Co$t of Inequality (part 2 of 2)
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by Richard Maltzman,
Dave Shirley
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Date
In Part 1 of this post, I introduced the Kuznets Curve (see References) and the main ideas from the October 2018 article How Economic Inequality Harms the Environment.
In Part 2, I’d like to provide more examples and supporting information for the concept and connect it more firmly to project management.
As a reminder, the main point of the article is:
When people who could benefit from using or abusing the environment are economically and politically more powerful than those who could be harmed, the imbalance facilitates environmental degradation. And the wider the inequality, the more the damage. Furthermore, those with less power end up bearing a disproportionate share of the environmental injury.
And as an example of how this manifests itself in real projects, here’s one from The Guardian:
To take just one topical example, particulate air pollution is higher in the poorest 20% of neighbourhoods in the UK. But it’s a common theme. Ask yourself how often a new incinerator (project) is proposed for the middle of a millionaire’s row. People that are better off are simply more able to speak up – or perhaps more accurately, be heard – on things that affect them.
I promised that in this Part 2, I would go into more detail about how inequality is bad for business. Let me provide you this extract from The Borgen Project (Mission: The Borgen Project believes that leaders of the most powerful nation on earth should be doing more to address global poverty. We’re the innovative, national campaign that is working to make poverty a focus of U.S. foreign policy) which should help explain this:
Plainly put, extreme income inequality, such as the kind found in Sub-Saharan Africa and South Asia, cause economic inefficiency. The relatively wealthy tend to save a much higher proportion of their income than the poor. In order to grow economically, a society must have robust rates of consumption. However, if most of the wealth of a country is owned by a very small percentage of its population, that wealth is saved, not spent. These savings are then invested by individuals and financial institutions.
In recent history, excess savings have fueled speculative investments, exacerbating asset price collapses like real estate bubbles, such as the ones that occurred in Spain, Ireland and the U.S. during the 2008 economic crisis. Furthermore, if consumption rates are low due to excess savings, the central bank of a country may lower interest rates to increase the availability of credit, which can further fuel speculative investment. Inequality peaked just prior to the Great Depression of the 1930s and the 2008 financial crisis, contributing to the underlying economic instability which caused those events.
Instead, if the wealth is more evenly distributed among the lower income earners of a society, who spend much more of their income, consumption goes way up. Thus, the poorest individuals, if they are empowered through greater income equality, may drive consumption, opening up new markets and creating increased economic growth.
An article recently published in the Washington Post says,
Inequality hurts economic growth, especially high inequality (like the US) in rich nations (like the US). In 2014 the Organisation for Economic Co-operation and Development, a collective of the world's 35 wealthiest countries including the United States, found that rising inequality in the United States from 1990 to 2010 knocked about five percentage points off cumulative GDP per capita over that period. Similar effects were seen in other rich countries.
“The main mechanism through which inequality affects growth is by undermining education opportunities for children from poor socio-economic backgrounds, lowering social mobility and hampering skills development,” the OECD found. Children from the bottom 40 percent of households (a huge chunk of the population) are missing out on pricey educational opportunities. That makes them less productive employees, which means lower wages, which means lower overall participation in the economy.
While that's obviously bad news for poor families, it also hurts those at the top. If you're a billionaire owner of a retail or manufacturing company, you want people to be able to afford the stuff you're selling. Henry Ford offered his workers high wages not out of any altruistic impulse but because he wanted them to buy his cars.
This also could affect the ability to produce the numbers of project managers needed for the future.
Now, let’s return to the environmental effects of inequality.
Below you see a graphic from the inspirational article that triggered this two-part blog post. In the first chart, you see the relationship between the degree of inequality (called the Gini coefficient) and the number of threatened species. The correlation line is definitely southwest to northeast, meaning that as inequality grows, the effect is a greater threat to species. That may not mean immediate loss – I mean, who needs the triple-banded yellow salamander, right? But in the long-run, as Philip Crosby pointed out with Cost of Quality, this could spell the end of a major crop or the availability of an essential natural resource – one needed to sustain an important business.
In the second chart, you see which factors have the greatest impact on species loss – and there it is again – income inequality is “Pareto’ed” out as one of the top factors.
Source: Scientific American, October 2018
What can project managers do? Seek out meaningful projects. Encourage your companies to look at their own “About Us” pages and find – in their mission, vision, value statements, links to ‘making the world a better place’. I’m sure you will find such in your own organization’s messaging. Hold them accountable and keep them true to their own words. Point out the longer-term benefits of projects that have this aim. On your own, direct your project team to the ‘benefits realization’, post-project continuum that takes place after handover. Does your project provide sustainable economic benefit? Does it consider social and ecological aspects in the longer term?
Simply considering that longer term, in and of itself, is a step forward.
All things being equal, inequality is a biggie!
References:
Article from The Guardian
https://www.theguardian.com/environment/2015/nov/02/inequality-is-not-just-bad-economics-its-bad-for-the-planet-too
Graphics relating GINI and Environmental effects
https://www.sciencedirect.com/science/article/pii/S0921344909002419
More on the Kuznets Curve
https://www.intelligenteconomist.com/environmental-kuznets-curve/
Posted
by
Richard Maltzman
on: November 04, 2018 03:43 PM |
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Comments (6)
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RAJESH K L
Project Manager, PMP| Bharat Electronics, Bengaluru, India
Bengaluru, Karnataka, India
Tamer Zeyad Sadiq
Assistant Cost Manager| Turner & Townsend
Riyadh, Ar Riyad, Saudi Arabia
When will humans get on that lost species list? ;-)
I don't like to be "that guy," but the point of these articles is not going to be received by those who will be able to make the necessary changes. The ones at the top are happy with the way things are and don't want them to change, while the ones in the middle are just trying to hold on and not join the ones at the bottom who can't really do anything to change the situation.
I fear that this will end quite badly.
Damian Perera
Monitoring & Evaluation Specialist| Chrysalis
Mellawagedara, Western Province, Sri Lanka
Humans are born equal with dignity. Yet inequality continues to increase. Projects that target to reduce inequality and promote eduction opportunities and skill develoment of chidren with poor socio economic background can provide a long term and sustainable solution.
Very interesting, thanks for sharing
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