[p2p-research] introducing samuel bowles

[Michel Bauwens]

http://londoncreativelabs.com/blog/2010/3/28/insights-into-economic-inequality-and-job-creation-from-samu.html

Dear Mamading:

this is really well done, could we republish it? and in that case, can you
send the source code?

Michel

 Insights into Economic Inequality and Job Creation from Samuel
Bowles<http://londoncreativelabs.com/blog/2010/3/28/insights-into-economic-inequality-and-job-creation-from-samu.html>
[image: Date]Sunday, March 28, 2010 at 11:39PM

*Editor’s note: This is a guest post from Mamading
Ceesay.<http://twitter.com/evangineer>
*

 Introducing Samuel Bowles

Samuel Bowles <http://en.wikipedia.org/wiki/Samuel_Bowles_(economist)> is
probably the most important economist you've never heard of and it wouldn't
surprise me if he won the Nobel Prize at some point. Given that he's a key
influence on last year's winner Elinor
Ostrom<http://en.wikipedia.org/wiki/Elinor_Ostrom>and that his
intellectual antithesis the market fundamentalist Chicago
School of Economics<http://en.wikipedia.org/wiki/Chicago_school_of_economics>
*"is on the ropes"* as he puts it, that's not beyond the realm of
possibility.

Bowles has spent four decades studying economic
inequality<http://en.wikipedia.org/wiki/Economic_inequality>ever since
*Dr Martin Luther King* asked Bowles and his then colleague at Harvard, Herbert
Gintis <http://en.wikipedia.org/wiki/Herbert_Gintis> to write background
papers for the 1968 Poor People's
March<http://en.wikipedia.org/wiki/Poor_People's_Campaign>.
His studies have given him unique insights into inequality, job creation and
social cohesion, so it is of great interest to London Creative Labs.

Bowles' work is cited a number of times in Eric D. Beinhocker's 2006 book The
Origin of Wealth<http://www.mckinsey.com/ideas/books/originofwealth/index.asp>.
In the Santa Fe Reporter article Born
Poor?<http://sfreporter.com/stories/born_poor/5339/all/>,
Bowles is interviewed and some of his work regarding inequality is
discussed.
Bowles on Economic Inequality and Guard Labor

One key claim of Bowles is that the higher the level of inequality present
in an economy, the more inefficient it is and the less income it produces.
There are a number of reasons that this is the case. One reason is that in
highly unequal societies, the highest ranking members of society have to
expend more time, energy and resources making sure those below them behave
by amongst other things the employment of what Bowles and his colleague
Arjun Jayadev call *guard labor*. Think supervisors, traffic wardens, police
officers and prison guards, which by the way aren't the best paying jobs
around anyway.

Those employed in guard labor aren't creating economic value since they
aren't producing goods and services or running businesses that produce goods
and services. This is a significant opportunity cost in the economy of an
unequal society. That opportunity cost is multiplied by the fact that an
excess of guard labor also sustains *illegitimate inequalities*. This means
those who are on the wrong ends of those inequalities never get the chance
to fully participate in the economy and contribute to society to the degree
they are potentially capable of. Bowles has found that there is a direct
positive correlation between the amount of inequality in a society and the
amount of guard labor it requires.

Bowles and his colleagues have found the single most important determinant
of economic success in America is *"one's choice of parents"*[1]. IQ and
education are much less important in determining one's economic success
despite all the rhetoric saying otherwise. The implications of this for
economic policy, social mobility and social justice are stark. One of the
most disturbing being poverty persisting through generations of a family
despite individual members' efforts to improve themselves.
How to Create Jobs the Samuel Bowles way

According to Bowles, most state-sponsored initiatives for jobs creation
perform poorly precisely because they are designed as tax incentives for
corporations to employ workers. Instead, he proposes giving everyone no
matter who they are a very substantial one-off grant which they could then
spend as they see fit, to further their education or start a business, or
anything else that makes sense to them.

Community Action New Mexico <http://www.communityactionnewmexico.org/> has
run a program for years that approximates Bowles' proposal to some degree.
It has helped 800 New Mexicans set up Individual Development Accounts
(IDAs)<http://www.communityactionnewmexico.org/assets/ida.html>.
After completing a course on money management, the IDA holders have their
savings matched by a multiple of 4 to 1, enabling them to buy a home, pay
higher education fees or start a business. The IDAs have led to 93 new
businesses, 67 home purchases and 110 people in higher education. New Mexico
state's contribution is $2,500 per IDA. Given the number of jobs created by
homegrown, IDA-supported businesses', this approach is about $10,000 cheaper
per job than New Mexico's corporate subsidies.

