This article is re-published from The Conversation Indonesia (TCID)
Last month, Oxfam released its annual inequality report at the World Economic Forum in Davos, Switzerland. This year’s report, titled “Reward Work, Not Wealth” highlights how the global economy enables a wealthy elite to accumulate vast fortunes while hundreds of millions of people struggle to survive on low wages.
Athia Yumna, a senior researcher at the SMERU Research Institute who specialises in inequality issues, spoke to one of the report’s authors, Max Lawson, Head of Inequality Policy at Oxfam International, to discuss the report’s key messages and explore its relevance to Indonesia.
Athia: So, this year’s report highlights the theme of work and how we fight increased inequality by encouraging decent work. Is that the main message?
Max: Yes, exactly right. We know from the experience of countries like Brazil, and now quite excitingly Korea as well, big increases in minimum wage can make a big difference to inequality.
There’s a great graph in the report, which we got from fantastic work done by the International Labour Organisation (ILO) in Asia. When you look at the compliance rate of minimum wage as well as that between women and men, there is a huge variation between countries and it is clear you need more investment in higher minimum wages and enforcement of minimum wage to make a big difference.
The other thing that really stuck with me in producing the report, was the human cost of these things. In Bangladesh, women workers don’t drink enough water in very hot conditions because they don’t want to go to the toilet [as they avoid toilet breaks to fulfil their work target], and it is quite common to have infection as a result. In the US, you have stories of poultry workers wearing diapers to work.
Chart: The Conversation Indonesia Source: Credit Suisse Global Wealth Databook
Athia: What is the aim of launching this report in Davos [at the World Economic Forum]?
Max: The main reason for launching this report around Davos is not because we think that the problems of the inequality crisis would be solved by the people of Davos. We think the inequality crisis ultimately will be solved by progressive politics and the power of ordinary people to demand change.
But by using the Davos event, where media focus on the richest people, the business and political leaders attending this meeting, and the world’s awareness of that, [there] is an opportunity to show that the problem is getting worse.
I think my favourite statistic in the report is that billionaire’s wealth is increasing six times faster than wages. It illustrates the thesis of Thomas Piketty’s book “Capital” - the idea that if wealth is consistently growing faster than income then your inequality crisis is getting worse.
Athia: What have we learned from past inequalities of the 19th and early 20th centuries? Is there any distinct characteristic between the past inequalities and what we face today?
Max: I think what’s clear is that inequality isn’t inevitable. History shows us it can be reduced in a peaceful way through progressive politics, or sadly, more often through war or serious conflict.
If you look at the progress, firstly in the US after the Great Depression and then in Europe straight after the second World War, and then if you look at the nature of growth in countries like Indonesia in the 1950’s to 1970’s, it was very inclusive.
But contrast that with the growth that we’re seeing today, again in Indonesia and elsewhere, where the majority of growth is going mostly to the top [income bracket]. History showed us that this [reducing inequality] is what the West did in the 1950s and 60s, Latin America has done it in the last 10 to 15 years and others are doing it as we speak.
Source: Forbes/Forbes Indonesia
Athia: What are the new policy recommendations in the report?
Max: I don’t think there is anything massively new because for a long time we’ve known what the right thing to do and we just need to see how come. So, there is element of repetition which can always come in.
I think what’s interesting in the report is some companies stop paying dividends to shareholders until they can show there is a living wage throughout their supply chain. We certainly have not seen that before.
Limiting the ratio between the highest and lowest paid employees is also interesting. We’re exploring new business models in which companies can operate in a way that aren’t making the problems worse.
We use the example of Mondragon, a big multinational company in Spain, that manages to pay its boss no more than nine times its lowest paid employees. There are examples of successful companies that operate in ways that reduce inequality rather than increasing it.
But, in terms of recommendations, it’s basically the same: The rich have to be taxed more and the poor need to be paid more.
Chart: The Conversation Indonesia Source: Asia Floor Wage
Athia: What can Indonesia learn from other countries that have successfully progressed their tax policy?
Max: If we look at across the region, you’ve seen countries that are introducing good tax policies: inheritance tax in Thailand, it’s not perfect but it’s good to see; or property taxes implemented in Cambodia.
In 10 years time, I want to see great taxation and wealth and that can mean direct wealth taxation but it can also mean capital gains tax, property tax or inheritance tax. I think there is scope in doing that and various developing countries are already doing that.
Investing in collection is the first thing we can do. I think tripling the budget for tax enforcement and collection can also make a huge difference.
Athia: What’s your main suggestion for Indonesia to tackle inequality?
Max: I don’t think there is one country that offers a blueprint for any other country. Obviously, tax is incredibly important but I think in terms of Indonesia, the basic principle is that within next four to five years, the tax to GDP ratio could be increased by 4 to 5%, done as progressively as possible.
I think it’s quite reasonable. That additional revenue could double your health budget, have huge implications for public spending, and in turn, massively impact inequality.