On my way to work, I got stuck in traffic beside an overflowing trash dump. As I sat in the bus, (suffocating from the horrific stench) I questioned if the amount of stress I’d been through was worth the job. It also made me wonder how stress affected the level of economic inequality. My thoughts led me to Piketty’s work on inequality and how it could be rigged to explain the stress effect.
Rigging Piketty’s Equation
Those with any inclination of economic interest have certainly heard about Thomas Piketty’s equation that explains the rising level of inequality. No wait…don’t leave yet. I promise it gets interesting (I think).
Pikety’s highly debated equation r>g forms the backbone of his argument. He shows that over time, the returns on capital (r) will grow faster than the economy (g), thus raising the inequality gap as the rich accrue more returns on capital over time.
Our equation deviates from Piketty’s and contextualizes things to the Nigeria formal sector. Rather than grand macro systems, it deals with individual effects that become significant when aggregated. Our equation shows that c>e: meaning that over time, the return on productivity from a higher level of comfort (c) will outweigh that of education (e).
So, if both individuals begin at the same point, with similar levels of education and energy – given the level of comfort – eventually one’s productivity might increase, while the other’s tapers out – ceteris paribus, of course. For those who are befuddled, I’ll illustrate.
Let’s assume that you and your friend (who’s got rich parents) start working at a company. You both start at the same position with the same level of vigor. However, over time, the decrease in your level of comfort and an increase/stability in his changes changes your future conditions. How? Let’s walk through a scenario.
It’s a rainy Monday morning and while the rain beats you, an obnoxious driver splashes mud on you, the rude conductor insults you for not having change and you spend 5 hours in traffic; your colleague just took a stress-free air-conditioned ride in his father’s car. Consequently, before the workday’s begun, your productivity level might be lower.
Eventually, one person will end up having more time to engage in other productive ventures: take on more projects, apply for a better job, or start a new business. And no, that person won’t be you. On Saturday, while you’re at home washing everyone’s laundry, your rich colleague’s attending a networking event. He will eventually have a higher chance of being more successful than you.
Another economic factor that often pops up in inequality debates is taxes. Tax is a tool of economic redistribution, typically from the rich to the poor. In this case, the poor seem to have a higher ‘stress tax’ than the rich i.e. a regressive tax. Some say that being poor is greatest sin you can commit in Nigeria and that’s pretty true. Perhaps, the signs at boundaries into Nigeria should say “Being poor will get you harassed or arrested indiscriminately, denied basic healthcare and education, and possibly manipulated by politicians with rice”. That’s a whole lot of stress to deal with; so if the recent bombings don’t kill you as a poor person, stress literally will.
What does this mean for the whole economy?
It means that education is not necessarily a wealth equalizer. We love to hear the ‘rags to riches’ stories, but those are the exceptions rather than the norm. It’s simply selection bias at work – the ‘rags to rags’ are numerous and boring, while the ‘rags to riches’ are few and fascinating. At best, education, will lead to promotions, and at worst it’ll keep you in the same office building with your friend…it’s just that his office will be bigger than your cubicle.
Also, remember that we started the model off with both individuals at the same entrance level. In Nigeria, the reality is…rather different. Your rich friend probably didn’t need his degree to get a job, his parents’ connection did the work. While you…poor you. You probably went on 30 days dry fasting and numerous vigils, including sending your CV to even the gatemen of potential workplaces. Anyways,enough with the depression. My overarching point is that success requires more than education – other factors, endogenous and exogenous are involved. Moreover, the longer inequality grows, the more damage it does to the whole economy – especially in Nigeria, where the richer you are, the more foreign your tastes become.
So, what can be done to close these factors and give the ‘bus-jumpers’ a fighting chance at long-term equality? The government could attend to these stress-points. Government investment in infrastructure can rapidly closes productivity gaps. By investing in infrastructure that directly affects the lives of the poor (better roads, public transportation system, and electricity), the Government can close the gaps. However, in the case that your government won’t do anything to reverse this stress tax, drink Garri and start your own business. You might just make it.