Fighting Poverty and Inequality: A Conversation with James Robinson

Editor's note: This story is one in a series,#PolicyForward, that spotlights how faculty, students and alumni at the Harris School of Public Policy are driving impact for the next generation. Leading up to the May 3 grand opening of Harris’ new home at the Keller Center, these stories will examine three of the most critical issues facing our world: strengthening democracy, fighting poverty and inequality, and confronting the global energy challenge.

You’ve done a lot of research on global income inequality. Can you talk a little bit about the variation of inequality in the world and where it comes from?

Income inequality comes from inequality in the distribution of assets and the institutions that govern their returns. Let’s take a look at Brazil. Fifty-five percent of the national income accrues to the richest 10 percent of the population. This is both because the distribution of assets is highly skewed and this is intensified by institutions which make sure that the resulting income distribution remains skewed. The same can be said for other Latin American countries. In the United States, 47 percent of the national income accrues to the richest 10 percent of the population. And while the U.S. has seen a big increase in national income and wealth over the last 30 years, average (median) wages have not changed at all. These disparities have almost everything to do with how the national institutions that govern and make decisions about wealth and income distribute it. And there are big differences in how income and wealth are distributed country to country.

Can you give an example of these differences?

Yes. So it might be true that inequality in the U.S. and Britain is as bad as it was in the 1920s and 1930s, but that is certainly not the case in France or Germany or Scandinavia. This has a lot to do with how those countries redistributed income and implemented public policies, like providing social insurance. In short, they made a commitment to a much more egalitarian society. By contrast, the U.S. and Britain undertook a systematic attempt to dismantle taxes on rich people starting in the late 1970s and early 1980s, under Ronald Reagan and Margaret Thatcher, which resulted in very predictable consequences—namely that the rich got richer and the poor got relatively poorer. 

How has Europe maintained equality better than the rest of the world?

I’d say that it has a lot to do with a greater commitment to an equal investment in education and human capital. The U.S., for instance, supports a terribly dysfunctional system of local public financing for schools. This creates enormous variation in the quality of schools. You have places where for whatever reason poverty emerges. Say it’s a place which formerly produced goods that are now produced in China. Businesses go bankrupt, people are unemployed, the tax base contracts, school quality goes down, children’s education deteriorates and people become trapped in poverty, which gets reproduced intergenerationally. Labor market policy and the rates of return on assets are also factors. The U.S. and Britain undertook a systematic dismantling of trade unions and there has never been any real attempt to allow collective bargaining to negotiate the distribution of incomes. By contrast, support for workers is much more robust in Western and Northern Europe and Scandinavia. 

What is the long-term impact of ongoing inequality?

I’ve said before that the U.S. and Britain have started looking much more like countries in Latin America where you have this enormous disconnect between elites and the rest of society. You have this notion of a fly-over country. When I used to teach at Harvard I’d joke that more people at Harvard have been to Ghana than to Oklahoma. The same thing is true with Britain. Brexit shows the miscalculation of the conservative party and is indicative of how out-of-touch their elites are with the population. I don’t think we are at the same level as Latin America yet, but this sense that large segments of the population are feeling as if they are being pushed to the periphery is very characteristic of unequal Latin American countries and is worrisome. 

Are there particular policies that you consider critical for turning the tide on inequality?

There are a lot of things we can do, but they have to be culturally relevant. The U.S. is very different from Western Europe in the sense that you have this whole ideology of immense social mobility and the land of opportunity. And what’s politically feasible in Sweden is not what’s politically feasible in the U.S. It would be very difficult, for instance, to justify lots of income redistribution in the United States. Education, on the other hand, is all about promoting opportunity and social mobility and every American believes in that. So that’s one thing we could go to work on that is much more politically consonant with the way Americans think about the role of government in society. 

Are there other policy efforts that feel timely and worthwhile?

Healthcare could be possible but it’s challenging. The U.S. has this deep, historically engrained kind of relationship between government and society. It’s a private-public model where the U.S. government outsources many things to the private sector as a way of keeping the state small in society and keeping it under check. Look at how the railways were built in the U.S. Unlike most countries in the world, the U.S. government incentivized the private sector to do it. It’s the same kind of model for health insurance. But the U.S. spends more as a proportion of national income on health than any other developed country yet still has millions of people without health insurance. This sort of flies in the face of the notion of the land of opportunity. So it does seem difficult but I think it certainly has more chance than justifying radical redistribution of income. 

You have said that inequality was caused by populism. Why do you think this and why does it matter?

I said that because I think populism is nothing new. Ronald Reagan and Margaret Thatcher were populists. Look at supply-side economics, that was as unconnected to facts as most of President Trump’s policies. But it is worth recognizing that there are real problems here, of exclusion and the evaporating sense of social mobility. It’s something President Trump recognized and exploited brilliantly. Whatever one may say about President Trump, one should also recognize that there really is a problem here. It’s not just Twitter and smoke-and-mirrors—there is something very real and significant at the heart of it. 

Read more #PolicyForward stories that spotlight how faculty, students and alumni at the Harris School of Public Policy are driving impact for the next generation.