Extreme Economic Inequality and the Kidnapped Democracy

Income and wealth inequalities have reached extreme proportions. Procentians and promelians have reached socially distorting levels of influence.

AIM of this blog is to help



Some Definitions

Economic Inequality as a term used here, includes both income and wealth inequalities. The very wealthy have enough means to shift fortunes from wealth to income and vice versa. As is fiscally and socially more suitable to cirumstances. (An own blog entry will be dedicated to the topic). Since these are each measured separately, data reflects them separately as well. The people are mostly the same ones, procentians and promilians.

Procentians and Promilians are the terms used to describe the richest one percent and the richest one part per thousand of society respectively.

Sources and Inspiration

There are several well known economists that write, researchand publish about the topic that can be recommended. Some of the ideas here were inspired by one or more of these great thinkers. More will be added. If you wish to add and recommend any, please write me.
The names for now are first of course Thomas Piketty and Anthony Atkinson. Other known names are Robert Reich, Joseph Stigliz and Paul Krugman. There are others who are known to those interested in the topic but less to the wider public. Dani Rodrik, Danny Dorling, Sam Pizzigati, Özlem Onaran and many others.

Tangents – Occasionally other topics relating to inequaliy will be discussed. Social dimensions, economic theory and practice and other aspects.

The Obvious Way Out

With a huge and immediate threat to humanity, the whole human race united in the battle against the common foe to beat it…..

Well…No. Sorry. It doesn’t seem to be working that way for some weird reason.

For probably at least a hundred years, artists have envisioned cataclysmic global events – an alien invasion, an approaching meteor, a global scale climate catastrophe, a virus. Some novels went as far as to have a protagonist even causing such an event with the sole purpose of uniting humanity. Making humans aware that there is eventually only one human race. And that unites all humanity that comes together to beat the threat.

And here we are. Exactly in this situation. And we failed the test and are still failing every day. “We are all in this together. The virus threatens everyone. Human rights uplift everyone.”* So let’s focus and see how we could be doing it better.

The main goal with COVID is to get rid of the virus as quick as possible. If we don’t do it quick enough, we give time for more resistant mutations to develop. Current vaccines might fail against some of these new strains, and we end up in a vicious and endless cycle of developing new vaccines.

The best way to stop the virus is to vaccinate as many people as possible as quickly as possible. This is the real priority. In order to inoculate so many people with vaccines, we need first of all to have enough vaccines made.

The most practical and logical thing to do is to let any company or institute that has the technological and technical ability to safely make it, to start manufacturing as quick as possible. As long as they can pass certification by internationally recognized competent entities such as the EU’s EMA, the US CDC, the WHO and many others. Each government can decide by itself which certification to accept.

 The lion’s share of the initial investment came from rich governments who have pre-ordered and paid the industry billions to develop the vaccines. The commercial risk was minimal and therefore there is also no need to pay royalties. So we can forego patent rights on all COVID vaccines.

Foregoing patent rights will allow taking down prices and increase the quantity of vaccinations available world-wide. The pharmaceutical industry doesn’t need to lose money selling it but even without keeping the IP for the inventors, it won’t.

Making an exception for a global catastrophe will not cause any pharma company to stop investing in other drugs. That is simply bunk and ear-wash the industry’s lobbyists are pushing forward and their voice is heard over and over. It stands to reason that the pharma industry will gain most by having more old people survive COVID. It just means more customers for a longer time.

It might be practically impossible to reach everyone, but we can reach well over 95% relatively easy if we consider geographical obstacles only. The remaining 5% can also mostly be reached with some effort. The only real world obstacles to universal vaccination are first and foremost human blockades. Lack of faith in the vaccine, denial of the virus, political power games. There are few natural exceptions and these would mostly be people who for various medical reasons can’t be vaccinated.

How politicians and leaders are supposed to take care of the welfare of their citizens. Somehow, someone convinced our leaders that this has to happen by enriching on the way a few corporation and a few thousand (maybe tens of thousands at most) of their shareholders. Where does the claim that profit is always a priority come from? Have we gone down that path so far that we can’t see the clear sky above the panoply created by the top?

Making the medical industry employ its production capacity at much lower profitability than it is used to, might actually push some companies to create a permanent vaccine. As we have for polio, instead of being like the yearly recurring flue shot. With the current model, the industry is simply not motivated to create permanent vaccines. But that is what we need to do and that could really put an end to the Corona virus.

