Of Income Inequality
The dark side of absolute poverty and relative poverty.
Joanne Tay
3/5/20192 min read
All animals are equal, but some animals are more equal than others – Animal Farm, George Orwell, 1945 (Photo: Unsplash)
It is not easy to dismiss a story like Animal Farm, the satirical novella by George Orwell. Long story short – the animals traded one farm dictator for another, i.e. a human for a pig whose rule ironically resembled that under the earlier human dictatorship.
Fiction mirrors reality somewhat as mankind continue to harbour rather naive hopes for equality, time after time. Nobel Prize winner Simon Kuznets assures us that economic development comes inevitably with high income inequality, but this will decrease as development proceeds [1]. How far can we trust this theory?
Statistics show the clear inverse correlation between economic growth and absolute poverty. But when it comes to relative poverty, the correlation is much weaker [2]. Hong Kong offers an alarming case in point. Notwithstanding its impressive GDP, the city has its richest earning 44 times more than its poorest, and its Gini-coefficient (a common gauge for income distribution) is among the highest of developed economies according to Oxfam. Let’s consider why the open globalised city of Hong Kong faces such a severe rich-poor gap [3]:
Firstly, being a globalised economy means a shift of productions from local to global. Hong Kong had specialised in manufacturing, but since the late 1960s operations relocated to the cheaper Mainland and Southeast Asia. The effect? A phase out of “blue-collar” industrial workers – typically middle aged, unskilled and lowly educated. While some new jobs were created in the service sector, many workers could not transition and suffered a drastic fall in income.
Secondly, globalisation promotes economic liberalisation. With deep reverence to deregulatory and privatisation reforms, the Hong Kong government largely left the economic well-being of individuals to the “invisible hand of the market”. As a result, Hong Kong succeeded in creating a business-friendly environment aligned with global market forces, but whether this success has benefited everyone income-wise remains questionable.
Lastly, given these excesses, social policies would need to be in place. Hong Kong has several redistributive policies – moving from elite-oriented to mass-oriented education system, allocating more government resources to subsidise housing projects, and having a safety net to provide cash allowances to those in need.
Yet the New Right liberal ideology continues to rear its ugly head regarding efforts to reduce the income gap. On education, there are not enough qualified jobs for graduates. On housing, the profit-making interests of property developers take priority. On welfare, fear of creating a “dependency culture” takes precedence over addressing the needs of the poor.
Indeed, Hong Kong makes a great laissez-faire economic success story, but it has its dark side of absolute poverty and relative poverty. The tragedy in Animal Farm lies in how the animals’ pursuit of a more equal life proved naught, but I still hope that modern humans know better and can do better to avert such tragedy.
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References:
[1] Kuznets, S. (1955). Economic growth and income inequality. The American economic review, 45(1), 1-28.
[2] Ravallion, M. (2014). Income inequality in the developing world. Science, 344(6186), 851-855.
[3] Zhao, S. X., & Zhang, L. (2005). Economic growth and income inequality in Hong Kong: Trends and Explanations. China: An International Journal, 3(01), 74-103.