May 22, 2019

Is Inequality Inevitable ?

Maximilien Robespierre might have fired the imagination of the world with his call for Liberty, Equality and Fraternity during the French revolution but the concept has been rather elusive in practice. Equality, in particular, has proved to be a bridge too far.

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Let us begin with the Internet and the world wide web that was supposed to liberate the individual from the clutches of the powerful media barons. As one of the early pioneers and evangelists for this new technology, this author had created a portal -- Yantrajaal, a Bengali word that he had coined to define a network of devices -- in the same year that Google was born and seven years before Facebook. The general idea was to serve as a platform to share information on technology from an India perspective. In principle it could reach out to every corner of the world -- something that his earlier journalistic efforts in school and college had failed to do. But of course that would never be. Hardly anyone, other than the author’s immediate circle of physical friends, visits Yantrajaal. Unfortunately, that is true, not for Yantrajaal but for many other websites as well. While millions of websites exist and continue to be built, the really popular websites -- at least, the ones that make some money  --  are still the ones owned and operated by big media houses like Times of India and the New York Times. But even this is an illusion because the real flow of news and views across the globe is actually governed, not by these media houses but by technology firms like Google, Facebook and Twitter, or, where they are banned, as in China, buy their local equivalents. In fact, these so-called tech companies have actually morphed into full fledged, advertisement driven media companies and it is they who rule the roost when it comes to the dissemination of information.

This concentration of power is an outcome of the network effect. The value of a network is proportional to the square of the number of its participants. As more and more people join a network its value as perceived by its members goes up very fast, compelling others to join it in a virtuous, or vicious, cycle. You may build a search engine or a social media platform that is better, say more private and secure, but you would never be able to catch up with the leaders.  It is not quite the first mover advantage, but anyone who breaks away from the pack becomes unreachable and hence unbeatable, irrespective of its quality.

Very similar is the case with cryptocurrency. Just as the internet was designed to democratise the distribution of information, Bitcoin was designed by the mysterious libertarian Satoshi Nakamoto as a way to create and distribute monetary value in a decentralised manner. Thanks to the magic of mathematics, it was now possible for a private citizen to do what was earlier the prerogative of Central Banks, namely create a cross-border, tradeable currency. It is a different matter that many governments and central banks have gone hammer and tongs to break the backbone of this remarkable technology. The methods being used are obviously inappropriate -- similar to the case of censors in Iran and China blocking the internet -- but the fact remains that “Tiger Zinda Hai”. Cryptocurrencies have weathered most regulatory storms and despite some current setbacks will certainly comeback when the establishment finally gives up and falls in line. But the dream of citizen empowerment is a myth. Even though anyone can, in principle, create Bitcoins, and similar cryptocurrency, the ownership of such wealth is hugely skewed. 87% of all Bitcoins that have been mined are owned by 0.5% owners or wallets, 61% are owned by just 0.07% wallets. Of the 23 million Bitcoin wallets, 13 million own a fraction, less than one, Bitcoin.  1500 wallets have between 1000 and 10,000 coins while 111 wallets own more than 10,000. [ March 2018 data ] For a system that is barely a decade old, that is a huge inequality that has emerged from what was supposed to be purely technology based egalitarian platform.

This inequality of wealth in Bitcoin is very similar to the inequality of wealth seen across the world and more so in the mature economies. In the United States, that is seen by many as a leitmotif for the modern economy, wealth inequality is enormous. Those who view this as an inevitable fallout of ‘evil’ capitalism should look back at what Communist Russia once was and read Orwell’s Animal Farm where all animals were equal but some animals, the pigs, were more equal than others. Today there is no visible and viable to alternative because what happens in China is not clearly visible and socialist countries like Venezuela have either collapsed or like Italy and France are tottering as they try to redistribute their shrinking wealth. Some diehards like Bernie Sanders may hark back to a Scandinavian utopia but that story may not really be as attractive as it is portrayed to be and moreover it is certainly not scalable beyond the socio-economic demographics of Northern Europe.

Which begs the question, is inequality inevitable?

One way to look at it is to note the difference between opportunity and outcome. Equality of opportunity is essential but it may or may not lead to an equality of outcome. Google may have bowed to political correctness by sacking James Damore for daring to suggest that women may be different from men, but facts do bear him out. As Jordan Peterson, that arch nemesis for page three feminists and their ilk, has pointed out, the eventual outcome is a function of a complex series of inputs, not just the obvious differences of say gender or race. It is well known that women are underrepresented in STEM -- science, technology, engineering and mathematics. What is less well known that societies that have a higher degree of gender equality have, paradoxically, a lesser percentage of women in STEM than those societies that offer lower opportunities to women. [ The Atlantic, Olga Khazan, April 2018] This has been explained by arguing that women in societies that marginalize them see STEM as a way to climb their way out into better opportunities in life, which is something that their sisters in more equitable societies do not have to struggle so much for. In a similar vein, while women may be underrepresented in engineering colleges and in IT companies,  the percentage of seats occupied by women in medical colleges is more than 51% in India but in neighbouring Pakistan and Bangladesh, the numbers are as high as 70% and 60% respectively. Clearly, inequality is not something that can be explained very easily.