We, the taxpayers in rich countries can decide. Our elected representative should. This is their job. Take care of us, not of profits and dividends going to a small group. It’s our money that paid for it. We can and should let all of humanity benefit.

Isn’t that what we wanted in the first place?

* António Guterres, on COVID https://www.un.org/en/un-coronavirus-communications-team/we-are-all-together-human-rights-and-covid-19-response-and

A note: this article is NOT meant to demonize the pharma industry. The industry is acting as it was trained to act: maximize value for shareholders. It is an issue handled in other parts of this blog. The power to change the view and action by following humanistic ethics instead of business ethics, lies with the politicians who are supposed to represent the will of the people.

Information – A Natural Resource

In the past two decades, we have become accustomed to living in a world interpreted as data. Data that encapsulates information about us, our habits, personality, our needs, the way we walk , sell, buy, manufacture and much else of what we do. There are few activities in the modern world that are not recorded and stored digitally.

We store data in order to use the information it contains for various purposes. We make use of this information to achieve many goals. Some are truly in order to improve our lives. Medical information to improve our health with our personal data or improve our health care system with data from hospitals and other health care institutions is but one example of many.

We have been learning to use information as a source generating benefits. Social, criminal, political and many economic, financial and commercial benefits.

Most of us consent to providing the data about us personally to various degrees. The GDPR has given many people more control about what they divulge and share and with whom. We share it with the agreement and understanding that whomever we share our data with, will use it to provide a service we want or need. (Or believe we need.) We all know the data has pecuniary benefits and we have accepted that these benefits go mostly to those entities who gather our data and to their owners and shareholders.

Many entities learned to use the data to generate huge financial profits, some large and known like Google, Facebook, Amazon and Microsoft some smaller, known locally such as bol.com in the Netherlands, Conrad.de in Germany and many smaller and less known ones. That is the way our system works now.

The main question is if those that use our data provide the sources creating it and their wealth with a fair exchange. While many people would say yes, we tend to disagree. The margins of operations for many of these companies show big concentrations of power and give these companies unproportionally large economic and political power. The latter in the form of lobbying as well as the power to grant and deny access to various opinions or to channel any opinion to whomever they wish based on algorithms they write.

We would like to advance a different view of what data is and how to treat it. A way that will allow all of society a share of these benefits and profits.

The companies that gather, store, analyze and use our information are not really paying us anything. The services they provide are only to our benefit as long as these data hunters-gatherers also benefit from it. They provide many great services and practical solutions. It seems like an obvious win/win. All open and legal in the current frameworks legal and socially acceptable. These services are in effect designed to extract more data that will in turn generate more profit.

The profits they generate go to paying mostly high and good salaries to talented people, bonuses to their management and dividends and share value increase to their shareholders. The main question for us is if they pay their fair share. We believe that the services they provide us with, while great and desirable, generate profits that unproportionally exceed the benefits generated by the same.

The main source for these large profits is simply the fact that they receive the data for free. None of the services we receive is free. Advertising costs are always part of what we pay for any product or service. And we end up paying for these services anyway.

This article proposes to treat data in a different way, a way that will require data-based companies to pay a fair price for the data they gather and use.

The proposition is in short, to treat data as we treat any other natural resource.

Imagine that oil producers, mining or lumber companies and other entities that extract resources from our ground would be able to extract these without paying for this right. That would be unthinkable. We would probably consider it unfair and corrupt. But these companies provide essential materials to our society, create jobs, economic value. Yet, we find it fair and normal that they pay for the right to exploit our grounds or waters for such a purpose.

There are several differences of course between data and other natural resources. While oil, gold and others such natural raw materials take millions of years and even wood takes a decade or two to renew, data is generated at enormous rates continuously. Whereas many extracted materials are not renewable at all or only at a slow rate, data is in principle endless. It can also be used an endless number of times without being exhausted, although it does over time become less relevant sometimes.

Despite the differences, there is one commonality. Data is created always in a certain place. A country, city, street, home, office, plant. Data is generated by people, man made objects and nature all geographically bound.

We expect oil companies to pay for the right to extract gas in the Netherlands or coal in Germany, gold in South Africa or Aluminum in Australia. We could also expect companies that extract and profit from data that is being generated in a defined territorial boundary to pay the sovereign a fee.

Some have played with the idea of data companies paying people directly and individually for the information gathered and some companies even create apps that do exactly that. But this is not a practical approach in our opinion. If companies such as Google or FB would pay people a portion of their profit per user, the amounts would be small. Profits are typically from 3 dollars and up to 40 dollars per user (simple revenue less costs for the big known companies) per year. That would hardly benefit anyone personally in a significant way with exception of the poorest of the poor.

