Inequality

A couple of weeks ago, The Economist carried a leading article and a special report on inequality. In The Economist terms: “inequality has reached a stage where it can be inefficient and bad for growth”. The recently published 2012 Global Risks Insight Report of the World Economic Forum features “severe income disparity” amongst the most likely global risks (at p. 11). It is also described as a “critical connector”, linking to other key risks like failing global governance, chronic fiscal imbalances, critical systems failure, and unsustainable population growth (p. 14). A 2011 OECD Report entitled Why Inequality Keeps Rising also documents a persistent increase of inequality. Severe inequality is a trend of more than two decades, but the current economic crisis has made it worse in many ways. In its 2012 World of Work Report the ILO provides some stark figures: “around 50 million jobs are missing relative to the pre-crisis situation”, and “[y]outh unemployment rates have increased in about 80 percent of advanced economies and in two-thirds of the developing economies” .

Lead Economist of the IMF and author of an acclaimed book on inequality (The Haves and the Have-Nots: a Brief and Idiosyncratic History of Global Inequality), Branko Milanovic, provides a helpful overview of how economists see the notion of inequality (Finance & Development September 2011, Vol 48, No. 3: ). He reaches a conclusion also reached by The Economist, with two contradictory movements:

[R]ising inequality within each country increases global inequality, but high rates of real income growth in poor countries, and especially in gigantic countries like China and India, reduce global inequality.

So, while global inequality may be increasing less or may even be on the decline in places, inequality within countries is a huge problem that is not being tackled.

I have always considered it a key feature of rule of law that it mitigates inequality. On a larger scale: a group of citizens can organise the adoption of a rule or standard that curbs the power of the powerful and that limits their freedom to act in the name of an accepted social good (a minimum wage level, a prohibition of the recruitment of child soldiers). At the personal level: somebody with little power – a wageworker in an assembly line – has a mechanism through which a grievance towards his powerful employer can be addressed. Of course, law does not do this by itself. Underlying law that mitigates power must be an idea that power must be mitigated. So, besides a ‘law’ problem, we obviously also have an ‘idea’ problem. But let us focus on law.

Globalisation, Thomas Pogge argues, enhances the powers of elite players relative to the vast majority of ordinary citizens. The elite players are defined as:

powerful organisations, including large corporations, banks, associations representing very rich individuals, that have resources and incentives, and can require requisite expertise, to successfully lobby those stronger governments that dominate supranational rule making. (A Future to Avert: Law as a Contributor to Instability and Polarisation, at p. 58).

Klabbers writes:

[g]lobalisation seems to have bypassed the discipline of international law completely, and to the extent that international law covers the global economy, it does so in support of the mayor players rather than the poor and dispossessed (The Ideas of International Law, same, at p. 71).

The World Economic Forum 2012 Global Risk Report writes that “[e]xisting processes for setting regulations tend to focus on specific industries, sectors, or actions, and are often over-complicated, inadequate, fragmented, and slow to respond…” (at 20).

So law does not seem to be fulfilling a major function. Globalisation is clearly a complicating factor. Inequality is mainly increasing at the national level, within states. It is also at that more immediate national level that citizens look when they want to improve their situation. However, the ability of that same national level to control events and impact of things that happen is clearly diminishing.

So there is a lot to be concerned about. Current state-based ideas on organizing rule of law as a mechanism for rule making and enforcement that mitigates inequality, clearly no longer suffice, most certainly at the global level. At yet the ability to mitigate power is connected with the very belief in rule of law as something useful.

It is good to see that at the level of ideas many leading institutions are looking at inequality as an issue of great concern. What are some of the law of the future ideas out there? Klabbers argues that international law should be further developed as something that “affects the lives people, not just states and other actors”. Hence, when national laws on tax, migration and labour law support a race to the bottom, international law should act to include those fields under its blanket. Pogge sees hope in the “moralization of supranational rule making” based on “agreement on the great scourges that all have a shared interest in banishing” – including severe poverty, which would guide towards greater coherency in rule making and act as a constraint on lobbying. The World Economic Forum Global Risk Report advocates for “anticipatory governance” (real time monitoring in the direction in which innovations evolve (…) defining safeguards flexible enough to be continually tightened or adapted in response to emerging risks and opportunities”. In a Trend Report entitled Rulejungling: When Law Making Goes Private, International, and Informal, HiiL concludes that more informal, more private, less hierarchical, and more contractual rule making can also offer competition between rule makers and enforcers that gives citizens more choice to address grievances.

Growing inequality is on the agenda, and that is good. We know from history where it can lead. However, the state and big corporations will not by themselves act to enlarge the blanket of international law or to moralize it more. Governments will not adapt to anticipatory governance just like that. Competition between rule makers and enforcers will only emerge if it is used. Law can support both equality and inequality. Brown vs. Board of Education and many other examples show: equality only wins if it is invoked. But it also shows: law can be a powerful tool. So the analysis of the Economist, the World Economic Forum, others should be a call to innovate and invoke. Inequality is a huge contemporary issue. Good rules are one of the best ways to ensure that a powerful player can be assured that when he gives something up, others will as well.