Economics

Redistribution ou inclusion ?

Jan 30, 2015 Ricardo Hausmann

RIYAD – La question de la montée des inégalités des revenus a occupé une grande place cette année au Forum économique mondial de Davos. Comme chacun le sait, l'économie des États-Unis a connu une croissance considérable au cours des trois dernières décennies, ce qui n'a pas été le cas du revenu familial médian. 1% des personnes les plus riches du monde (et a fortiori, 0,01% de ce même groupe) se sont accaparé la plupart des gains, un fait que les sociétés sont peu susceptibles de tolérer bien longtemps.

Beaucoup craignent qu'il ne s'agisse d'un phénomène mondial ayant des causes similaires partout dans le monde, une des thèses principales du célèbre livre de Thomas Piketty Le Capital au XXIème siècle. Mais cette proposition peut être dangereusement trompeuse.

Il est essentiel de distinguer l'inégalité de productivité entre les entreprises, de la répartition inégale des revenus au sein des entreprises. La traditionnelle bataille entre le travail et le capital a porté sur ce dernier, où ouvriers et propriétaires se sont disputés leur part du gâteau. Mais il existe étonnamment de profondes inégalités dans la productivité des entreprises, ce qui signifie que la taille du gâteau varie radicalement. Cela est particulièrement vrai dans les pays en développement, où il est fréquent de trouver des différences de productivité d'un facteur de dix au niveau provincial ou étatique et plusieurs fois supérieur au niveau municipal.

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0 Comments on this paragraph, 19 Comments on this article

Juan Carlos Cantu Aug 29, 2016

Herein lies a very deep understanding and explanation of the development problems in many developing countries. Many believe that Capitalism's main flaw is that it engenders inequality, but for reasons that have to do with our innate self interest -the need to hoard riches at the expense of the less fortunate. This is finally explained in this simple yet powerful paragraph. Selfinshess does not entirely explain inequality. Inequality is more about about the "network effect", and how every member of the "network" enriches every other member of the network by their joining said network. Those kept outside of it have an uphill battle. Thank you Ricardo Hausmann for clearing that up.
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Jerry Nutter Feb 9, 2015

Since Reagan, the US has practiced accelerate redistribution, synonymous with class warfare, to the benefit of a shrinking class of winners. It is time to reverse the machinery that brought this about. Once we have begun this process, and can show some significant redress, then inclusiveness can become a serious topic. Until that time, it is a apologetic dodge.
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Jonathan Lam Feb 2, 2015

Gamesmith94134: Redistribution or Inclusion?
Mr. Ricardo Hausmann,
I am sorry that I cannot finish the pie of capital that you imagine. Philosophically, I see the redistribution and inclusion as two separate entities when productivity and consumption shares in the capital that is being redistributed or included. Whenever, inequality comes in the shares are individually contributed to a firm or an economy. Perhaps, I would like to share my idea of two separate spheres that are intertwined at a point of supply and demand, often I called the marginal affordability, connecting more like an infinite sign or “8” shape that what the energy embedded.
First, I would think of the capital that involved asset, human resource and equity. When inequality comes in that human resources share the assets and equity that the supply and demand are the energy that circulate infinitely just like energy either in redistribution or inclusion on the separate cycles like the “8” shape. Perhaps, inequality means the two cycles are not balanced and redistribution or inclusion is not sufficiently provides its energy to circulate. In assumption, goods cannot be sold through the firm would blame on the price or value; and availability of job can redistribute to low tech in matching the need of the firm. So, in the capitalist world demand a higher skill to compete. Implicitly, we are being exploited by the current high tech or redistribution that never included in term of the human resources; and the demand stop employment.
Secondly, when you apply the micro-economic to the firm, their workers must be awarded for its contribution or else he will be cut. Perhaps, he deserved more even on the surpluses; but the fact is that the micro-economic did not complete the sphere at the point of macro-economic that what the Human resources shares of the assets or equity in the inclusion through the expansion on the capital it created. Then, the balance is off. It makes the larger equity that human resources cannot comply. It is deflation in undercutting the asset the firm produced. Since the two spheres interact, the cycle will shrink as well after unemployment rises. We called it recession. So, Mr. Ricardo Hausmann said the size of the pie varies radically; because they are divided at the point of marginal affordability that “have” and “have not” travel in a cycle in supporting the value or supply that is overpriced or not demanded.
Thirdly, how do we arrive at this inequality? I had criticize India for lack of a competitive price that India subsidize its goods that it did not provided a market system internally in matching the present external globalized market. We often blame on the dollar or institutionalization that the corporation sovereignty has broken down the economy of its individualism; or we may take the firms too seriously on competitive awards or even surpluses. However, I think Mr. Samuelson have taught me will in understanding economics in Econ1; I may be naive to accept the simplicity of supply and demand. I think Mr. Ricardo Hausmann should expand the pie as the energy of infinite that goes around in two separate cycles. Perhaps, they are redistribution and inclusion meets at the marginal affordability if capital includes assets, human resources and equity.
Venezuela definitely needs a recession to cut inflation.

