Topics Justice

Question It seems generally accepted that the human race has a social responsibility to eradicate poverty; however, doesn't every economic system benefit in some way from the most impoverished element of society, or the people that are most exploited? What is the value of money if everyone has (approximately) the same amount? Is there any viable system where the economic playing field is more level? What might that system look like?

Accepted:
February 29, 2012

Comments

I don't know what it means for an economic system to benefit. But it seems plausible that some people benefit at the expense of those who are most exploited. I don't see how this benefit is supposed to defeat the proposition that the human race has a responsibility to eradicate poverty -- typically the cost of the exploitation to the exploited is much greater than the benefit of the exploitation to the exploiters and typically, moreover, the assignment of roles is deeply unfair (e.g., tarnished by historical wrongs that led to some being born privileged and others disadvantaged).

Currently, the poorest quarter of humanity has about 0.78 percent of global household income. This means that these 1.8 billion people, on average, have about 1/32 of the global average income. More than half of them are chronically undernourished, and most suffer one or another severe deprivation. Had the poorest quarter maintained its 1988 share of global household income, its share would now be greater by about half -- 1.16 rather than 0.78 percent of global household income -- and most of today's extreme poverty would then not exist (figures from Branko Milanovic, World Bank, reflecting market exchange rates). Had we allowed the poor to participate proportionately in global economic growth, the world would be much like it is today: still very unequal (with the poorest quarter, on average, at 1/21 of global average income). But the death toll and suffering from poverty would be much lower than they in fact are today.

For a viable system where the economic playing field is more level, you might look at the European Union, which displays only mild inter- and intra-national inequalities. The top fifth of EU citizens have about five times as much income as the bottom fifth -- the corresponding ratio for humankind is 162:1. A crucial cause and effect of lower income inequality is a fairer distribution of starting positions: in the EU, even those born into the bottom quarter have a fair chance to receive a decent education and to work their way into a satisfying job or even into a leadership position. As the percentage of those who have good educational and employment opportunities increases, the market premium for the more challenging jobs tends to diminish.

Some countries have considerably lower income inequality than the EU. In Sweden, Slovenia, the Czech Republic, Denmark, Finland, Austria and Japan, for instance, the ratio between the richest and the poorest fifths is below 4:1. What is the value of money in such a low-inequality environment, you ask. When inequality is low, then money has little value as a marker of hierarchy. You cannot feel very special on account of being able to afford things when very many others can afford them as well. But the institution of money is valuable in other ways: as a rough indicator of what people contribute to society and what they take from the social product, for example. Money is also extremely useful for facilitating exchanges and thereby for communicating demand and supply information throughout an economy so as to enable market participants to adjust their conduct toward better coordination and fulfilment of their individual preferences.

While greater equality would massively increase efficiency by allowing many more people to develop their talents and then to compete for the more important social roles, the abolition of money would greatly reduce efficiency in any modern economy above the size of a village.