Egalitarian societies

Egalitarian societies tend to be more open where everyone is perceived to be equal. There are several forms of egalitarianism such as economic, legal, political and gender. In this article I intend to give a brief overview of economic equality and how it effects business.

For years, economists have argued whether inequality is good or bad for economic growth. On one hand, high inequality threatens to create an underclass whose members’ inadequate education and low skills leave them with poor prospects for full participation in the economy as earners or consumers. It is a potential cause of political instability and thus poses risks to investment and growth. On the other hand, some argue that because inequality puts more resources into the hands of capitalists (as opposed to workers), it promotes savings and investment and catalyzes growth.

This view is further supported by the Kuznet’s Inverted U curve hypothesis1, which states that as the per capita income of a country increases, the inequality in the country increases concentrating weath and control over resources in the hands of capitalists. Further economic growth leads to a trickle down effect of the wealth into the middle and lower classes leading to reduction in inequality.

We can think of examples of countries across the various stages of the Kuznets Curve to gain a better understanding of the relationship of growth and inequality. In the first stage of the curve (low per capita income, low inequality), economic, social and civic environments are far from appropriate and a major chunk of the population survives is degraded living conditions. Economic growth is also low due to lack of educated and skilled workforce and high political and social instability.

In the second stage of the curve, are countries like India, China, Indonesia, Brazil, South Africa. These countries have witnessed close to double digit growth in the last decade or so leading to accumulation of wealth in the hands of limited industrial houses. Although the standard of living has increased and the middle class has grown, there is a big chunk of population which is close to and even below the poverty line. Ironically, it is this inequality that is a fundamental driver to growth. People are incentivized to invest in their education, to work hard and to receive large payouts. They spend more and as a result, their expenses are incomes for someone else. This stimulates the economy.

In the third stage, towards the right of the curve, are countries from the western world. Having attained developed nation status and high per capita levels, these countries have stable education and social security systems to flatter distribution of wealth. The political climate is also highly stable. Obviously there are super rich and lower middle class people in these countries, but the percentage concentration of the countries’ wealth is more equally spread than in countries in the second stage.

Another important factor that decides the distribution of wealth in the country is the civic framework. Corruption and government approach towards economic policy influence the distribution of wealth in a country. For eg. during the East Asian Miracle from 1965-90 when countries like Japan, South Korea, Hong Kong, Taiwan, Singapore (Four Asian Tigers), Indonesia, Thailand, and Malaysia saw a boom in their economies, there was a drastic decrease in poverty, illetracy etc. This trend was very different from that in countries such as India and Brazil where bureacracy is plagued with high corruption.

It is therefore important to understand the state of an economy and the stage of economic growth in which a country lies to understand a business approach. In high booming economies like the BRICS, Indonesia, etc. business managers could not care less to worry about inequality as they strive to gain market

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