May the Buddha bless you?
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VIEDMA EMPRENDE Feb 2, 2015

I really don understand how societys dont push for bigger benefits. This paper explains nothing about that. The other key point in this, inclusion comes with rights and duties.
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VIEDMA EMPRENDE Feb 2, 2015

Thats the point, inclusion means redistribution. You can also "include" in other levels of the company. That could also improve the capital of the firm buy keeping inside company the high skill workers. Its common to see that CEOs put the top of sallary of employees using the "mean income of the industry" argument.
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DH Fabian Feb 1, 2015

US economic problems are far broader than the gap between the working class and the rich. It's not possible to understand the US decline while ignoring our poverty crisis, as we do. Reality is a stubborn thing, refusing to conform to ideology. There is no discussion, no sounding of the alarms, over the fact that we have been slowly implementing the austerity agenda from the bottom up. In the real world, not everyone can work (health, etc.), and there aren't jobs for all who urgently need one. The US shipped out a huge share of our working class jobs since the 1980s, ended basic poverty relief in the 1990s. Instead of addressing this, we simply cut the rungs off the ladder out of poverty. As permanent poverty grows, consumer spending shrinks, more people lose their jobs, poverty grows. Instead of examining the actual causes of poverty today, we brush it off as a "behavioral issue." The US didn't crash, but is steadily, quietly sinking.
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b dussan Feb 1, 2015

It is rather interesting that GREED is not mentioned. In my opinion, inequality is due primarily due to the free enterprise system giving freedom to the corporations to manipulate their earnings anyway they want. In the end, those in power rape the coffers, while the rest just hope to earn a "decent" living.
The hullabaloo about inefficiencies of companies and governments just adds further insult to injury to the plight of those being so successfully shortchanged by the business mavens.
It thus appears that Mr. Hausmann is trying to justify GREED.
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M A J Jeyaseelan Feb 1, 2015

While including people in the value creation processes is to be preferred any day over income redistribution measures, it is naive to assume that the inter-firm differences in productivity adequately explain the growing inequalities in incomes and wealth

The problem of inequality is as big a problem in developed countries as it is in developing countries. It requires deeper analysis and introspection and cannot be glossed over in the way Hausmann has done. I do not know why Hausmann avoids giving examples in the context of developed countries.

Inequalities are created and accentuated not so much by the real economy, which produces goods and services but by the paper economy, which incorporates several mechanisms by which incomes and wealth get progressively transferred from the rich to the poor.

Inflation and speculation are the key paper economy phenomena, which help the rich in siphoning off wealth and incomes from the poor.
https://www.linkedin.com/pulse/20140813082306-17589031-is-inflation-the-process-by-which-rich-get-richer? By inflation I mean both the money/credit expansion and the raising of prices.
https://www.linkedin.com/pulse/20140812145541-17589031-should-developing-countries-worry-about-wage-inflation?

