Why it won’t trickle down

The Oxfam report that eight businessmen have a combined net worth that equals the wealth of the bottom half of the world’s people once again brings to the fore the “obscene” inequality in many societies today. The report warns of more populist revolts, similar to the disenchantment behind the rise of a new kind of global fascism—a belligerent nationalism and racism riding on the discontent of underclasses left behind by the new growth spurred by a technology-driven global market.

According to the report, seven out of 10 people live in a country that has seen a rise in inequality in the last 30 years. There has been talk recently of “inclusive growth,” but it needs to be said that this will not happen for as long as there are structural imbalances in the economic and social system.

As early as the 1960s and 1970s, studies have shown that societies that are highly stratified tend to trap masses of people in poverty. Gunnar Myrdal, speaking out of the caste system in India, found that no amount of technical solutions can work within the disincentives posed by systemic inequality. “Greater equality,” he said, “is a precondition for lifting a society out of poverty.”

Similarly, no amount of GNP growth or an increase in credit ratings will lift the poor in this country without vigorously addressing the reasons as to why 76 percent of the growth in the past six years had been largely accounted for and skimmed off by only a handful of families.

There is the idea that enlarging the pie or increasing GNP will have a “trickle down” effect. Based on the mystique of “development” as articulated by the likes of Walt Rostow, there is this optimistic belief that modernization will spread by “benevolent diffusion,” and its benefits will “trickle down,” radiating from the growth poles of the economy. It is a mystery why this narrative persists, for it has yet to produce substantial evidence.

The fact is that the worn adage “What is good for the nation is good for the poor” has been proven a fallacy in contexts where development initiatives benefit only a thin layer of the elite classes.

Even when government-sponsored growth results in unequivocal good for the modern sector of economies, this mostly bypasses the poor. Experience shows that for macroeconomic growth to benefit the majority and not be cornered by the few, it has to be of a sort that is different from the kind of unilinear development that the West had trod and other countries follow.

Joe Remenyi, in a microfinance study, puts it this way: “The benefits of economic growth in the formal sector of Third World economies tend to bypass the poor because modern-sector development projects, even those that are designated projects of national significance, do little to improve the productivity of the poor. A new power plant, a new hospital, improved seaport facilities, a new airport terminal, or a new timber mill may augment the standard of living of bureaucrats, the captains of industry, skilled workers and professionals in the formal work force, but will make barely a difference to the value-added generated by the firms that employ the poor, produce for the poor and sell to the poor.”

Globalization has further consolidated the wealth of elites within and among countries. While cyberspace has democratized access to information, the technological divide has been one factor behind the ever-increasing gap. Note that six of the businessmen mentioned, led by Bill Gates, are Americans who are far ahead in computer technologies, and this has exponentially multiplied their capacity for creating wealth that is “virtual,” reified transactions that have little connection with actual exchange of real goods.

Oxfam, anticipating the World Economic Forum in Davos, Switzerland, makes a pitch for “an economy for the 99 percent,” excoriating big business for fueling the inequality by dodging taxes and driving down wages of workers and the prices paid to producers.

Warren Buffet himself, third in the lineup of the superwealthy, tells an audience of Georgetown University students that he paid only 19 percent on his income in 2006, while his employees paid 33 percent on theirs, despite making much less money. “How can this be fair?” he said. “We have learned to turn out lots of goods and services, but we haven’t learned as well how to have everybody share in the bounty. The obligation of a society as prosperous as ours is to figure out how nobody gets left too far behind.”

Likewise, the obligation of a society as pauperized as ours is to develop a conscience such that the wealthier classes do not buy Birkin bags that cost at least P1.5 million or a P50,000-ticket for a concert by Madonna while half the population has no water fit to drink and a family of six subsists on one pack of watery instant noodles for dinner.

Dr. Melba Padilla Maggay is a social anthropologist and consultant on the interface of culture, religion and development.