By treating data as natural resource, we allow national and supra-national governments a legal framework that will require these companies to pay for the data they extract. Just as Shell pays to governments everywhere in the world a fee per extracted gas or oil liter or barrel, Google would pay governments per extracted bit, byte or megabyte extracted. But not only Google or bol.com should pay. Any entity gathering data should pay for it. Universities, hospitals or various other state and non profit entities could possibly get it back as a form of subsidy. Commercial, for profit entities, would pay an agreed amount of money per agreed quantity of data. All to be determined with exploitation agreements and set a solid legal framework.

It would of course have the effect of making data giants less profitable but that is after having benefited practically for free for almost two decades. The proceeds can be handled in different ways. A sovereign fund such as Norway’s for example is the ideal solution in our opinion but each territorial entity would need to decide for itself of course. It can serve to finance the green transition, education, set aside for calamities or any number of purposes that serve the common good of the people and entities creating the data.

The next step is to find, create and define a legal framework that would allow that. Laws that would define data as a natural resource may be the first step. Others requiring payment for such resources and mechanisms to set prices and fees.

In addition, making companies pay for the data they gather will have other effects as well. With the right price, companies will no longer gather everything without distinction but only that which they truly need to provide the services they want to offer. It would mean possibly less profits and less political power to influence decision makers.

It is time to find a definition of the ownership of data. And do it in a way that benefits the “workers”, those that generate the data, in a fair way.

We also need to explore the technical possibilities and obstacles in measuring quantities of data. We need to decide at what point in the transmission process is data considered as extracted and to be paid for.  It should also be decided free from lobbyists and the influence of current beneficiaries. Possibly on EU, US, African Union or ASEAN levels. Entities large enough not to bend in front of special interest. The legal framework could help find and direct and fair evaluation that will allow data companies to keep developing new services while making sure it isn’t a free ride.

We are now establishing a work group that would hopefully be able to generate a concept that can be presented to the political apparatus and make this happen.

Ideas and partners are welcome. Email through the blog. If you use this idea for any purpose, be sure to mention this blog as its source. We do not expect fees or royalties, but we do expect due credit.

The Gig Economy:

Solving the Riddle of Employed Entrepreneurs

How it can work better for everyone

In many countries today  the phenomena of the Gig Economy changes labour markets and society. Some of those that become members of the gig workforce are happy for the freedom they feel it gives them. Some benefit economically. Most don’t enjoy the situation as for many of them it isn’t by choice.

Employment insecurity, lacking benefits, missing even social interaction sometimes. In some countries it is still in an infant stage. Latest available statistics (The Economist, this week) seem to show that in the US it is only 1% of the workforce, but that would be only those that are full time “Giggers”. According to Forbes, a Gallup poll reveals that a third of US workers participate in the gig economy while having another job.

In other countries, such as the Netherlands, estimates are that 5-10% of employees have become (mostly unwilling) entrepreneurs. The number usually counted by the country’s statistics institutions is 800,000 people.

We could go on, but you get the idea. It’s a growing phenomena and affects a growing number of people. Uber and Lyft drivers, couriers, but also architects, analysts, experts in many different fields. Many companies believe it is more cost effective for them to hire people by the hour or by project rather than have them on the payroll.

How can we combine this new model of employment to put employees in a better position so that they too can benefit from this situation. A society after all, isn’t about how companies are doing but how are its memebers as people are doing.

This is intended for those who aren’t willing entrepreneurs and for many others who find that having so many people at higher levels of risk is not an optimal situation. Not socially or economically. The  question of efficiency for companies is not a topic here. Just short: for some companies this might be better, for others not. Nor is the question of the effects on

the economy or economic growth a subject of discussion. This blog concerns itself with income inequality and decreased benefits such as pension or health care, as well as higher levels of income insecurity causing emotional stress or inability to borrow for a home, are factors that increase inequality.

Some of the major problems for most Giggers as I call them, include:

– Bargaining powers with employers (in all but legal title)

– Work benefits such as health insurance, vacation

– Job security and closely related unemployment benefits

– Social interaction with peers and colleagues

The proposed solution in short is for Giggers to form cooperatives. Agreements with parties contracting the services of a member of the cooperative would be signed with the cooperative and not with the individual. Such cooperatives could also promote themselves and hopefully be accepted as members of labour unions. Giving these organisations a new encouragement and growth that are so missing in the neoliberal environment we are still in currently.

