2017 Reports

The Dynamics of Social Inequalities in the Present World

Stiglitz, Joseph E.

It is apparent that not only are there high levels of inequalities within most countries, but those inequalities have been growing over time. They are much larger today that they were a third of a century ago. It is also clear that there is far from equal opportunity: the life prospects of children of rich and well-educated parents are far better than those with poor and less well-educated parents. Indeed, in the US, it appears that the prospects of a child from an underprivileged family that does well in school are poorer than that of a child from a well-off family that does not perform well in school. At one time, economists and other social scientists tried to justify these inequities through the marginal productivity theory, which says that individuals’ incomes correspond to their social contributions to society. Even a cursory look at the data shows that none of the individuals who have made the greatest contributions to our society, say through the inventions of the laser or the transistor or the discovery of DNA, are among the richest. And among the richest are many who got their money from the exploitation of market power and/or political connections. In this essay, I discuss the dynamics of social inequalities at three levels—the global macro, at the forces shaping the dynamics of the distribution of income across countries; the country-macro, at the forces shaping the dynamics of the distribution of income within a country; and at the micro—the forces shaping the dynamics of individuals’ opportunities. The central thesis of this short paper is that to understand the dynamics of social inequality at any of these levels, though the competitive model may provide a useful benchmark, it is departures from that benchmark that are really driving the changes in inequalities today.