What people forget is the fact that speculative markets do not create values or wealth. These only help transfer wealth. The worst economic effect of speculative markets is in their ability to prevent the flow of capital in to the real economy.

While the avowed economic purpose of stock markets is to facilitate the raising of capital for new production facilities, this is not happening in recent times. It is only the large
companies, which have been able to benefit from IPOs. The share of smaller IPOs has been declining since 2000.

The paper economy has helped concentrate economic power in the hands of those who own capital vis-a-vis the workforce. The problem of inequality cannot be addressed without addressing the fundamental problem of the adverse terms of trade which the workforce encounters in relation to
capital.

While capital is completely mobile and can tap in to the opportunities in any sector or nook of industry, labour has very limited mobility. Therefore capital is able to demand a higher opportunity cost than what the workforce can do.

While capital is completely fluid and can be used in exact quantities, the extent to which workforce can be utilised is determined by the production processes. People get paid only for that part of their ability, which the concerned production facility can make use of.

While capital can be created these days so very easily by just making a promise to provide a return, it takes decades to accumulate the working skills, which production processes demand.

Therefore, in the economic system as it is laid out these days, the workforce is subject to an unfair exchange process. There is no level playing field for the workforce to compete with capital and realise its legitimate opportunity costs. This is the fundamental reason for the growing inequalities.

I only wish and hope that economists will stop trivialising the very serious issues, which deserve the utmost and urgent attention of the global community.
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Lance Brofman Jan 31, 2015

Even if it was widely understood that the shift of the tax burden from the rich to the middle class was the cause of the depression, it would still be extremely difficult to remedy the situation. The enormous shift in tax policy favoring the rich has been a world-wide phenomena going on for many years. After the Socialist party candidate François Hollande won the presidential election, France enacted tax laws that gave France the most progressive tax system among the 20 largest industrial nations. However, the world-wide the tax systems have become so much less progressive in the past decades, that if the tax code that France has today were applied to France in 1969, France would have had the most regressive tax system among the 20 countries in 1969.

A major component of the shift of the tax burden from the rich onto the middle class involves the corporate income tax , whose incidence falls entirely on the owners of corporations. Corporate income taxes were 4% of GDP in 1969 and are now less than 1%. The reduction in corporate taxes has not necessarily been the result of political power on the part of corporations. Rather it was part of an international “bidding war” among countries to see who could induce corporations to move from one country to a jurisdiction to another with a lower corporate tax. Even if were politically feasible, the United States could not unilaterally reinstate the corporate income tax rates back to 1969 levels..."
http://seekingalpha.com/article/1543642
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Dallas Weaver, Ph.D. Jan 31, 2015

Everyone seems very interested in economic outcome inequality, but is this a more important consideration that power inequality or is it just a diversion by the powerful. Any second rate US Senator can have the riches man in the US come to his committee chambers and be publicly insulted, but the richest man can't force, with the power of Law (ie the gun), that congressman to come to his board room and be publicly forced to justify his abusive behavior.

Once you have enough income for quality food to eat, a roof over your head, and for your family along with(in the present time) internet access, what becomes relevant is social and power relationships.

Both land and IP wealth is a byproduct of power relationship as land value is determined by zoning laws restricting some owners from going UP or going OUT allowing artificial value for the powerful. Modifying IP law to bypass the "obvious to practitioner of the Art" limitation that would toss out 90% of all patents is an act of political power creating wealth for the powerful. Making copyright be effectively "forever" and effectively free is a pure act of power.

