Oscar Landerretche on Inequality
Oscar Landerretche is an awesome economist from Chile. Below is an excerpt of his participation in a video forum with Brad DeLong on the Politics of Inequality in 2012. Since then he has become the President of the Board of Directors for Codelco, the largest copper producer in Chile. He is currently dealing with the problems in the copper industry. His views help us understand the growing inequality in the US.
Oscar Landerretche on inequality. (48 minute point of video)
“The context of this is that Chile has always been a very unequal society, which is a striking difference with the United States which has had historical periods of relative equality. So, let’s say that somebody came up with a magical policy formula and actually managed to improve our Gini coefficient by 15 points or something like that… which is what we would need to become something like a European country… the structure of the economy would be very very different, in every single sense… it would be extremely different from what we have today. You would have to have other economic sectors that do not exist right now. You would have to have a different political structure. You would have to have a different labor structure… “
Keep in mind that the Gini coefficient in the US has moved toward Chile’s. The structures of our politics and economy have become more like Chile’s. We have lost economic sectors.
“So it’s very hard to promise someone… “you know what?, We’re going to do these things that are going to make dramatic changes in our economy and you’re going to come up a winner.” It’s very hard to make that promise, because a lot of things we have to do is really answer questions. Like, What else are we going to produce besides commodities, food stuffs and copper?… and depending on what sectors are going to come up first, the structure of society and the economy are going to be very different.”
People begin to lose sight of the work they can do for their local community, because local demand for goods and services dries up. As well, economic development concentrates in the hands of fewer people. Grassroots’ endeavors fade away.
“On the hand, the losers are very clear. Chile is a very small country. It’s markets are very concentrated. It’s basically controlled by just a handful of very large family conglomerates. And they are going to lose.”
As inequality concentrates wealth and income, it also concentrates the markets of production. Fewer labor hours are needed to serve the demand of those with the concentrated wealth. Just as we see in the US, underemployment increases with more inequality.
If you were to spread income more evenly throughout society, you would see a broader demand base. Each community would be able to develop more work opportunities.
“It’s easier for the losers to coordinate their strategies to defend what they have. than the winners. The winners don’t really know who they are. It’s very theoretical. It’s sort of an abstract notion. These abstract notions usually get defeated in politics unfortunately…”
Oscar Landerretche is describing the present and future of the US.
The concept that this is a zero-sum game in that for the wealthy to win the rest have to loose and vice-versa is fundamentally incorrect. If you look at US income gains by 95th percentile, median and 20th percentile, you see that not only did they track each other during the the 1947-1980 period but that the income of the 95th percentile grew at a faster rate than they did subsequently:
It is a game of relative–ness in that the more concentrated the income and wealth, the more labor becomes marginalized from the economy either as unprofitable to employ or underemployed.
Then you have to discern periods of growth with periods of mature growth. Inequality is tolerated if the rich are developing a nation. Inequality is not so well tolerated when the rich see fewer opportunities to develop a nation. The US is in a period of mature growth relative to the rest of the world. So inequality should have decreased in the last couple of decades, but instead it increased.
We now see the consequences of poor economic planning socially.
“Brad DeLong Presents”
For a similar view of an abstract notion that we should have a national manufacturing strategy and policy which was unfortunately voted down in the Senate recently. Go see todays ProaperousAmerica.org…Also be sure to take a look at Ian Fletcher’s book, “Free Trade Doesn’t Work” . He talks about the theory of competitive-comparative advantage-disadvantage, opportunity cost and factors of production.
Oder – From 1947-1980 we enjoyed a period of massive resource abundance, cheap almost free energy, and a world where most productive capacity was destroyed except ours.
Extrapolating that out into the future is pure ignorance.
Yes correct – 100%.
So you are in favour of a basic income, right?
Basic income will have to happen at local and state levels. The federal govt can’t even do minimum wage.
But it is a good idea to get society more productive.