Parliament, government, employers, unions, academia and other players in society,  would create legal and fiscal frameworks to encourage, allow and promote the creation of cooperatives that would employ and be owned by those caught in a gig situation unwillingly.

Such cooperatives need to become legal entities with a special status that would enable their members to enjoy an improved employment and life quality situation.

We can imagine a cooperative of Uber drivers for example. The members would buy the vehicles together since no one drives 24/7 on the one hand while at the same time vehicles have time off for repair and maintenance. Such a cooperative will find the optimal number of vehicles they need to acquire. That number would most definitely be less than one vehicle per person. The government could apply VAT and other fiscal advantages to encourage these cooperative entities to use more electrical vehicles. Their pulled in, common and therefore increased purchasing power would help make that a preferred option. So more than one cause can benefit and improve members’ as well as others’ lives.

A legal framework that require Uber and similar companies to accept cooperatives as contract partners, where for example a commitment for certain number of hours, or vehicles would be active can be made. While at the same time, as a group, the bargaining powers of its members increase and even allows it as a group to move to another contracting partner (or better said: employer) if an agreement isn’t reached. As a group, they are always stronger than individuals. They can give more and receive more.

Such cooperatives could grow to include even hundreds or thousands of members and several cooperatives could enter negotiations with “employers” together about wages, working conditions or any other issue. Size should not be an aim in itself. A cooperation of cooperatives can also create enough size to increase members’ powers. If cooperative members join unions, the unions could also join and help.

If we think of various couriers of packages, post, food etc. similar bargaining powers are to be won and conditions improved.

Architects, programmers, engineers, consultants and other higher end service providers would also benefit from working in cooperatives. By joining forces, it will be easier for cooperatives to negotiate and bargain for industry wide minimum hourly rates for example and make these transparent and public. They would at the same time also be able to offer more comprehensive solutions to customers by joining several experts from different fields within a cooperative. So the contracting party also enjoys additional benefits of people used to working together on a common project.

All cooperatives would obviously also benefit from reducing costs such as accounting, health, disability and other insurances or legal advice since they will acquire such services as a cooperative and can engage service providers  (maybe from another cooperative even) together at a lower cost per person. Each would have likely spent much more individually in terms of money or time or both.

Members can share locations, secretarial services, work related material purchases such as office supplies, cloud services, other internet services and much more.

Fiscally and legally, cooperatives could also be encouraged to join forces and possibly even create supra-entities. In addition, not only laws would be made to require employers (contractors) to engage and negotiate with such cooperatives. Discriminating against cooperative members could potentially be outlawed or penalised if experience and time show it as necessary.  Carrots in terms of improved status in tenders or some special fiscal treatment could also be used to encourage the interaction of large economic entities, private or public, with cooperatives.

Government could favor cooperatives in tenders or in awarding public works in general. Government could also create physical and fiscal conditions that would assist with a physical location if necessary although that might go too far for some. Still an option to be considered. WeWork and similar entities are not always the most efficient of cost effective solution, although such companies might surprise and see such cooperatives as an opportunity.

In some branches  these cooperatives would form something similar to a modern version of old fashioned unions (vakbond). We could consider making these cooperatives where relevant associates in some form of the existing unions. Or maybe form their own representative organisation just as employers and employees today. As such they could join the yearly wages and salaries’ discussion and where relevant, also the negotiations.

The concept needs to be worked in more detail and with teams of legal, fiscal, social and other experts to form concrete proposals that can be made into laws and regulations. This is meant as just a base for further discussion and maybe action.

The Productivity Conundrum: Remedies

One of the  aims of this blog is not just to point at problems, but also to explore some of possible solutions.

Any comments and discussions are welcome of course. My solutions are not necessarily the best ones.They are simply ideas that were either published by many others or that came up in my mind and there are probably more ways to create the necessary changes. Where possible, changes that are already happening in the world to improve the situation willbe mentioned. Some relating to this topic can be found at the bottom part of this blog.

Whether we actually need or want higher productivity as a social goal, is being questioned and discussed more frequently in recent years. Good discussions can be found in the Degrowth movement, doughnut economics and other avenues. At a certain point it will get a place here in the blog as well of course.

In order to improve productivity there is a complex solution that can be stated simply: a better division of the profits. Higher rewards for their work will motivate the large majority of people. (Note, we do not use consumers. For some strange reason most of us still consider themselves primarily as people.)

