Keynote 1 Balancing economic growth and equity goals
Balancing economic growth and equity goals
- Abhijit BANERJEE 2019 Nobel Laureate in Economics and Ford Foundation International Professor of Economics, Massachusetts Institute of Technology
- Richard WONG Provost and Deputy Vice-Chancellor, Professor of Economics, The University of Hong Kong
This session started with Professor Abhijit Banerjee, 2019 Nobel Laureate in Economics and Ford Foundation International Professor of Economics, Massachusetts Institute of Technology, debunking the view that inequality within a country would decrease over time as a country experiences economic growth. In fact, data shows that reductions in inequality began to reverse during the 1980s and that we were now in an era of unprecedented unfairness. He referenced findings by French economist Thomas Piketty who observed a “U” curve – inequality goes down with the economic curve and then comes up. Prof Banerjee also shared that most of the inequality story today is about inequality in capital or profits. Economic theory had predicted that an increase in globalisation and associated international trade would reduce inequality in poorer countries but that has not happened. As people’s spending levels increase, they start paying more for quality and convenience and that creates a natural bias for branding. This, in turn, creates concentration in firms that are effectively able to deliver this quality and inequality goes up.
This also reflects a changing attitude by policy markets to incentivise capital over labour and a shift in enterprise culture that supported higher CEO pay. Responding to a question from Professor Richard Wong, Provost and Deputy Vice-Chancellor and Professor of Economics at The University of Hong Kong, on the role and impact of AI on inequality, Prof Banerjee theorised that inequality may be made worse by the increasing use of AI in the workspace that will uniquely displace the middle class from their jobs and this stratum is also not a focus for welfare models. At the same time, the impact of climate change, which disproportionally impacts poorer countries, has entrenched inequality between countries. The challenge with these inequities is that it hasn’t led to promised economic benefits. Instead, we have seen most of the economic benefits accrue to the rich elite while these inequities have become entrenched as access to new opportunities is increasingly restricted to those that already have structural advantages. For instance, Prof Banerjee remarked that while there is still socio-economic mobility in the United States, it is about half as mobile now as it used to be.
Prof Banerjee suggested a range of possible solutions starting with direct asset transfer (so that those in need are better equipped to help themselves), directly providing public services where they are lacking (such as environmental services) and driving for better governance by giving people a better understanding of their rights. There are also three ways in which philanthropy can help: “innovate” because it is flexible, “advocate” for higher taxes for the wealthy, and “emphasise” by getting involved not just by giving funds. Responding to audience questions on what philanthropies need to be mindful of, he added that philanthropies need to be mindful of the nuances / details in their interventions. He remarked, “Philanthropy can’t just say we will improve gender. We need to say I’m improving gender by taking this step rather than that step.”
Prof Banerjee also called out how the role of philanthropy is to develop a robust data-backed understanding of what solutions work in what contexts and champion those. He added, “Many solutions simply don’t work but we should not be afraid to generously scale those that have proven to be effective.”