IDAs fall short of Bowles' vision, because for example not everyone
qualifies; it's not an outright grant, but a matched fund. What if someone
starts a business that fails, buys a house that loses much of its value or
studies what turns out to be a vanishing trade? This is where a radically
reformed social security safety net can come in, as a form of social
insurance that kicks in when one suffers misfortune through no fault of
one's own.

What Bowles is essentially saying is that sharing the wealth causes an
increase in the amount of wealth in the economy, due to more economic
activity and job creation. This creates a larger and more robust tax base
and reduces the benefits bill. Surely policymakers should be not just
investigating but piloting projects based on Bowles' ideas.
Letting the Gini out of the Income Inequality bottle

The Gini coefficient <http://en.wikipedia.org/wiki/Gini_coefficient> is a
measure of statistical dispersion often used by economists as a measure of
inequality of income or wealth. The most recent US Gini income index is 46.4
which puts it on a par with the Philippines a country where every other
person lives on less than $2 a day and Rwanda an even poorer country still
recovering from the genocide 16 years ago. 46.4 is a great increase over the
US Gini income index of 38.8 in 1968 and is quite frankly shameful for one
of the wealthiest and most powerful societies in the world. The US has
become even more of a "Winner takes all" society since Martin Luther King's
day not less.

New Mexico has a Gini income index of 45.7 which is bad enough, compare that
to the District of Columbia which has a truly appalling Gini income index of
53.7 that a third world nation would be ashamed of. Utah in contrast has a
41.3 Gini income index.

According to the Institute for Fiscal Studies report on Poverty and
inequality in the UK: 2009 <http://www.ifs.org.uk/publications/4524>, the
UK's most recent Gini income index is 36, the highest level of inequality
since the comparable time series began in 1961. In comparison, Sweden has a
UN Gini index of 25, Germany 28.3 and in France the figure is 32.7. Not only
is this a poor performance in comparison with its European peers, countries
like Indonesia, Vietnam, Laos, Algeria and Tanzania perform better than the
UK on Gini income indices. Furthermore, 36 is clearly a massive increase in
income inequality since the pre-Thatcher Gini income index of 25. This
long-run increase in income inequality almost inevitably indicates a
long-run increase in poverty in the UK.

The GLA Economics Unit
<http://www.london.gov.uk/mayor/economic_unit>published a report in
2008 on Patterns
of low pay in London<http://london.gov.uk/publication/current-issues-note-22-patterns-low-pay-london>where
it presents Gini income indices for all employees in London and
Outside London covering the years 2002-2005. London in 2005 had a Gini index
of 32.4 and Outside London had a Gini index of 31. Given the most recent UK
Gini index of 36, those figures would clearly be worse now. It's worth
noting that the given figures by definition exclude those whose sole form of
income is benefits and those who are neither in receipt of salary or
benefits. In other words, the most poorly off aren't included.

The Gini income index is far from being the end-all and be-all of income
inequality metrics <http://en.wikipedia.org/wiki/Income_inequality_metrics>.
Its value lies partly in being frequently used and easy to present to
laypeople, it is used for instance by the UN in its' Human Development
Reports <http://hdrstats.undp.org/en/indicators/161.html>. For those of a
more statistical bent, Entropy, Redundancy and Inequality
Measures<http://www.poorcity.richcity.org/>looks like an interesting
resource. It features a Python
library <http://www.poorcity.richcity.org/oei/> that contains formulas
from Amartya
Sen <http://en.wikipedia.org/wiki/Amartya_Sen>'s book On Economic
Inequality<http://www.oup.com/us/catalog/general/subject/Economics/Developmental/?view=usa&ci=9780198281931>.

Other resources on Economic Inequality

It looks like the EQUALSOC <http://www.equalsoc.org/> academic network is
doing potentially relevant and useful work in the area of economic
inequality, the Oxford Handbook of Economic
Inequality<http://www.equalsoc.org/35>is a recent publication based on
their work.

[1] Bowles, S., Gintis, H., and Osborne Groves, M., eds. 2005. *Unequal
Chances: Family Background and Economic Success*. Princeton, NJ: Princeton
University Press


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