It is not simply about just paying more in bonuses and salaries. It’s about a fair sharing of the profit or results of an organization. Do the CEOS of large conglomerates really deserve multi million euro or dollar rewards? If the company made targets set by its board, shouldn’t everyone in the company share the rewards? Was this really performed only thanks to one person or group of top managers? CEOs that already receive a salary of over a million a year (dollar or euro does not make much difference in these size of salaries) do not need or deserve additional rewards. If the company achieves part of the targets and they are rewarded with 10-20% of their yearly salary and the targets that were not achieved get deducted from this amount, that might fairer. Even just 10% of their salary is several times the yearly median income of a household in most modern developed economies. There is nojustification and it will demotivate many people from delivering to an organization any improvements that do not improve their own lives directly.

To make also clear: targets should NOT be made up of maximising shareholders value. It is by now evident that this is not a measure that optimises efficiency. It mostly contributes to maximizing short and medium terms financial results. These are not alligned with healthy busniess thinking. Almost anyone (this author included) that has worked for a company listed on the stock exchange could tell of many incidents they experienced in which decisions made noi economic sense, but helped the distributiuon of renumeration. Efficiency can not be considered on a single firm level but needs to be considered on larger scale, that of affected society and stakeholders in a broader sense. Employees, suppliers, customers as direct stakeholders. The towns, cities and villages affected around the company’s locations and its stakeholders residences as well as the province, state or country where these reside as society. All need to be considered. Even more so now and incoming years in face of automation and AI.

It is about employees feeling they get a fair share of the cake. A share of the profit and a share of bonuses that reflect their contribution. The CEO of SHELL received as part of his bonus a total of over 300.000 shares. SHELL has 86,000 employees world wide. Would it be better to give each employee between 1 and 6 shares maybe? Or 1 and 4 shares, instead of giving all of these to one person. He is already receiving a huge reward in the form of a base salary representing 30 or 40 times the median income of a Dutch household. After bonuses, it comes to 300 times median income. That does not even take into account all the people working for SHELL in many oil rich countries with mostly poor population.

SHELL is just an example. There are organizations with much larger and others with smaller differences but it is a typical example. Even companies that distribute to all employees (at least those in rich countries) such as some found in the famaceutical industry, maintain very significant rewarding differences.

CEOs do not take any real personal financial risk. Even if we are to accept the myth of deserving extraordinary rewards for extraordinary risks taken, that does not apply .CEOs can not  lose anything except some value of the shares they received above and beyond their salaries. That is not a risk. Losing their pride or reputation might not be pleasant, but will not lead them to financial ruin. At most a change in life style.

While we are at it. Not only employees need to share in gains and profit. As many stakeholders in an organization as can be taken into account should be considered. One simplified way to do that is to make sure companies pay their fair share of taxes anywhere they generate profits. At least in most of the developed democracies, government will be able to use the funds for the whole country, thus including anyone with the faintest claim for being a stakeholder.

If CEOs can claim to be rewarded beyond their salaries, so should the professors that taught them at university and the person cleaning the street they live in that makes sure their intelectual capacities developed properly or that they do not fall prey to sickness for lack of hygiene.

If employees would know that they stand to be fairly rewarded for gains resulting from higher efficiency and not punished as they supposedly made themselves or some of their colleagues “redundant” with the introduced improvements, they would contribute more and productivity would increase. If they would feel secure that improving efficiency would not result in them or their colleagues losing their jobs due to the increased gains, but get rewarded, they would contribute more.

We should also be sure that gains in productivity really can be called such. No firm or organization operates in a vacuum. If a firm buys a new machine that replaces a team of 3 or 4 people for example and only one of these people remains in the company to operate it while the others lose their jobs. That might increase efficiency for the firm itself. For society it may be a net loss, at least until those fired can find productive occupation again. But this theme probably deserves a whole blog all of its own, maybe several. So for now, it will not be expanded upon.

Another suggestion to improve rewards to labor are a maximum wage ( lately published in more detail – The Case for a Maximum Wage, Sam Pizzigati,2018). A CEO’s income should not be more than an agreed multiple of the lowest salary in the company, or the median income of an employee in the company. So a CEO being awarded a raise by him/her self or by the board, can only happen if everyone’s income increases. And while at it, please do consider other stakeholders and alternative modes of reward.

