Poverty Is Bad, but Inequality

Poverty is bad, but inequality is not the late professor of economics at MIT, Rudi Dornbusch stated that "poverty is bad, but equality is not." This statement should be understood in terms of the principles of economic capitalism and incentives that drive motivation and profit in modern society. Dornbusch also refers to the fallacy or incorrect view that equates poverty with inequality. The linking of these two elements are common in the world today, especially in less-developed countries that tend to view inequality as a central and concomitant factor in economic poverty. This view has become even more prevalent with regard to the debate and controversy surrounding the impact of globalization on poorer countries in the world. Dornbusch emphasizes that in his view inequality and poverty are not the same and cannot be simplistically linked to one another.

However, Dornbusch's view has to be understood in terms of the way that he defies inequality. He sees inequality as an inevitable and 'natural' outcome of income and other disparities in the modern world. As he states, "...Inequality in the world economy is real. It is there across countries, between the rich center and the poor periphery. And it is there within countries where wages are often highly dispersed" (Dornbusch 1999). He also clearly states that, "Inequality, of course, must not be confused with poverty even though at the bottom they feel the same" (Dornbusch 1999).

This view is related to the perception that counties and societies differ in their income asset distribution as a natural outcome of economic and motivational factors. In other words, inequality is in essence a normal result of the free market economy. He explains this aspect as follows:

In open and competitive markets, wages in any year or for any person may have a large good luck/bad luck component. But surely on average they reflect energy and talent, motivation and investment in human skills. Any society that limits rewards to accomplishment will achieve equality, but it will come on a low common denominator. (Dornbusch 1999)

In this view equality is defined by Dornbusch as a phenomenon that occurs, "... when every citizen is given the full chance to reach his or her potential." (Celimene and Briys)

This understanding of equality remains true "... As long as we do not remain unequal in residual (unwanted) risks. That is as long as inequality is not rooted in pure random events. Otherwise this inequality is bad, a true divide indeed!" (Celimene and Briys).

What Dornbusch is saying in effect is that inequality is a positive aspect that flows from the different talents, motivational elements and market forces that normally occur in a free market economy. He does not view inequality that is a result of outside factors that are imposed, such as discrimination and oppression, in a positive light. Only inequality that results from natural differences and different degrees of individual effort and motivation is considered to be "good." In this regard I would tend to agree with his views.

On the other hand I would also agree that poverty is a "bad" aspect of modern society. Poverty means the lack of opportunity and resources that are always negative for any economy and can lead to economic disruption and social upheaval.