In India, social inequality is frequently equated with caste. This has led us to build a huge edifice of largely ineffective and useless hubris around caste based reservations to pander to our politicians craving for votebanks. While caste is something thing that has existed in India, our politically tainted educational system has been instrumental in making us believe that it is the ONLY cause of economic inequality and misery in India. In the process we have only succeeded in sharpening the inequality with indiscriminate reservations. Caste is the unfortunate fall guy where the real reason could be something far different.

In fact, in a study reported in Vox, researchers Barone and Mocetti were the first to establish that in Florence, Italy -- where there is no caste system -- the highest paying taxpayers from the 15th century to the present have been from the same set of families. Similar studies have shown remarkably similar results in a wide range of cultures -- “This is true in Sweden, a social welfare state; England, where industrial capitalism was born; the United States, one of the most heterogeneous societies in history; and India, a fairly new democracy hobbled by the legacy of caste.” [ New York Times, Your Ancestors, Your Fate, Gregory Clark, Feb 2014] What could explain this phenomenon? The authors suggest that “the compulsion to strive, the talent to prosper and the ability to overcome failure” that are all strongly correlated to success and hence eventual wealth are inherited qualities. Hence, as heretical as it may seem, genetics plays a role and “Alternative explanations that are in vogue — cultural traits, family economic resources, social networks — don’t hold up to scrutiny.”

A more politically palatable, or charitable, explanation could be the network effect that we have seen in the case of the world wide web. On the web, companies like Google and Facebook use their pre-eminence in the number of clients and customers to prolong and propagate their pre-eminence. Similarly, in human society, those who are, let us say, eminent -- in money, power, education, intelligence, contacts -- will use their eminence to make sure that their progeny get access to all that is required to become eminent in the next generation. There may be individual exceptions but by and large, that will be the desire in almost all cases. In the long run, this desire will translate into a self propagating mechanism that will ensure that inequalities inherent to society cannot be erased simply by desire or dictat.

If the inequality is somehow removed, it will always find ways to creep in. In India, we recognise this in the replacement of an exploitative foreign coloniser by an equally exploitative but local political class that has taken over the trappings of the foreigner. Subhayan Mukerjee, a researcher in Computational Social Science at the University of Pennsylvania explains this by saying that equality is an unsustainable, unstable equilibrium and cannot last very long. Sooner or later, this equilibrium will be broken and the collective will move towards a stable but hierarchical structure. The resultant inequality will pave the way for even more inequality.  If we view the collective as a set of marbles lying on an elastic membrane that is stretched flat where each marble makes an identical depression, then a single slightly larger marble will create a little larger depression. This will draw in other marbles making the depression deeper. Now the unstable equilibrium will be broken as the deeper depression pulls in more and more marbles making it deeper and deeper until most of the marbles have moved into it.

Both the world wide web and world of cryptocurrency began as a flat world of equals without any hierarchy but it did not take long to for inequality to creep in and a hierarchy to establish itself. Even in the animal world, for example, among apes, there is inequality in the form of size, strength, potency and skill. Even if humans inherited these inequalities the world might still have been more egalitarian and equitable simply because there were too few opportunities for enrichment. But the potential was always there and the moment economic opportunities presented themselves -- with the advent first, of agriculture, then industry and currently the digital age -- the natural tendency towards the equilibrium of a new and sharper inequality began until we have what we have today. At best, humans may recognise the inequality, and unlike a pack of animals may try to mitigate it with, say, mechanisms like social security. But in the long run, the outcome is rarely what we desire -- the rich remain rich or become richer while the common man stays where he was, at the bottom of a hierarchy.

We may ardently believe and proclaim that all men (and women) are equal but that is simply not enough. Egalitarians, if not actual practicing socialists, may work out a myriad rules and regulations that seek to curb inequality but nature is such that people and organisations will always find loopholes and ways to beat the system. In the end we will always tend towards the stability of an unequal world!

Perhaps that is how it is meant to be. Could it be that equality is against nature? Take a look at the palm of your hand -- are all the fingers identical or equal? And would we be where we are if they all were the same?

This article first appeared in Swarajya magazine

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