“When we begin to focus on welfare-maximization, rather than GDP growth, we will soon realize that helping society’s worst-off, even at the expense of overall growth, is completely justified”
Singapore has one of the highest levels of income inequality in the world. One of the concerns about reducing inequality is that it would lead to an overall decline in economic growth. First and foremost, I don’t believe this is necessarily the case. For example, I argue that the allocation of resources towards helping society’s worst off in order to help them become economically independent can benefit the economy as a whole. However, I will go one step further, and propose that even if allocating resources towards helping society’s worst off leads to lower overall growth, we are nonetheless justified in doing so.
1. Every dollar to the poor is worth more than every dollar to the rich
If we simply look at a nation’s wealth as an indicator of its overall welfare (by this I mean the overall “well-being” of its people), we will miss out on something very important – how the law of diminishing marginal returns makes it incorrect to equate wealth to welfare.
Indeed, more resources leads to more welfare, but how much more welfare each unit of resource generates depends on how much resources a person already has. Once a person’s basic needs are satisfied – food, shelter, work etc. – every additional dollar a person gains leads to a smaller increase in welfare than in the case of a person whose basic needs are not satisfied and who desperately needs the money to satisfy them.
Let’s take an example. A banker who earns $15,000 a month will experience a far less increase in his welfare if we gave him an additional $1,000, as compared to say, if we gave that money to someone who earns $800 a month as a cleaner at a hawker centre. In fact, I believe that if we could choose between giving a banker $1,000 and giving the hawker centre cleaner $400, we should choose to give the $400 to the cleaner because this would lead to a greater increase in the cleaner’s overall welfare, though it would mean an overall decrease in total and average levels of wealth.
Therefore, a society where most of the wealth is concentrated in the hands of a few people can have a higher GDP, or GDP per capita as compared to a society where that same wealth is more evenly distributed, and yet have a lower amount of welfare. If we accept that the ultimate aim of a government is to maximize a society’s welfare, and not its GDP, then I argue that we should help society’s worst off, even at the expense of overall GDP growth.
I also argue that this sort of reasoning applies not only to the context of incomes, or monetary resources, but other resources, such as educational resources. Instead of allocating resources to the best students, we should put more effort towards helping the worst off, since the same resources that would significantly improve the future prospects of our weakest students would have a much smaller impact on our best and brightest, who are already in a much more “comfortable” position, all things considered.
In summary, we need to focus more on the welfare of a nation’s people, not its wealth, when we think about resource allocation.
2. The basic dignity of a functioning citizen
Let us assume that all of us strive, or should strive, to create a Singapore for all Singaporeans – where we treat every individual as an equal member of society, with something worth contributing to our collective identity. What does this entail? First, this does not just mean every person having the right to vote, but having the opportunity and ability to deliberate about means and ends, including the self-confidence to think and judge for oneself. Second, this also includes having access to a wider community which is prepared to embrace them, such that every person has the opportunity to build a network of relationships that gives them the chance to lead a fulfilling life. Finally, this also entails every person having an opportunity to contribute more fully to, and to receive benefits from, society’s system of co-operative production (i.e. the economy). This list is not exhaustive; it is intended to be merely illustrative.
If we accept that this is something worth aiming for, then I argue that in order to achieve this, we need to allocate resources in a manner that ensures that all individuals have, among other things, first, effective access to the means of production to achieve not just a bare minimum, but a satisfactory level of material well-being; second, effective access to the education needed to develop one’s talents and deliberative abilities; and third, having the freedom of occupational choice; and fourth, having the freedom of association.
When we concentrate too much on those already well-off, for example, and not enough on those lagging behind, we may cause them to become alienated from wider society; not just in the material sense, but in the social sense as well. In other words, we deny them the opportunity to develop the dignity of a functioning citizen. This sort of social stratification is not just a “national unity” problem – it is a problem of political morality as well: we ought not as a society, to leave people behind.
While political parties don’t need a 100% vote to win elections and form the government, it is nonetheless incumbent on them as a matter of political morality to take care of the basic needs of 100% of the population, and to secure for them the basic dignity to function as equal citizens, even if this leads to a decline in overall GDP growth.
In summary, having less is not a problem if it means making sure nobody has too little.
One might argue that my logic, taken to the very extreme, would entail re-allocating resources from the rich to the poor, until everyone reaches the same level of wealth, since it is only at this point that it becomes impossible make someone better off without making someone else disproportionately worse off, given that it is only at this point that everyone’s level of marginal utility is the same. This, one might argue, would create a disincentive for people to work hard, since whatever they obtain will be given to someone else who presumably did not work as hard.
This is not entirely incorrect. Recall that the objective I am pursuing is welfare maximization. This means that if excessive re-allocation provides a disincentive for people to work, such that the gain in welfare for society’s worst off becomes smaller than the loss in welfare across the whole because of a non-functioning economy, then excessive re-allocation should not be pursued. In my view, however, existing levels of resource re-allocation today are far from this “dangerous” level of excessive re-allocation. We therefore have scope to do more.
Furthermore, the “disincentive” to work as hard due to the knowledge that one’s resources will be allocated to help the poor is a product of social attitudes – it is a marker of how compassionate we are as a society towards our less fortunate. Perhaps the argument that redistribution leads to lower growth because of people’s disincentive to work is less of a critique of re-distributive policies, and more of an indication that more needs to be done in order to foster a society that is less selfish, and more empathetic towards the less fortunate
One might also argue that, even though, in the earlier example, the $1000 would mean more to the hawker centre cleaner than the banker, it is justified to give the $1000 to the banker, because the banker deserves it more, having provided a service of greater value and significance than the hawker centre cleaner. I disagree with this argument. Even if we assume that a banker’s contribution to society is more valuable and significant, we must be wary of jumping to the conclusion that the banker deserves everything he earns, just because of that. If we define “deserving” something as achieving something not as a result of luck, but personal effort, then it is difficult to say we deserve much of what we accomplish, since, with the exception of several outstanding cases, most people’s success are a product of the resources they had at birth, and the environment they were brought up in. These are things that we have no control over; so we must often ask ourselves: how much of what we have is truly deserved?
Finally one might ask: what do you mean by a satisfactory level of wealth? How much must a person have to not have too little? There is no ‘right’ answer to this question. It partly depends on how generous we are as a society. However, I do believe that at the moment, our society’s worst off are far below this level.
I therefore argue that the very often-repeated proposition that helping society’s worst off is not justified if it leads to a decline in overall GDP growth is wrong. I also argue that an approach towards governance that puts GDP growth as the only item, or even as the top item on a government’s report card is flawed. The aim of a government is to maximize overall welfare, and it is wrong to think that this is synonymous with GDP growth (though they are by no means unrelated).
As a final point, I acknowledge that there are other arguments in favour of reducing inequality that are related to the intrinsic good of equality, and the concept of luck egalitarianism. However, in order to keep this article short, I have not discussed them. For the same reasons, I have not discussed specific policies. Instead, my focus here has been on welfare-maximization as a matter of political theory, and how the government has a duty to reallocate resources to society’s worst off, even at the expense of overall GDP growth, in order to deal with the proposition made by some people that this is unjustified. In any case, I believe that right now, in terms of re-allocating resources to help our society’s worst-off, we can still afford to do better.
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Photo credit: Straits Times
One reader has accused me of advocating for a welfare state. I found this interesting: this is because, if by “welfare state”, we mean a state that takes care of its citizen’s welfare and aims to maximize it, then can anybody seriously say they don’t want a “welfare state”?