Does inequality matter? What are the effects of wealth being concentrated in the hands of a few individuals?
Well, if you believe some of the world’s most respected economists – people like Thomas Piketty, Joseph Stiglitz, Branco Milanovic, Wilkinson and Pickett – it matters. And they say it is getting worse. The World Bank and the IMF made “shared prosperity” the theme of their annual meeting this year, and the IMF head, Christine Lagarde, described the rise in global inequality as “staggering”. Just in the past week, Bill Gates, the Financial Times and the (UK) Guardian have all made the case that inequality matters.
At the global level, Oxfam famously found that the world’s richest 85 people own as much wealth as the poorest 3.5 billion people – half the world’s population. And The Rules put together a great video showing wealth inequalities on a global scale, itself inspired by similar work focussed on the US.
But what about inequality here in East Africa?
Inspired by Oxfam and The Rules, I thought I would see whether I could do something similar covering Kenya, Tanzania and Uganda, for Blog Action Day 2014. The theme this year is inequality.
I used the same two sources as Oxfam – Forbes Magazine’s lists of the world’s wealthiest people, and Credit Suisse’s Global Wealth Report and Databook. Forbes published in November 2013 a list of “Africa’s 50 Richest”, which included a few from East Africa.
For the 100-people line, I used data from Credit Suisse. It took a bit of number-crunching to produce the figures given in the video, which is all shown and explained in the spreadsheet available below.
And for the chart comparing the wealth of the richest people in East Africa to the poorest half of the population, I used the Credit Suisse data to calculate the wealth of the poorest 50% of the population and the Forbes data for the richest individuals. This is also shown in the spreadsheet.
In both data sources there is some uncertainty in the data. There are other assessments of the wealth of the richest individuals in these countries (see here, here, here and here, for example), that produce different results from Forbes. Not all wealth is easily traceable, and some wealthy people go to considerable efforts to conceal their wealth. Nevertheless, though the specifics may or may not be correct, this does not change the broader fact that a handful of extremely wealthy individuals have the same wealth as the poorest half of the population.
For the Credit Suisse data, the greatest uncertainty is at the top end of the wealth distribution. Household surveys provide a good way of estimating wealth for the majority of the population, but not for the very richest. Nevertheless, as before, this will not affect the broader truth than the wealth of the top 1% in East Africa is comparable to the total wealth of the vast majority of the region’s population.
Here’s the number-crunching spreadsheet.
The conclusions are stark:
The richest 1% in East Africa own as much wealth as the poorest 91%.
The richest six individuals in East Africa own as much as half the region’s population: 66 million people.
But does it matter? East Africa needs jobs, which means a strong private sector is needed. Perhaps wealth is simply the reward for hard work, risk taking and entrepreneurship, and focussing on inequality is missing the point? Or does it have negative effects on society?
In their book, The Spirit Level, Wilkinson and Pickett concluded that on a wide range of measures – from education and health to levels of trust and violence – more unequal societies perform worse than more equal societies with the same overall level of wealth. They also found that even the rich do better in countries that are more equal than in countries with high levels of inequality. A recent IMF paper found that reducing inequality led to faster and more durable growth.
And though inequality is usually measured in terms of wealth (as in this video) or income, Duncan Green argues that it is primarily about power. Whose voice is heard loudest when decisions are being made? Whose rights are protected, and whose are trampled on?
But what do you think?
Back to those questions at the end of the video:
- Is this fair?
- Does inequality matter?
- What does it mean for society?
- What effect does it have on development?
- What about politics and democracy?
- What (if anything) should be done about it?
- By who?
Let me know what you think in the comments below.