A personal note:

Being an entrepreneur myself, I am fully aware of the fact that the company would not have existed without me, but it would never have been profitable without everyone’s input. Each doing what they do better than I could have ever done it. In these early years of the company, they get generous bonuses at the end of a profitable year. When the company is stable enough and hopefully still profitable, they will receive a share of the profit or a share of the company. And eventually, one day, they will also receive most or all of the company they help build. If I thought what I’m doing is a risk I can’t withstand, I wouldn’t have started the company. So I practice what I preach.

Some positive developments:

Many countries have been increasing minimum wages in recent years. Many states in the US, UK and many others, rich and poor. The credit belongs to economist Alan Krueger who has recently passed away. He was the first to show empirical evidence that demonstrates how higher minimum wages actually increase employment and welfare. Contrary to the ruling view many of us have beed trained with, including this author.

On top of that, many countries found out that the minimum wage set by law, was still too low to live from. That does miss the point of setting a minimum. Waht’s the point if itisn’t evben enough to supply one’s basic needs from? Many governments have now signed up to bringing the minimum wage to be a living wage. (Mostly but not exclusively, within the OECD countries. Search the website fior more information)

The maximum wage has not become law anywhere, but did lead lawmakers in several US states to legislate preferential treatment to companies with low multiple ratios. That comes into effect with the awarding of public contracts (by tender or otherwise) or by additional taxation. (https://inequality.org/action/corporate-pay-equity). They thus start sending signals of what is desired and acceptable by society these days.

If the aim is to increase productivity, lower inequality would definitely contribute if implemented by methods mentioned above or similar.

Goals set by the US such as the milnium goals, are also contributors.They helped alleviate many from poverty, increasing their health, improve education and allof these did improve productivity in many countries.

The Productivity Conundrum Resolved

Income Inequality, Productivity and Economic Growth

One of the big conundrums economists and politicians struggle with, is the lower growth of overall productivity, especially in what is called developed economies. This is not true of course across all industries, sectors and branches of the economy but in general, productivity growth has been slower than wished and lower then it used to be in the mid 20th century.

Income inequality has already been named as a result of low productivity by some and blamed for it by others. The argument explaining it as a result – a bogus one in the eyes of this author and some economists and sociologists – is that those who are more productive due to hard work, education, talent etc. are being rewarded; while less motivated or skillled employees simply do not increase their productivity and are therefore rewarded with less. Since these tend to be the same people every year, their income gap will increase over time….Q.E.D. and all that jazz and etc…. well, I doubt it so do read on.

On the other side of this argument, most of those blaiming the lack of productivity increase on income inequality,  state as an important claim, that less income equals less health & less education, resulting in lower productivity. In term that blame means lack of increase in the share of employees in profits, so no increase in wages and you have a perfect self reinforcing loop that seems to give a great explanation. Lazyness or inability to improve results should not be rewarded we are told. But top managment will always outsmart the system by having some KPIS** twicked to provide a certain bonus almost no matter what happens (I was there myself, it’s not an assumption).

The argument put hereforth is very different but explains better the phenomena of lower porductivity growth. All arguing parties use the same data sets to substantiate the claims. How to establish who’s most likely to be nearest to the truth, requires further more detailed research and will be suggested in a coming blog entry.

Here is the claim and the rationality behind it –

Try to think about the issue from a different point of view. The growth of income inequality over the past 30-40 years or so, shows clearly that a very large part of both GDP and GDP per capita growth, actually went to the Procentians, the top 1% of the economic ladder*.

(Side remark – important but not essential) If you think about it for a minute, you would also realize that even within the procentians there are huge income and wealth inequalities. So we can reasonably conclude that an absurdly large part of this economic growth actually ended up with just 0,1% of the population in many countries. (There will be large variances within that from Germany to USA for example). Let’s call this part of society for convenience Promilians. But really, don’t feel sorry for any Procentians, even the least overadvantaged are in a different universe to ours.

As the distribution data shows (http://wid.world – World Inequality Database set up by Piketty and his team) the lagest part of the economic growth, callit here the incentive meant to reward performances, has been attributed mentally, physically and pecuniarily to the Promilans and Procentians. These “Superstar Performers” created all the additional value and therefore get the wealth, goes the argument and are therefore rewarded. It is of course more nuanced than that but I wanted to start the discussion with a provocation.

Considering that rewards are given to only a few at the top, why should other members of the workforce  really keep doing their best to increase productivity?

No reason really. As simple as that. Almost, do read on for more details.

