Income Inequality (23): The Fable of Egalistan and Opportunistan, or the Relationship Between Income Inequality and Inequality of Opportunity

Let’s imagine two fictional societies. One – call it Egalistan – has almost total income equality, as well as consumption equality (the latter following from the former). However, people are stuck in their social roles, and there’s very limited social mobility, vertical or horizontal. The quality of education is terrible. No one has any real ambitions, and talents are dormant. However, there’s not a lot of discrimination (otherwise equality would not have been possible) and people with few or negative natural endowments are assisted so that they can come close to the average level of income. This average level, however, is rather low because people are lethargic and the high degree of equality has destroyed economic incentives.

The other society – call it Opportunistan – is very unequal: it has a very high score on the Gini coefficient for income inequality. And yet it provides a lot of social mobility and desert-based rewards, as well as good, inclusive and cheap education, and even a tax regime that doesn’t reward hereditary benefits (e.g. a high “death tax”). It also rewards a wide variety of different talents and allows people to develop their non-mainstream talents and to act on their ambitions. People with relatively little natural endowments as well as people with a handicap are assisted and jobs are reserved for them. There’s little discrimination on any basis, and people are insured against misfortune. This society therefore provides a high level of equality of opportunity. However, this equality of opportunity results in high levels of income inequality, perhaps because some people choose not to earn a lot (so-called threshold earners) or because natural endowments (like IQ or talents) are distributed in a very unequal way.

While Opportunistan is obviously more appealing than Egalistan, I don’t agree that it shouldn’t be improved. Some would argue that Opportunistan has done all it is morally obliged to do and doesn’t need to reduce the level of income inequality. I don’t think so. First, it’s not obvious that Opportunistan can maintain its equality of opportunity. Those with greater wealth and income can provide to their children resources and thus opportunities that the less wealthy cannot. The good luck of being born in a wealthy family – which is probably also a well-functioning family with a good set of values – is hard to equalize with the existing set of policies in Opportunistan. Hence, even Opportunistan will find it difficult to achieve or maintain real equality of opportunity.

So, what can Opportunistan do? Obviously, it doesn’t want to adopt the cruel and unacceptable policy of platonic child redistribution. It would lose its a priori appeal if it did. What it can do is reduce some of its income inequality. A certain level of income redistribution could remove some of the unequal benefits resulting from some people’s good fortune of being born in a wealthy family. This redistribution can, to some extent, equalize this good fortune. If there are less poor families, there are less children growing up with the wrong values or with other sets of hereditary burdens (which doesn’t mean that poor people are poor because they have the wrong values; it means that being poor tends to produce the wrong values, e.g. lack of ambition etc.).

Secondly, Opportunistan hasn’t done enough because high levels of income inequality tend to undermine the functioning of democratic institutions. Those institutions are premised on the equal influence of all voters. Obviously that’s a utopian assumption, but there’s no reason to make it more utopian than it should be. Unequal financial resources produce unequal political influence. And the same argument can be made for the judicial domain.

So, it’s I think important that we don’t delude ourselves on the merits of Opportunistan: equality of opportunity is notoriously ambitious and difficult to achieve and maintain (even though equality of outcome is generally but erroneously considered the more utopian type of equality), and yet it’s not even enough. Reducing the levels of inequality of income is also important, but not all the way towards Egalistan.