Mind the Economy/Justice 92

What if our culture tolerates poverty because inequality makes the rich feel better?

The culture of inequality: how tolerance of poverty fosters the egocentrism of the rich

13 October 2024

Aggiungi Il Sole 24 Ore
ai preferiti su Google

9' min read

Adhering to some form of philosophical egalitarianism can mean appreciating equality with respect to many different things. For Ronald Dworkin, for example, the great philosopher of law, equality within a just society should refer to the resources available to each citizen at the moment of birth. We have seen in the previous Mind the Economy, how it is possible to imagine an auction mechanism capable of producing a distribution of resources that is, on the one hand, not arbitrary - that is, not deriving from the paternalistic or authoritarian decision of a single individual or group of individuals - and, on the other hand, free from envy - that is, not leading to situations in which someone would like to have something different from what they have.

We have also seen that this initial egalitarian distribution of resources is necessarily unstable. In fact, after its initial implementation it will give rise to exchanges, forms of production, consumption which, influenced by individual differences in tastes, talents, and commitment, will lead to new distributions in which someone will have earned more and someone less, someone will have saved more and someone less. The crucial question then becomes whether these new distributions will violate the principle of equality of resources or not. Because in the first case, the new inequalities will have to be compensated for by transfers of income from those who have gained more to those who have, instead, less; in the second case, on the other hand, these inequalities will have to be considered legitimate, because they were legitimately obtained from a just distribution.

To a first approximation, Dworkin tells us, the new distributions are to be considered right. But only to a first approximation. Because generating this position is often a common mistake that should be avoided: "the one that confuses equality of resources," Dworkin writes, "with the fundamentally different idea that is sometimes called equality of opportunity. Let us try to understand this better. First of all, the idea that it is enough to start with a fair distribution and then consider everything that comes with it as fair, is based on the idea that the greater wealth accumulated by someone is not at the expense of anyone else and is something that adds up to overall wealth. But this is hardly ever true, because economic activities and market functioning involve strong strategic interactions between all actors.

So if there were not Adrian - one of the characters in Dworkin's long and articulate example - a farmer particularly devoted to his work and therefore able to produce more and better than his competitors, some other farmer, for example Claude, would have a better chance of success because he would be able to sell larger quantities of his products. If Adrian were not so rich, then he would not be able to pay such a high price for wine. If, for that reason, the demand for that wine is reduced, then its price would decrease, thus making it affordable for Claude, who otherwise would not have been able to afford it. It is therefore necessary to 'reject,' Dworkin continues, 'the assertion, instinctive in some arguments for equality of opportunity, that if people start with equal shares the prosperity of one will not harm that of the other.

The idea that it is enough to start from a fair distribution in order to consider any subsequent distribution fair, in order to be unequal, is very similar to the idea of historical and procedural justice that we analysed when we discussed Robert Nozick's libertarian thought. It is an idea that Dworkin calls the "starting-gate theory of fairness"; in Italian we could translate, keeping with horse jargon, as the "starting-gate" theory of fairness. This theory is based on two fundamental ideas: the first which holds that fairness requires equality of initial resources and the second which envisages non-interference in the functioning of the market, i.e. a full laissez-faire regime. But these two ideas, says Dworkin, cannot coexist in the same theory of justice.

Indeed, one cannot support the idea of equality of resources at the point of initial distribution and then set it aside when wealth becomes unequal due to the effect of individual differences in talent and commitment. Certainly Nozick's theory does just that. Indeed, it distinguishes between 'justice in acquisition' and 'justice in transfer'. But in that theory there is never any mention of equality even at the stage of original acquisition. It is only said - as the so-called 'Lockian clause' states - that if someone appropriates a certain possession in an original way, this is legitimate as long as there is enough left for others as well. The 'starting gate' theory, on the other hand, claims to have an egalitarian framework, but then betrays it as soon as it is stated. "Our theory," Dworkin states in controversy with this position, "does not assume that an equal division of resources is appropriate at one point in time but not at another. It argues [instead] that the resources available to each person at any one time in life must be a function of the resources available or consumed at other times, so that the explanation of why someone has less money now might be that he has consumed more free time previously."

In this sense, then, Dworkin's original perspective takes into account two distinct facts: on the one hand, that equality requires that the distribution of resources at any particular point in one's life be 'ambition-sensitive'. That is, it must in some way depend on the cost or benefit to others of the actions of individuals. So if someone earns more because he invests in risky operations instead of saving, or works more instead of resting, or studies to learn how to innovate instead of being content with existing productive technologies, then it is only fair that the greater gains that may result should be retained and not redistributed. But at the same time, and we are at the second element, we must not fall into the error of considering as legitimate inequalities that derive not from 'ambition' but from 'endowments'. Justice must therefore also be endowment-sensitive. That is to say, the differences that emerge by virtue of inherited and non-chosen capacities, linked to the genetic lottery or that of birth, must, on the other hand, be compensated for through processes of wealth redistribution.

