Throughout the history of humankind, there has been inequality in every aspect of life and society. There has been much debate about how to end or lessen inequality. However, seldom has an argument been made for the benefits of inequality. In order to completely abolish inequality, every person in society would have to be treated on an equal level. Every individual would have to have equal consideration in politics, regardless of wealth or connections. Every individual would have to have an equal share of wealth and authority. Every individual would have to be treated equal to every other individual by every other individual. Only then would inequality be gone. That society has never existed, and likely cannot exist. Another important point to consider is the source of the inequality. Inequality of opportunity, where a person has less opportunity to an education, is more harmful than inequality from varying levels of intelligence, skill or qualifications. Some forms of inequality have beneficial effects on society as well as harmful effects, and these beneficial effects outweigh the harm that comes with them.
Inequality has certain benefits to society. In nearly every relationship between people, there is generally a leader, and then there are followers. This relationship structure allows the group of people to act and react in an organized manner. The guidance of the leader enables the group to undertake larger projects that benefit the group as a whole (Perkins, 2014). One example of this type of benefit is the Theodore Roosevelt Dam in Arizona. The construction project that took place from 1905 through 1911 and employed thousands of construction workers from all over the world. This project provides irrigation water for the agricultural industry of Arizona, as well as drinking water and electricity for a large portion of the state (The Salt River Project, 1996). Two more examples are the Panama Canal finished in 1913 and opened in 1914, and the Suez Canal which opened in October 1869. Both of these were multinational projects that have benefited the shipping industry for a hundred years or more. The canals allow cargo ships to shorten their voyages by thousands of nautical miles by not having to sail around the southern tips of South America or the Cape of Good Hope. Every man, woman and child in any developed country has benefited from these canals with lower cost of purchasing goods in their local markets. These projects would not have been possible if there was no person in a leadership position over the workers that constructed these marvels of engineering. These projects required some person to have authority over other people. There was inequality, which rewarded the world.
In the world of employment, some people are reimbursed more for their time than others in the form of a higher wage. This inequality, for the most part, reflects the productive abilities of each worker. If a worker is capable of performing tasks that bring the employer more revenue than another worker, that worker is generally rewarded with a higher wage. This acknowledges that not all employees are created equal. Some employees, through experience, education, or a combination of the two are more valuable for the employer’s profitability. This places an incentive on the employee to work hard to be more valuable to the employer. They have reason to put forth the effort to educate themselves, to become a better employee. They get rewarded with a larger paycheck.
That very same incentive drives an entrepreneur to start a business. The desired reward for the entrepreneur is a pile of money. Granted, that is not the only motivation to work hard, or to start a business, but it is a powerful one nonetheless. Eight out of ten new businesses fail (Wagner, 2013). That is a staggering statistic. An eighty percent failure rate puts a huge amount of risk on the prospect of opening a new business. However, entrepreneurs open new businesses every day. The incentive to face such daunting odds is the prospect of the payoff at the end. If you remove that possible payoff, there is much less incentive to take the huge risk. It was this monetary payoff that motivated Bill Gates to open a little software business called Microsoft. It took many years to achieve the level of success he enjoys today, but if you were to ask him, I imagine he would tell you it was worth the risk. This obviously creates inequality between the super rich such as Bill Gates and the mere mortals that purchase his products, but this inequality is his motivation to work hard and succeed.
That little software company grew to be a giant, and now employs thousands of people all over the world. These employees range in salary from the highest executive officers to the custodians that clean their offices. But one thing makes them the same. They are all employed because Bill Gates took the risk. They get a paycheck, not simply because of their time, effort and hard work, but because Bill Gates built a corporation with sufficient revenues to pay them, as well as line his own pockets. This is often referred to as the trickledown effect. Because Bill Gates created Microsoft, there are thousands of positions available for software developers, systems administrators, executive officers, and even custodians. The wealth generated by Bill Gates is shared with the employees that helped him generate it. Then, each of his employees takes that money and spends it in the marketplace on things they need to live, such as housing, transportation, food and entertainment. The money generated by Microsoft pays the paychecks of the store clerks who have never been employed by Microsoft. This effect can be traced several layers down away from Microsoft.
However, inequality has its dark side as well. There are several examples of how inequality can be harmful to individuals, and even society as a whole. One such example is the concept of a monopoly (Pettinger, 2011). If a business or individual has a monopoly power over some resource or market, they can hold the prices too high for the common people to pay. Even politicians with strong views on minimal government oversight agree that monopolies have to be regulated. You cannot have a free trade economy without some form of protecting the little guy’s right to be competitive.
Another example is if a firm has monopsony power. This occurs when a business has the power to hold market wages below the competition (Pettinger, 2011). This means that the employees are paid lower than what they can be expected to live on. An employer may be motivated to reduce wages to increase profits, and can lead to a much more pronounced unequal distribution of wealth.
Income has a diminishing marginal utility. This is a fancy way of saying that the first $1,000 of income has a large impact on one’s quality of life, while every subsequent $1,000 of income has a reduced affect on one’s quality of life (Pettinger, 2011). If a gift of $1,000 is given to a homeless person with no money, it will significantly change his situation, even if temporarily. Give that same gift of $1,000 to a multimillionaire, and that person would not notice any change in living standard. The rich that keep getting richer at the expense of the poor are not experiencing a change in living standard significant enough to justify the damage that loss of resources causes to the poor’s living standard.
There are certain social issues that rise out of inequality. Many people with lesser means hold resentment or anger against people with greater means. This friction between classes of socio economic levels has led to riots, property damage and even loss of life. People of all levels in society lose out when this happens. Often the friction is exacerbated by the perception that the unequal distribution of wealth is unfair; i.e. monopoly or monopsony power, or diminished marginal utility.
In closing, although inequality has harmful effects on society, some of those being unequal power through monopolies, monopsonies, and the diminished marginal utility, there are also a great many benefits society gains from other forms of inequality. To abolish all inequality would be to dismantle society as we know it, and remove a large portion of the incentive for employees to better themselves, or for entrepreneurs to take the risk of starting new businesses. The focus on inequality is often centered solely on the harmful effects of just a few types of inequality. These are deserving of attention, and should be addressed, but they do not represent the whole of inequality. Much good is also achieved by inequality. Much care has to be taken to keep the incentives in place for our workers to educate themselves, to become better employees, and for entrepreneurs to take the risks of business. Steps must be taken to ensure equality on principles of humanity, but with respect to gains of higher levels of employment or business, let the more productive members of society have their reward. Let them have their shiny cars, big houses and fancy vacations. Such is the driving force of our society.
Perkins, S. (2014, August 5). The benefits of inequality. Retrieved October 23, 2014, from Science Magazine: http://news.sciencemag.org/evolution/2014/08/benefits-inequality
Pettinger, T. (2011, October 18). Pros and Cons of Inequality. Retrieved November 5, 2014, from Economics Help: http://www.economicshelp.org/blog/3586/economics/pros-and-cons-of-inequality/
The Salt River Project. (1996). Theodore Roosevelt Dam. Retrieved October 24, 2014, from The Salt River Project: http://www.srpnet.com/water/dams/roosevelt.aspx
Wagner, E. T. (2013, September 12). Five Reasons 8 Out Of 10 Businesses Fail. Retrieved November 5, 2014, from Forbes: http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/