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Rich-Poor Divide At Worrying Level

Tuesday, January 8, 2013 - 00:00 -- BY DR ALEX AWITI

Globalisation and the eruption of new inventions have transformed the world economy, narrowing the gap between rich and poor economies. There is every indication that overall, the planet is becoming more equitable. However, growing inequality within countries is emerging as one of the biggest challenges of the 21st century.

Kenya is one of the most unequal countries in Africa. What we see in Kenya today is analogous to America’s “Gilded Age”, when like America’s robber barons, Kenya’s business and political elite as well as kleptocratic public officials are accumulating nauseating wealth. Consequently, the rising gap between the rich and the poor in Kenya is worrying. It is already constraining the development consumer markets as purchasing power becomes concentrated among a small elite. The richest 10.0 per cent of households spent on average 14.3 times more than the poorest 10 per cent of households in 2011.

It is disheartening to see how tone deaf and out touch Kenya’s political class has become to plight of the ordinary Kenyan. We all recall with disgust the attempt by our members of parliament to award themselves a hefty pay package. The hefty retirement packages proposed for the president and prime minister are downright revolting. Moreover, our politicians, including the president and the judiciary have refused to tackle corruption and abuse of office.

The heart-wrenching inequality and conspicuous consumption we see today is not the product of meritocracy. Huge sums of money are siphoned from public coffers through politicians and their acolytes and civil servants. The bewildering wealth and conspicuous consumption we see today has little to do with entrepreneurialism. It is no coincidence that some of the wealthiest individuals in this country have served in in the civil service or held senior cabinet positions or have been government contractors.

Experts have argued that some inequality is beneficial to the economy by stimulating business opportunities in the luxury and budget goods sector. However, inequality can affect social stability; stifle expansion of the middle class and the country's economic growth potential. The history of Latin America is instructive; societies controlled by wealthy elites do not do very well. In my view, inequality in Kenya has reached a stage where it could stymie economic growth and undermine social cohesion.

Kenya’s rising income inequality could undermine Vision 2030. The staggering income gap could append social discontent, exacerbate petty and violent crime thus undermining investor confidence and adversely affect economic growth. In their book, The Spirit Level: Why Equality is Better for Everyone, Richard Wilkinson and Kate Pickett argue that inequality can result in non-income disparities in health and education outcomes, further undermining public investment in poverty reduction.

Inequality at the scale we see in our society today leads invariably to unequal opportunity especially in early childhood development and educational attainment. About three decades ago, children born in poor families could go to school get a decent education in a public school and get ahead. Today social mobility is gravely curtailed; the gap in educational attainment between middle income and poor Kenyan children is about 40-60% wider than it was about three decades ago.

The gulf between rich and poor in Kenya must become an issue of serious social policy discourse. In the US and Great Britain, concern about the gap between the rich and the poor catalyzed an avalanche of social policy innovation: Theodore Roosevelt considered himself a steward of the people. He fought through trust-busting to reduce the control of big business over the US economy; UK Chancellor of Exchequer David Lloyd George’s 1909 budget was called “the people’s budget” because it provided for social insurance.

Roosevelt’s trust-busting and Lloyd George’s people’s budget marked the beginning of progressive taxation and government funded safety nets with the aim of making society more equitable. Our politics and social policy priorities must shift responsively to mitigate social inequality and build more equitable society without executing socialist-style wealth redistribution.

Policy tools needed to reduce inequality include a progressive tax regime to raise more money from the wealthy and close loopholes the rich exploit to evade taxes. Moreover, we could learn from the biggest cash transfer scheme – Bolsa Familia. Since 2003, 12 million Brazilian families have joined the scheme and receive around $12 a month. Inequality has been cut by 17 per cent in just five years and poverty rate has fallen from 43% to 29%.

Equitable distribution of wealth and opportunity must occupy the center of our collective conversation, especially in this election period. And more importantly, the next government must deal robustly with the greatest purveyor of inequality: political and ethnic cronyism as well as corruption in public procurement and contracting.

 

Dr. Awiti is an Ecosystems Ecologist based at Aga Khan University in Nairobi.