Income inequality – Part 1: The moral question

By Benedict Chong

“A society that puts equality before freedom will get neither. A society that puts freedom before equality will get a high degree of both.” - Milton Friedman

LHL Sg Summit 2014 income inequality - ST
Image - STOnline

In a recent dialogue session during the Singapore Summit Conference, PM Lee touched on how “concrete solutions” are needed to “deal” with income inequality. In so saying, PM Lee is advocating a “redistribution” of wealth through government programs aimed at ensuring everyone has “chips to play with”. The rich should contribute more to State coffers through progressive tax systems, the poor would essentially pay no taxes and consequently, every citizen would be better off than before.

Regrettably, such an illusion of universal prosperity constructed by the State is the penultimate nonstarter. Politicians worldwide often trumpet the noble and populist goal of fighting for the “little guy”. Yet, far from lifting millions above the poverty line, governments have instead brought millions down to live a life of destitution through flawed policies. In the end game, instead of unequal sharing of blessings, there now exists equal sharing of misery.

Politicians and academic intellectuals worldwide typically talk a very good game when calling for State policies to tackle and resolve income inequality. Yet, when it came to actual delivery of goods, the results are always never anywhere near a stipulated target and in most cases, counterproductive.

In Singapore, it can even be argued that the cause of burgeoning income inequality is due to government intervention in the economy. The shadow of the State in almost every sector in the economy has very possibly stifled the entrepreneurial spirit credited with lifting the income levels of numerous individuals globally.

The education sector, an undoubted strategic pillar of society and thus tightly regulated by the State, robotically teaches students not how to discover or question authority and the status quo, but instead to accept and recognise it. While obedient and passive citizens may be celebrated as living ‘trophies’ moulded by the State, they ultimately do not exhaust their full economic potential.

In secondary school curriculums, we are taught in Social Studies how government programs take centre stage in helping raise the living standards of the poor, notwithstanding an illusory State belief in individual self-reliance when CPF is itself a government mandated program. In Pre-U economics, we learn about the Gini Coefficient and how keeping it as close as possible to zero is amongst the noblest of tasks undertaken by the State. In such instances, the default premise would be that the government is universally expected to do something for low income earners.

And indeed, socialists and leftists advocating big government agree. They would denounce the capitalist system as rigged with the poor being endlessly exploited. The impoverished are said to never be able open the trapdoor out of poverty due to greedy and cruel corporations who only care about profits at their expense. But such statements do nothing to help the poor, serving only to hold them back by telling them that there is no hope of breaking out of poverty without ‘assistance’.

Such impossibly pessimistic assertions are also propagated by government bureaucrats as an excuse to govern and manage more. Socialist legislators would argue that the rich unfairly receive a disproportionate size of the economic pie, falsely assuming the economy to be a zero sum game when studies point otherwise. The rich actually create more individual wealth by baking more pies for everyone to enjoy.

In a recent article published by Roy Ngerng, he highlighted a most unflattering statistic putting Singapore high on the crony capitalism index. However, Roy did not elaborate on the meaning and consequence of crony capitalism, which this article believes to be the main cause of the economic malaise faced by the Singapore economy today. Examples of such quandaries include falling or stagnant wages and loss of economic competitiveness.

A free market involves voluntary exchange and entrepreneurship, a bastion of free will and morality. It leads to the creation of wealth and value, resulting in a general rise in living standards. Crony capitalism on the other hand involves the indiscriminate use of a coercive State apparatus to display economic favouritism, enforce a zero sum game of ‘redistribution’ to retain political power and ultimately destroying value.

6490813449_f0c51a7cc0There is a pressing need to distinguish between free market capitalism and crony capitalism. The free market has always been unfairly condemned intellectually and politically for excessively growing income inequalities and economic crises such as the recent financial recession when in fact, crony capitalism was responsible.

The crash had led to calls for more government intervention to combat the evil of corporate greed when government policies originally caused and exacerbated the effects of the crash. Economically, such economic interventions increase the likelihood of cronyism, largely explaining why the global economy remains in the doldrums after the banking crisis more than half a decade ago while precipitating an ever widening income gap.

Income inequality is a natural consequence of entrepreneurship. That is undeniable. Yet, to decry the existence of income inequality is to refute the benefits of entrepreneurship. And it is logically incoherent to reject entrepreneurship, given that the individual scrutinising this article would be doing so through a machine created in the image of an entrepreneur.

Since it has already been proven that entrepreneurship raises the general standard of living regardless of distributive fairness, the only plausible reason for a reverse would be government intervention. Government is not only unable to solve income inequality, they actually make it worse. And to compound it, they appropriate resources through the use of force, begetting a question of morality even if it is for the perennial greater good.

It is the very notion of freedom to create and produce that has lifted millions out of poverty; not State redistribution efforts. The State may be helping the poor take the road to success by simply staying out of the way, though inaction would hardly justify unjustifiably high salaries, highlighting the remoteness of such a possibility in Singapore.

Anecdotal evidence from successful entrepreneurs has never before credited government programmes for improving their lives. Instead, the moral virtues of hard work, a can-do attitude and an entrepreneurial spirit were most commonly attributed as reasons for uncommon success.

If legislation was all that was required to lift populations out of poverty, why are there still billions poor today? The answer is simple: There is no panacea to poverty. It all depends on the individual and however much resources the State may confiscate from the more productive for reallocation to lower income percentiles, poverty (and income inequality) remains an unsolved problem in and itself.  Sometimes, doing less may actually be yield greater results and in this instance, that is the case.