Mobility: a solution to inequality?

A large por­tion of the world’s pop­u­la­tion has been lif­ted out of poverty by the com­bined effect of advance­ments in know­ledge, and the growth and glob­al­isa­tion of trade. Accord­ing to the World Bank, in 1981 close to 40% of the world’s pop­u­la­tion was liv­ing under the poverty line (on less than a dol­lar a day). By 2008, this fig­ure had fallen to 14%. While in 1988, 40% of India’s urb­an pop­u­la­tion was liv­ing in poverty, the num­ber dropped to 12% just elev­en years later, due to rap­id growth, with the aver­age annu­al growth rate rising from 0.77% in the 1970s to 3.9% in the 1980s.

The glob­al reduc­tion in inequal­ity is not only a mat­ter of income, but also health. Between 1940 and 1980, the aver­age life expect­ancy in devel­op­ing coun­tries rose by nearly 20 years, from 44.5 to 64.3 years of age. In developed coun­tries, this fig­ure rose by just nine years over the same period.

Since the early 1980s, rap­id eco­nom­ic growth in China and India has enabled over two bil­lion people to escape poverty. At the same time, this growth has gen­er­ated new inequal­it­ies between these coun­tries and oth­er eco­nom­ies, par­tic­u­larly those in Afric­an states, which have not exper­i­enced the same growth. Lastly, growth in India and China has increased intern­al inequal­it­ies: only lim­ited sec­tions of the Indi­an and Chinese pop­u­la­tions have become pros­per­ous, or rich, even though poverty rates have dropped sharply in both coun­tries since the 1970s.

The same phe­nomen­on of grow­ing “intra-coun­try” inequal­ity can also be observed in oth­er coun­tries. In the West­ern world, there are those who have innov­ated and adap­ted to best take advant­age of tech­no­lo­gic­al revolu­tions (ITC, AI, etc.), and those who have been left behind. Should we be con­cerned about rising inequal­it­ies with­in our borders?

Growth in India and China has increased intern­al inequal­it­ies in these countries.

Inequal­ity can be meas­ured in sev­er­al ways. We could look at the top richest 1% with­in a country’s income; at a more glob­al meas­ure of inequal­ity, such as the Gini coef­fi­cient, which meas­ures the dis­tance from per­fect equal­ity for the entire pop­u­la­tion; or at social mobil­ity meas­ures and the poverty traps that hinder social mobility.

In my view, if we want to encour­age growth through innov­a­tion while lim­it­ing inequal­ity, we must fight poverty and increase social mobil­ity. Inter­est­ingly, great­er social mobil­ity tends to be asso­ci­ated with lower over­all inequal­ity (a phe­nomen­on known as the Great Gatsby curve). By focus­ing on social mobil­ity, we could kill two birds with one stone.

In that case, must we simply ignore the richest 1 or 0.1%? The answer is no, since the rich can use their resources to block new innov­a­tions and reforms aimed at open­ing up access to edu­ca­tion and health: those who suc­ceeded yes­ter­day may wish to stop oth­ers from doing the same today, and thus pre­vent competition.

There­fore, in order to pro­mote truly inclus­ive growth through innov­a­tion, we must estab­lish an eco­nom­ic and social mod­el that: (1) stim­u­lates social mobil­ity through high qual­ity edu­ca­tion, train­ing and health for all; (2) pro­tects people and pre­vents them from fall­ing into poverty by shield­ing them against the risks asso­ci­ated with job loss and career change; (3) encour­ages tech­no­lo­gic­al advance­ments and innov­a­tion as sources of wealth cre­ation, while estab­lish­ing safe­guards (relat­ing to taxes, com­pet­i­tion, cor­rup­tion laws, etc.) to pre­vent yesterday’s innov­at­ors from block­ing the paths of oth­ers to prosper­ity and freedom.

This column is the repost of an art­icle that was ori­gin­ally pub­lished in the Par­is Innov­a­tion Review on 02/01/2018.