Brazilian and U.S. Inequality: The Shrinking Gap

Sam Pizzigati

Luxury fortresses. Armored cars. Helicopter commutes. The abominably unequal ‘good life’ may be closer than you think. Meanwhile, in South Africa . . .

A dozen years ago, Brazil ranked as the world’s most unequal major nation. Brazil’s most affluent 10 percent were grabbing nearly 50 times more income, on average, than the nation’s poorest tenth, over double the U.S. gap.

Amid this intense inequality, affluent Brazilians found themselves spending $2 billion a year on private security. Kidnappings in São Paulo, Brazil’s largest city, became so common that some plastic surgeons started specializing in ear reconstruction. The reason: Kidnappers had taken to including cut-off ears with the ransom notes they sent their wealthy victims.

Over in Brazil’s second-largest city, Rio de Janeiro, carjackings were taking place so often that police were assuring well-heeled drivers they wouldn’t “be fined for running red lights at night.” Thousands of those drivers took no chances. They armored their cars, typically at $35,000 per automobile, or commuted via helicopter from fortified home to fortified office.

Could an inequality this stark ever take root in the United States? Luxury fortress life, suggests new work from the Brazil Center at the University of Texas, may actually be closing in upon us. If current trends continue, Center director Fernando Luiz Lara calculates, the United States will probably “be as unequal as Brazil” before the end of President Obama’s second term.

Two trends are driving this “convergence.” The first: Brazil’s most desperately poor have become less poor. New government social programs have halved the number of Brazilians living in “extreme poverty.”

The second: Income in the United States has continued to concentrate. Since 2009, the latest stats show, top 1 percent incomes have jumped an average 11.2 percent. Bottom 99 percent have slipped 0.4 percent.

Economists typically measure inequality with a statistic called the “Gini coefficient.” A nation with all income divided equally would have a Gini of 0.0. The reverse, one person grabbing everything, would leave the Gini at 1.0.

The world’s most equal nations have Gini ratings that hover around 0.3. Outrageously unequal nations hover around 0.6. Brazil’s gap has dropped from that 0.6 to just over 0.5, and the U.S. Gini, just 0.35 in the early 1970s, now sits at 0.477. The current trajectory, notes Fernando Luiz Lara at the University of Texas, has both nations converging at just under 0.5 by “2015 at the latest.”

Neither nation, unfortunately, seems likely to nudge the Gini needle down from there, mainly because neither nation has made much progress shrinking the income share that goes to the richest of its residents.

Wealth and income in both Brazil and the United States remain concentrated at the top. And with that concentrated wealth comes concentrated political power, enough power to derail policy moves that might roil the rich.

And what sort of policy moves might do this roiling? A neat list has just surfaced in South Africa, where working families are struggling to get by in a society that may now rate as the world’s most unequal major nation.

In South Africa, as in the United States and Brazil, elected leaders these days are talking cutbacks in the public services and benefits that help narrow gaps in income and wealth. But COSATU, South Africa’s labor federation, is pushing back, demanding no more squeezing on South Africa’s poor.

COSATU wants more money invested in jobs, health, and education. And that funding, says the labor group, should come from tax initiatives ranging from a new tax rate on the super rich to a “solidarity tax” to “cap the growth of earnings of the top 10 percent and accelerate the earnings of the bottom 10 percent.”

COSATU is also seeking a new “land tax to aid the process of land redistribution” and a stiff tax on financial transactions to “encourage productive investment” and “discourage hot money.”

In South Africa, COSATU adds, top CEOs are averaging 1,728 times the average income of South African workers. COSATU is calling for a new tax on firms that continue to be “stubborn in closing the wage gap.”

And to fight “wage theft,” an escalating problem in the United States as well, COSATU is demanding a tax on firms that pay below the statutory minimum and “the distribution of such tax proceeds back to the workers concerned.”

Fernando Luiz Lara from the University of Texas sees one possible plus from the impending inequality “convergence” between the United States and Brazil. Americans, he notes, “will probably be quite disturbed (and correctly so) by becoming as unequal as Brazil.”

This embarrassment, suspects Lara, just might “trigger a national conversation” about how to move toward greater equality. If that conversation takes place, maybe COSATU should sit at the table.

Labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, writes widely about inequality. His latest book, The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, has just been published.

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