matters is reducing absolute poverty BIGSTOCK

Bangladesh won’t be reaching the SDG for inequality, but that’s OK

It appears that Bangladesh is not likely to reach one or more of the Sustainable Development Goals, something we all have to agree would be a dreadful shame. How could we all hold our heads up in the presence of the international community if this were to happen? The correct answer here actually being the heck with the SDGs and the international community, of course.

The specific target that looks like it is being missed is the one for inequality. Something which, I submit, we should not overly concern ourselves. It is the absolute standard of living that matters, the presence of real poverty, not that some have more, or less, than others. Sure, this rather goes against the current political flow, but then being intellectually fashionable has never been one of my sins.

It’s worth taking a step back here and looking at the Millennium Development Goals, the earlier set of hopes for the global economy. In there was the desire that global poverty should halve by 2015. The definition of poverty used here was that real one, someone trying to live on less than $1.90 a day (measured using PPP exchange rates) in consumption value. 

A noble aim of course, aiding people in climbing up out of that historic destitution is meritorious. The assumption was, though, that this would be a difficult target. One that would require much work by governments, bureaucracies, and the well-meaning; one that necessitate a significant expansion of taxation and redistribution, especially across international borders.

It didn’t actually turn out like that. Instead, it was globalized capitalism and markets that did it. For the target was reached, in fact exceeded and early too -- the only one of the MDGs that was. The cause was that the industrial revolution reached parts of the world it had hitherto avoided -- the RMG factories we see around us being an excellent example. 

This, though -- and I am being no more cynical than reality demands here – wasn’t quite the point of setting those goals in the first place. The actual alleviation of poverty wasn’t the aim, greater management of the economy and our lives by the international Great and the Good was. So, if we all get on with it and abolish poverty -- OK, halve it -- just by going to work each day then what need that overarching structure of bureaucratic economic management? Really, not the point at all.

So, when the new goals were set, the Sustainable Development Goals, there was a determination not to make that same mistake again. One thing that markets do not manage well, on their own, is a reduction in the inequality of income distributions. So, if we set that as a goal then there will always be a place for those who interfere from nice comfortable offices. Along with the necessity of the taxes to pay their fine salaries and pensions. No, I am not being excessively cynical.

One problem with this idea is that income inequality, the thing being measured as part of this SDG, is not an important thing. It is, if any form of inequality does matter, consumption inequality that does. And no one, not as an official target, measures this at all. To give an example from my native Britain, if we look at the incomes along of the top 10% (the average of that top 10%) as against the bottom 10%, it’s about 12 to 1. The rich gain 12 times as much income as the poor. 

Pretty bad. But then if we add in the effects of taxes -- higher income people pay more as you might notice -- and benefits -- poor people tend to gain more -- then that falls. Then we should also add in government provided services. Free education for all children say, free health care, libraries, roads, all the things that tax money buys. At the end of the process the rich are able to consume four times more than the poor.

Hey, maybe that’s still too much. But 4:1 is notably different from 12:1 and which is the correct measure to use as one of inequality? The only one that can matter is that consumption one, the 4:1. Which isn’t the one that’s measured by the SDGs at all.

We can also say that actually, markets and growing economies are pretty good at reducing inequality. Sure, maybe the rich can have beef at every meal and the poor are dining on lentils. But that’s a smaller gap than the rich being able to eat every meal and the poor dining on air often enough. And it’s not that long ago that that was the inequality around us, that second.

But let us put both of those objections to one side. This SDG that is going to be missed is that of inequality. Something which, I would submit, doesn’t in fact matter when compared to something of real importance, absolute poverty. Except, and unless, you are one of those who would gain a nice comfy job reducing inequality. As opposed to that reducing real poverty, something which just requires that we leave the economy alone to grow.

Which is, I insist, why that SDG about inequality was formulated upon in the first place. Because the people setting the SDGs were the people who saw themselves gaining those nice comfy jobs in offices dealing with it. I for one would suggest that instead of going along with that plan, we turf them out into the real world and send them off to do real jobs of work. Who knows, some of them might even be capable of doing something useful, there’s always that hope, however forlorn. 

Tim Worstall is a Senior Fellow at the Adam Smith Institute in London.

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