In my opinion the real cause of our existing or income inequality for 3 reasons:

• Wealth inequality
• The taxation system
• Education

Wealth Inequality

Wealth inequality is something that has been less talked about in comparison to income inequality and is the lesser studied than the more prevalently quoted and shared income inequality. However, it is in my opinion that a person’s relative wealth and that of his parents play a greater role in determining his future outcomes rather than income. Wealth is transferable from one generation while labour is not, this means that although your parents work effort is not transferable across generations but their wealth does. To simplify things, it largely means that it doesn’t matter how much your parents made in their lifetime but how much they transfer to the next generation that will determine the economic and social outcomes of future generations. Families with large residual wealth continue to remain at the top of the income pyramid largely because governments do not have an incentive to break-up socio-economic monopolies in the same way they have an incentive to break-up corporate monopolies.

Taxation

The current tax structure is skewed towards income generated from labour, taxes on consumption and taxes on vice. These taxes largely impact the working class or the labour class that make their living from either their physical or intellectual labour. While at the same time exempting and reducing the taxes on investment income, whether measured or speculative.

The fairness of taxing more lightly incomes from wages, salaries and professional services than the incomes from business or from investments is beyond question. In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it. In the other, the source of the income continues; the income may be disposed of during a man’s life and it descends to his heirs. – Andrew Mellon, 49th United States Secretary of the Treasury

What this current income tax structure encourages is a pursuit of the quick buck in the financial markets at the expense of people building up their expertise, knowledge or skillsets in any particular field of labour. In the past where economic station was a symptom of meritocracy and a persons contribution to society, today it has been diminished to financial machinations of those that have been entrenched in the wealth class.

Furthermore, the current talk with regards to income inequality also focus on the income tax, and there are calls to further increase the income tax on the highest earners of our society without actually defining what source of income should be taxed. That to me seems like a short-sighted attempt to fix the problem. It certainly provides the perception that policy, political parties and the government care about reducing the gap, without actually doing anything about reducing the gap.

The growing wealth gap (which then fuels the income gap), will further diminish the power of an open and meritocratic system where people move up the economic and social ladders based on their abilities and skills instead of the wealth of their predecessors.

Education

The current education system is largely an academic one that focus on bringing out the academic best in the kids. However it is largely one-dimensional as it is essentially testing children on whether they would make good academics and do well in the future in university. Although that is to some extent important it chastises and demoralises students that are good at every thing else except the academic pursuit. This is ultimately true of any meritocratic system as certain traits are selected and celebrated, but that certainly doesn’t make the people that succeed in such a system better than everybody else, it merely highlights the right people that society needs for a particular set of jobs and work. As society and the economy changes so to will any meritocratic system and thus the education system unless it is impeded by society itself that is focused on beating the system rather than constantly tweaking it to get the best out of the people we have.

For the children and people that are unable to succeed and shine in such an educational system, other paths should be created for them to be able to express their innate abilities and gifts as well. Just because we don’t value their gifts and contributions on the same national level that we have selected for, it doesn’t mean that those gifts and contributions will always be not selected. Any country looking to build up it’s human capital has to be able to accept that it will be training and equipping people for jobs and occuptions that might not always provide the highest or greatest public good at that moment in time, as there is always a need to build a buffer into the system so that there will always be highly talented and skilled people able to grab at opportunities as society’s priorities change. And this has been something we have largely been unable or have not wanted to do.

What’s Next

A few things that I have learnt over the years with regards to meritocracy:

1. What society wants is always changing and the system (unless impeded) changes organically as well.
2. Existing systems in place have to be able to encourage social movement and not impede it.
3. Politics and policy are often confused and the perception in politics is used to justify real policies.
4. Everybody has value. But not everybody may have the same value to society.
5. Every successful system needs to be constantly improved on.

– #thebumblingtechnocrat