Would  you work harder or smarter if you knew that all the gains of your additional productivity go to someone else? Some would obviously but there are good explanations as will be detailed below. These are sufficient to explain the current productivity growth, as “sluggish” as it seems to many politicians and economists. Some productivity growth will always be there. These gains in productivity would be brought about maybe by individuals finding some of the satisfaction at work simply by thinking of better, more convenient, efficient, cleaner or otherwise improved results. Their reward is endogenous to themselves. Knowing they have achieved an improvement is its own satisfaction. Or maybe an appreciation from peers and colleagues is sufficent to some. Eventually, some of these people too will at a certain stage get tired of seeing the rewards go regularly to people in the top of the organization.

Another group contributing to the productivity increases we see, are the ambitious people. Those that want to advance in the organizational hierarchy. For such people, the advancements to be received (hopefully) are the reward. They expect to have social and pecuniary gains. They hope to benefit from higher socioeconomic status within and without the company with the increments in position and wages that are associated with such efforts in our meritocracy. We believe that a large part of any productivity registered in big parts of the economy are generated by this group. As it is a small part of the workforce, growth can be expected to be smaller than if all workers were motivated and contributed.

Some do of course do get properly rewarded and paid for special skills. This is a minority. Looking at the data of productivity by sector makes this clear (https://www.bls.gov/opub/mlr/2016/article/measuring-quarterly-labor-productivity-by-industry.htm). The data for US shows how value added  and growth are strongest for the information and finance sectors with the rest trailing behind significantly. This set of data for the OECD is regretably no longer published and was removed from the archives. Probably was not considered of enough interest. The link I saved for this blog now infomrs that the data set is no longer available. (Please send the link if you manage to find the data)

Sectors with high pay show higher productivity growth. That is to be expected according to the existing paradigm of how productivity is rewarded.

The claim here is that it is actually the other way around.

People become more productive in these sectors because greater rewards are what they expect. The salaries of people are usually agreed before they start. Incentives’ systems are set in place to motivate in advance, not to reward in case that by chance more results were delivered. Intinsically, such industries will also attract more ambitious actors from the outset. So we have two self reinrforcing loops contributing.

At the other end of labor hierarchy, think of a street or office cleaner, a construction worker. What would they gain by working smarter? By finding more efficient ways to complete their work? Usually that will only result in them producing more for the same wages. The gains will go to management or the owners. The only way for a person in this kind of position  to gain usually, would be a promotion. Only a few really want this probably. Even reaching higher is stilla long way from getting to a place where you may feel fairly rewarded.

To repeat in different words, morals and ethics may play a role for some. Personal feeling of achievement, of knowing one has left a mark on an industry, a company, a process or maybe just for oneself. We do something that leaves a little mark or a dent in the grand scheme of existence and gives a personal feeling of achievemen or fulfilment and meaning in life. That can drive some of the people some of the time. But, as was said before by grander personalities, it won’t work for all of the people all of the time.

How far that can take productivity? Reasonably far enough for Procentians to increase their millions and for Promilians  their billions. Up to a point…..and we are at a point where the middle and less than middle classes are probably just getting very tired from not sharing the fruits. Less motivation, less productivity growth.

Just a simple example: you are a middle manager in a large company. The company has an increase in profits in the last business year of 3%. The CEO walks home with 5 million, or 50 million. $ or €. Doesn’t really matter much. The complete board takes another 10, 20, 50 million in bonuses. Some get several times their annual salary that is already at a six or seven figures’ magnitude.  The unit you manage in the company, has actually improved performance by 10%. If you will receive a bonus of 10 or 15% of your annual income, you are probably lucky. Your team, that worked with you to implement those improvements will get at best trophies, medals or if really lucky, 2 or 3 or the real wopping 5% as a bonus to their annual income. Definitely not a reward several folds their annual incone as the big chiefs do.


Anyone has an idea?

Beats me completely.

There is no justifiction and the only reasoning is that top management was able to hijack the system for itself. Not as a conspiracy (I don’t believe in those as a rule), but by incremental collusion under the auspices of social conventions. . Now, take those millions – say 100 to simplify the argument – top management received and divide them between all employees that contributed to the growth. If the company has 11.000 employees, of which thousands contributed to the growth in some form but only very few are rewarded very well, a group of a few dozens may receive a handsom reward and maybe a larger group of a few hundreds, some reward. The rest get a pitance if anything at all and they know it in advance. Why bother? If rewards for improvements leading to higher gains that result from increased productivity and output alway go to the small group at the top, what motiviation does any other employee have to increase their productivity?