Innovation is often the victim of the powerful trying to prevent their power and wealth losses. In the permissionless sectors of our society (apps, software, etc) we have very rapid innovation, but in real sectors of our economy, like real estate or transportation, power can and does prevent innovation.
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Procyon Mukherjee Jan 31, 2015

Inequality examined in this manner is interesting. There are two types of power that influences the inequality, one that stems from 'lucky' monopolies (here luck is defined as 'preparation meeting opportunities' as Seneca would have done) and the other is engineered monopolies. The second type breeds on a differential level playing field, one that has 'picked' winners and many losers. Inequality created from this type is what we must address, as the former is based on what Hausmann is referring to as the productivity factored inequality.
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Per Kurowski Jan 31, 2015

Income produced under the umbrella of intellectual property rights should be taxed at a higher rate than income produced by competing naked in the market, without any protection

http://perkurowski.blogspot.se/2008/10/we-need-to-tax-intellectual-property.html
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Jose araujo Jan 30, 2015

Like always Mr. Hausmann finds justification for his corporate view of the state.

Oh yes Piketty missed the inequality in productivity (whatever that means)... after all rich people are rich because they are more productive, specially in developing countries... coff..coff nice try...

Lets see, is there any reason why the same resource should have a different price depending on his productivity?

Do mills that are less productive pay iron at a lower price then highly productive mills?

Should equal investments with equal risk levels pay different returns?

Humm, no, I don't think so. If markets are efficient this things don't happen, if markets are not efficient it means that those who are profiting from them are having abnormal returns and should be taxed from them.

You see, in the end, in our society equality is always a redistribution problem, and high inequalities a sign of market inefficiencies.

Good try Mr. Hausmann
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Stephen Stanley Jan 30, 2015

This is true in the developed world as well, where a vast disparity exists between, say, a county in rural Kentucky and the Denver Tech Center. The same disparity in "endowment" results in similar distributions in wealth, efficiency and, most importantly, individual outcomes.
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Ricardo Hausmann Jan 30, 2015

Edward asks me to expand on the idea that: "inclusive growth may generate a more prosperous and egalitarian society, whereas redistribution may fail to benefit either inclusion or growth."
Here it goes: many countries spend more money subsidizing gasoline or pensions than in education or infrastructure. As a consequence they redistribute but do not empower people with access to the skills and networks that can make them productive. If you use instead the resources to make people productive they will be able to fend for themselves without further redistribution and their additional productivity will lower inequality.
- Richard S. Stone Feb 2, 2015
  
  Yes, but...in terms of a discussion about which is better, this proposed investment in infrastructure seems so obvious that it might be trivial. And why would the wealthy object to better education for the poor and unproductive? And better infrastructure, however described? Wouldn't that make for a better, happier world? BUT THE WEALTHY DO OBJECT: and we can see that because THIS "INVESTMENT" DOES NOT HAPPEN<, ANYWHERE. The wealthy (who own and run the governments) seem to see the proposed "improvements" as just another way for their "government" to spend what they consider to be their money, money which they, the truly wealthy, would otherwise be able to spend on watches and yachts and more real estate. It is more likely that both policies have to be pursued by the voters and the government, with equal vigor, to get the desired results. we might consider one outcome to be more useful, or productive, but are they equally possible?
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Edward C D Ingram Jan 30, 2015

A good analysis. Some good ideas to examine.

When you wrote, "Of course, capturing this surplus may allow for income redistribution, as many suggest; but a much bigger and sustainable bang can be achieved if the proceeds go instead to financing inclusion. In the end, inclusive growth may generate a more prosperous and egalitarian society, whereas redistribution may fail to benefit either inclusion or growth.
Read more at http://www.project-syndicate.org/commentary/income-inequality-opportunity-costs-by-ricardo-hausmann-2015-01#GJWA2wpHflUgWMSL.99"

Could you expand on that please?
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Paul Daley Jan 30, 2015

Good article and good analysis but a program that may be difficult to implement if you're not Singapore with a monopoly on scarce land. Should we charge for patents in proportion to the income they generate? Should the capital gains produced by real interest movements be taxed back? Many have noted how business strategies tend to undermine market operations, but Hausmann is the first one I have seen suggest how governments might shape their own policies to counter or exploit such business strategies.
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https://prosyn.org/wrxoCH2fr

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