Sunday, February 1, 2015

Tackling inequality involves more State, maybe a different one

The Davos World Forum has shown  consensus about  inequality as a global issue and that governments should find ways to tackle it. This has little to do with generosity or equity issues. it is juts the recognition that economy recovery cannot happen if income inequality is not reduced substantially in order to increase aggregate demand. The problem is that there is wide disagreement on how to tackle inequality and the role of the State.  

Liberal optimists think that open markets are the best remedy against inequality using as their best argument how globalization contributed to lift out from poverty hundreds of million people. This is of course arguable as many economists believe that unregulated markets have produced - before and after the financial crisis of 2007-08- brought wages down and increased poverty. 

However, much of the discussion concerns the role of redistribution - through many instruments, including taxation of the wealthy people or more public spending for the poor, or even a combination of both. Classical redistribution should not be ruled out to combat poverty and alleviate the social crisis for the middle classes.    

In a critical note to Piketty's work, R.Haussman, Harvard academic and former Venezuelian minister, argues that redistribution is "just  palliative, not curative". He's right: productivity is the problem - and all firms are not equal in terms of productivity and therefore the income they can distribute varies too. 

Given productivity constraints, the inequality problem has to be addressed  by investing in people, providing them with the right skills and creating job opportunities. The issue is to connect poor places (countries or regions) to inputs but this requires means to reduce existing economic disparities. It is a matter of  policy trade-offs. 

There may be more innovative redistribution policies such as the ones suggested by Mazzucato and  Rodrik. In substance, governments should finance their spending from the earnings in investing public venture funds. It means, however, a bigger role of the State in investing in funding new technologies and  to socialize the gains from innovation for citizens. 

No comments:

Post a Comment