But isn't this, one might object, a violation of the principle that no one should be penalised for his or her talent? Actually, says Dworkin, there is no violation because this principle together with the principle that it is legitimate for people to enjoy the full benefits of superior talent are both contradictory to an egalitarian distribution free of envy. For this reason," Dworkin concludes, "if equality of resources is understood to mean a situation that passes every plausible test of envy, then the role of talent must be neutralised. It is therefore necessary to imagine rules of wealth redistribution that, on the one hand, preserve the effects of personal choices and ambitions and, on the other hand, these rules must be able to neutralise the differential effects of talent. How to do this? "An income tax," says Dworkin, "is a plausible instrument for this purpose, because it leaves intact the possibility of choosing a life in which sacrifices are constantly made and discipline is constantly imposed in the name of financial success and the additional resources it entails, even though it obviously neither endorses nor condemns such a choice.

But it also recognises the role of genetic luck in this life'. As is easy to imagine, the effectiveness of such a redistribution scheme depends crucially on our ability to set the rates in such a way as to achieve an acceptable compromise between these two instances: on the one hand rewarding the choices exposed to 'option luck', as we defined it in last week's Mind the Economy, and, on the other, compensating for any disadvantages or advantages associated with 'brute luck', for which we are neither to blame nor to merit. To this end, we should theoretically be able to identify how much of the wealth of each of us is attributable to the effect of talents and how much instead depends on the choices our 'ambition' has shaped. This is, of course, impossible because talents can be cultivated with greater or lesser commitment and are therefore not absolute 'data' in the same way as their economic consequences. This does not exclude, however, that we can proceed as we did in the case of disability insurance, which we discussed last week. Certainly a lack of talent does not equal some form of disability. But the difference according to Dworkin is more of degree than of species.

"We could say," the philosopher continues, "that those who cannot play basketball like Wilt Chamberlain, paint like Piero [della Francesca] or make money like [Harold] Geneen, suffer from a (particularly common) handicap. This description', continues Dworkin, 'emphasises one aspect of abilities, namely their genetic and, therefore, luck-related component (...) and also points to a theoretical solution to the problem of identifying at least the minimum requirements of an equitable redistribution policy that responds to differences in ability'. Indeed, in this sense, it is possible to refer to the analogy between disability and differences in talent to suggest that the level of compensation for lack of talent be calculated using the technique of 'willingness-to-pay' or willingness-to-pay, as economists say. This means identifying the price one would be willing to pay to purchase insurance to protect against the risk associated with not possessing that particular talent.

That is, of course, before knowing whether one possesses that talent or not. "If we can make sense of this question," writes Dworkin, "then we will have a device for [identifying] the limits of a taxation and redistribution programme that meets the demands of resource equality. This strange question - "how much would you pay to insure yourself against the risk of not being talented enough?" - is actually less peregrine than it sounds. In fact, it is not so much a matter of imagining that people do not know what talents they possess, but rather that it is difficult for them to attribute to the talents they possess an exact monetary compensation. "I know I can play the guitar well, but how much will this talent get me"? Answering this question is by no means trivial because the economic consequences of its possession are linked to a multitude of other imponderable factors. Will I find a good manager? Will my music reach the market at the right time to meet with public favour? Which other musicians will be at work at the same time as I go to market? Just think of the Vincent van Gogh affair to get an idea of the weight that the imponderable can exert.

Given this level of uncertainty, an insurance market would certainly have reason to exist. A tax system that applies rates according to the indication resulting from the different premium levels of the policies that might emerge in such a hypothetical market would be a good candidate for the implementation of redistributive mechanisms capable, on the one hand, of neutralising the arbitrary effects of fate and, on the other, of enhancing the responsibility linked to individual choices. It would be like citizens betting on the possibility of not having a certain talent by paying a premium that is an increasing function of their income.

In order to better understand the impact of a tax system modelled on this idea, let us try to imagine two different worlds: in the first, some individuals are disadvantaged because of their lack of skills and talents and their identity is known to everyone and therefore the economic consequences of this disadvantage will fall fully on them. The second world is similar to the first but, this time, no one knows the identity of those who are disadvantaged. There is an equal probability that every citizen can be. In this second case, everyone will have an interest in mitigating the risks by purchasing insurance. The tax system that Dworkin envisions is nothing more than an attempt to bring the real world as close as possible to this second hypothetical world, which in terms of equality of resources is certainly preferable to the first.

Dworkin, with his discussion of the practical consequences of taking the idea of resource equality seriously, does not only set out to propose a method of operational implementation. He does something more. He promotes a profound operation of cultural change. "It would be a mistake," he writes, in fact, in conclusion, "to suppose that the bizarre attitudes (...) that characterise our society - the ideas that the accumulation of wealth is a sign of a successful life and that someone who has organised his life around this goal is an appropriate object of envy rather than pity, can find support in an economic system that is truly free of poverty and that encourages people (...) to see their bank account simply as one ingredient among others of what might make a life worth living.

Poverty and inequality, Dworkin tells us, have a root and a justification in this culture that would like to convince us that 'a life dedicated to the accumulation of wealth or the consumption of luxury goods - an important part of whose appeal lies precisely in the fact that they are reserved for the very rich - is really a life of value'. A belief that, again in the philosopher's words, is as close as an ideal of life can be to 'naked absurdity'.