Per Molander - The Anatomy of Inequality: Its Social and Economic Origins - and Solutions

THE ANATOMY OF INEQUALITY

Copyright 2014 by Per Molander
Translation 2016 by Melville House Publishing, LLC
Originally published by Svante Weyler Bokfrlag

First Melville House Printing: August 2016

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It is the common fate of the indolent to see their rights become a prey to the active. The condition upon which God hath given liberty to man is eternal vigilance.

JOHN PHILPOT CURRAN ,

Irish lawyer and politician, 1790

This book began with a simple observation: virtually all human societies are marked by inequality, at a level that surpasses what could be expected from normal differences in individuals capabilities alone. This observationand my dissatisfaction with the fact that the social sciences have been either unable to come to grips with it or uninterested in doing sois at the heart of The Anatomy of Inequality.

I first began to think about the ideas in this book around 1980, when I had finished my Ph.D. studies at the Department of Automatic Control at the University of Lund, in Sweden. Automatic control is a branch of applied mathematics devoted to the control of engineering systems and industrial processesautopilots, nuclear power plants, etc. KarlJohan strm, my mentor at the time, realized that unlike earlier graduates, I was not likely to enter the paper-and-pulp or robotics industries, so he suggested that I should learn economics.

I started with a title that appeared appropriate for someone with prior knowledge on optimization: Mathematical Optimization and Economic Theory, by the UCLA economist Michael Intriligator. The books sixth chapter deals with game theory, including John Nashs theory of bargaining. Nash developed his mathematical theory of bargaining in the early 1950s and, many decades later, he was awarded the Prize in Economics in memory of Alfred Nobel for his work. An exercise toward the end of this chapter in Intriligators book aims at testing whether the student masters Nashs solution to the bargaining game and carries the message that a wealthy person will gain more from a bilateral negotiation than will a poor person. The reflexes I had acquired during my studies of control theory were immediately aroused: here was an example of positive feedback, implying instability if the game of bargaining is repeated. If the wealthy person gets even wealthier from a round of bargaining, there is no mechanism that keeps the outcome within reasonable bounds. I expected to find a chapter discussing how to control this instability, but there was none. Remedying inequality was obviously not considered a worthy topic for economists, according to the author.

Three decades or so later, I finally found the time necessary to dig deeper into the problem of inequality, as well as into the social-science research devoted to it. There is a vast literature on both income inequality and social stratificationscientists such as Tony Atkinson, Amartya Sen, and more recently, Thomas Piketty have become known to a wider publicbut the general focus of this work is on marginal change. Questions one typically encounters are why economic inequality is somewhat more pronounced in some liberal democracies than others, how the Gini coefficient of personal income distribution in a given country has developed over time, and so on. Following rising inequalities in developed countries during the latest three to four decades, economists even in institutions such as the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund (IMF) have begun to look for driving forces behind this development. Yet relatively little energy has been spent on searching for fundamental mechanisms that generate inequality in a society.

This book, then, seeks to investigate how inequality of wealth and income can be expected to develop in a society with an egalitarian distribution of assets. This is not to say that all inequalities are arbitrary; there are differences in capabilities and efforts that explain some of the inequalities in status and wealth that we observe around the world. But the positive-feedback mechanism hinted at abovethe wealthy person becomes even wealthier with every round of interactionwill lead to instability. If the original egalitarian distribution of wealth is disturbed, this disturbance will grow with time and will cause differences in outcomes to be completely out of proportion with differences in efforts or capabilities. The appropriate question is not Why are all societies characterized by inequality? but rather Why have certain societies managed to keep inequality within reasonable bounds? This, as I see it, is the origin of the universal political problem of wealth distribution.

What can a radically simplified theorytwo parties bargaining with each othertell us about complex power relations in human societies? A great deal, in my opinionprovided that the assumptions of the theory are general enough. Despite a number of challenges since its introduction in the 1950s, Nashs theory of bargaining has remained central to economic and philosophical discourse for decades. Still, a flaw of the model used in this book is its restriction to two parties. I was therefore pleased to see that only a month after the publication of the Swedish edition of the book, Ricardo and Robert Fernholz published a paper in the Journal of Economic Dynamics and Control that offered a similar analysis for a market. The conclusion is the same: even in a society where everyone starts with equal assets and capabilities and mobilizes the same effort, the distribution of wealth will eventually drive toward an extremely skewed distribution, in which a single household ends up owning everything.

In this book, I have combined a series of empirical observations with the basics of bargaining theory and a few other analytical tools. I have also confronted the main ideologies of the Western traditionliberalism, conservatism, and socialismwith the conclusions of the analysis, in order to identify their relative strengths and weaknesses with respect to the complex of inequality. The discussion is general and often abstract, yet it is concrete enough, I believe, to permit rather sharp conclusions.

The thrust of The Anatomy of Inequality is descriptive and analytical, rather than normative. As a result, concepts such as justice and fairness are seldom used in the text. This is not because I believe them to be unimportantboth history and literature prove that they are notbut rather because a discussion of such concepts is more likely to be constructive if it is based on a thorough understanding of the processes that determine where a society will end up in terms of inequality. My experience from a whole working life as a policy analyst is that policy failures often stem from incomplete knowledge about the mechanisms at work. The story about the success of the Wright brothers, which appears in , lends credence to this view.

As I have mentioned, this book evolved over a fairly long period. Over the years, I have benefited from discussions with numerous colleagues and friends. Special thanks go to those whose comments on earlier drafts of the text helped to improve its presentation in various ways: Bengt Hansson, Rolf Johansson, Per Lekberg, Hannu Nurmi, Michael Sohlman, Ingolf Sthl, Daniel Tarschys, Jrgen Weibull, and Gunnar Wetterberg. As always in these situations, the author is solely responsible for whatever flaws remain in the text.