It’s time to turn the table around. The fruits need to be shared more equally in order for most to have more: more income and even morer important,  more say about society and their personal lives. A power that comes with having a bigger stake in society. One of the answers lies in cooperatives, others in the tax laws and more in the financial system. Over time I hope to discuss and ekaborate on all hese topics. Co0ntributions of ideas and content are welcome. Credit with name will always be given if wanted or hidden if requested.

The more people know they can get a fair share of growth, the more productive they will be.

The question if everlasting growth is what we need or want, is a diffferent discussion.

*Picketty’s databased mentioned in this blog is a good source of knowledge and information. Recommend to read Reich, Stigliz, Milanovic and many others. (If you still cant find the corroboration write me)

** KPI – Key Performance Indicators. For those unfamiliar with the terms, these are the measured results of various parts of activity in a company. Managers get rewarded according to a formula defining how much bonus they get for fulfilling each indicator. Profits are obviously a “hard” indicator and don’t gurantee a bonus. An increase of 2% in new customers for example, when in the past the oncrease was typically 2-3%, is a “soft” indicator. It is almost guaranteed to happen and so a part of the bonus to be paid.

Economic Inequality

A General Remark

Economic inequality bothers many people. It bothers some politicians, economists, religious figures, social activists. But most of all it simply bothers most of us because it has come to an obnoxious level. It is now at levels that are at least by some  already called unethical or even immoral.

To be clear: Here we always talk about economic inequality within each country.

It isn’t so much about “them” – Promillians & Procentians – having absurdly much materially. It is that they have all that while others in the same society have no or only little material comfort and security. That it is mostly accumulated by rent, inheritance or some other unfair form. It  is also about the unproportional power, especially political, that this wealth allows this tiny group to yield over the rest.

So, how do we persuade the super rich that this needs to change?

We probably can’t.

Most seem to have the weird idea they actually deserve to control such a huge proportion of the wealth of society. Maybe the democratic and legal processes, meant to make sure brute force does not rule our lives, can bring the change. For this to happen, it isn’t enough for me and others to write about it (not even ink spilled, just time spent) or for you to read. We need become more active. Spend more of our personal time participating in events and discussions about the issue. Organize debates, public discussions, meetings and of course – dont forget to vote.

Yes, democracy in it’s various forms is probably more resilient than most imagine. Dont give it up.

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Reducing Extreme Inequality

We are not alone….

The topic as well as anxiety and frustration about it occupy many minds. There are many sites and publications writing about inequality. Some written by known academics. Mostly economists but not only. Some of the names were mentioned in the previous blog – Piketty, Atkinson, Reich, Stigliz, Krugman to repeat and name some.

People from other fields include anthropologists such as David Graeber or geographers such as Danny Dorling. Both bring insights from other fields about causes and consequenses of extreme inequality. These two and their collaborators are recommended reads.

Another known name is epidiomologist Richard Wilkinson. Appreciated by this blog mainly for demonstrating consequences and less for perceived causes. Although more input from behavioral economics to the topic of inequaliy would be appreciated, the psycho-social causes assumed by Wilkinson do not seem to have robust data behind them ( van de Werfhorst, 2014).

They and many others from various fields contribute to our understanding of the situation and its costs and some of them offer various instruments, principles and ideas for solutions.

Aim and Purpose – what is it good for?

This blog intends to deal mainly with two main topics in order to reduce extreme extreme ineuqality – redudtion and prevention.

Under reduction we will identify various tools that can be used to reduce the extremes above and below. Than suggest how to use each of these to help fulfill the purpose. We’ll seek practical solutions. A tool could be an economic, political, social or other instrument that allows, preserves, changes or dictates a socioeconomic outcome.

As to prevention, assuming we reach a more favorable and socially acceptable outcome, the blog will also try to see how such a radical change in distribution could have happened in just a little over a generation. From the relatively egalitarian (compared to today, although many people at the time already found it etreme) mid 20th century 50s, 60s, 70s, to today’s extremes, just 30-40 years later.

Once we have an idea of how it could get that far, we may want to try and avoid a recurrence in future. That is of course for those people that agree the resulting currrent situation is untenable. If we know what mechanisms have been used to concentrate wealth and income and with them power, as well as possibly how, we can try to set checks in our system as preventive measures. We can maybe even try to think of and set some “trip wires” in our system that will alarm society when attempts are being made to redirect and concentrate power.

We may be able to use some of the same tools developed for reduction and turn those into watch dogs. From corrective to preventive.

Now that we know what ths is about, we can soon start getting into the matter.