Income inequality is one of the most talked about subjects in the American media since the outbreak of the financial crisis and the Occupy Wall Street movement. A year ago we were all forced to deal with the understanding that we are one of the 99%, hence we do not own 35% of the wealth in the US, 21% of all income doesn’t go to us, and our income did not increase 392% in the last 20 years. Occupy Wall Street Activists came out, demonstrated, and demanded a more equal distribution of wealth and income, but not much has changed since then.
I recently heard on a radio show a professor of economics stating that income inequality is an inevitable social and economic phenomenon. He mentioned that all we need to do is look back in time and see. His statement sparked my interest. Could it be that millions of people around the world, including me, collectively forgot what they had learned in history class? Apparently so…
A study conducted by Sitabhra Sinha and Nisheeth Srivastava from the Institute of Mathematical Sciences in Chennai, India finds a connection between the hierarchical structure of most societies, throughout history, and their income distribution. They analyzed top-to-bottom income ratios in ancient and modern societies. Their analysis revealed that what is true about today’s income inequality also existed in Byzantium between the 10th and 11th centuries, the Mughal Empire in India during the 15th century, and Indian IT companies in the 21st century. They conclude that income is a resource flowing down the hierarchically branched structure. However, the flow is not linear. It is skewed and it grows exponentially as it goes up the pyramid.
Even though this research gives income inequality a historical and mathematical framework, it proves again that hierarchical society structure is at the main reason for inequality in general, and income inequality in particular.
According to Robert Michels’ “Iron law of oligarchy,” hierarchically organized institutions emerged together with larger, denser populations where decisions could no longer be effectively made by consensus. Democracy and centralization, along with bureaucracy, allow the organization to operate effectively and grow. However, those same things lead to hierarchy, as the power remains in the hands of a few. Those few, who gained power by the hierarchal structure, will actively operate to consolidate the inequality.
Does that mean we have to accept the fact that the power is already “taken”? I say no. Michels claims the people feel a need to be led and therefore are willingly giving the power to others. That claim might have some truth to it, but last year’s events prove that people are starting to change their views. Technology advancements, the Internet, social networks, and the media (to name a few) have allowed people around the world to gain some of that power back. However, we need to stop and ask ourselves how that newly gained power should be divided and where it should be channeled to. We, as a society, must be careful not to perpetuate inequality by taking the power for one oligarchy and giving it to another.
Small businesses have the power to make that shift. We first need to accept the fact that pure capitalism will not take us to where we want to be. Instead, creating business communities, co-operatives, and allowing each business to exploit its comparative advantage to the fullest is a step in the right direction. Communities like the one being built right here at SohoOS are a prime example for how our economy and society can be if we choose solidarity over hierarchy.