The danger of inequality – for society and organisations

by Dr Paul Vorster | Published on 25 July 2019 for The Ethics Institute monthly newsletter

Crime touches every South African, either directly or indirectly. In 2018, a total of just over 22 million crimes were reported for that year in the country, according to Crime Stats Simplified. These include both serious crimes and misdemeanours. To put the figure in perspective, if each crime were allocated among the entire population, almost one in every two South Africans would be a victim of crime.

Inequality

Photo by Johnny Miller for Impakter

"If there is anything we have learned from how inequality affects crime rates, it is that organisations should be wary of the signals they send to employees when senior leaders are paid exorbitant salaries."

The statistics relating to serious crime are pretty grim. In 2018, there were a total of 20 306 incidents of murder (which is viewed as a contact crime and does not include attempted murder, of which a further 18 215 incidents were reported) and over 49 991 incidents of sexual offences. In the same year, over 323 369 incidents of drug crime were reported and 86 119 instances of individuals caught driving under the influence of drugs and/or alcohol.

Of course, none of these figures include those who got away with it.

Some communities suffer far greater than others. Indeed, the South African National Defence Force was, last week, deployed to Hanover Park and Manenberg in the Western Cape, where residents live with extreme levels of gang-related organised crime. A military intervention may bring short-term relief for some, but it unfortunately solves none of the causal factors of crime.

What are those causal factors? ‘Poverty’ is often put forward as the obvious reason why people break the law. When a poor person is found guilty of crime, we are not surprised in the least. Rich criminals, on the other hand, are anomalies, to be treated as objects of intrigue.

But is it poverty, itself, that causes crime? In reality, inequality, not, poverty, is the real culprit.

It was Nobel Prize-winning economist, Gary Becker, who postulated a link between inequality and crime in his 1968 paper, ‘Crime and Punishment: An Economic Approach’. Becker made the startling discovery that economic inequality has a direct and strong relationship with the frequency of crime across numerous countries and cultures.

To grasp what is meant by ‘inequality’, two terms must first be defined. Firstly, ‘absolute’ poverty focuses on survival and the basic needs of living. If an individual is destitute, in other words has nothing, this is a case of absolute poverty.

The second, and more important, term is ‘relative’ poverty. Relative poverty is contingent on referents; in other words, how an individual’s income and quality of life compares with others’. Take, for example, a person who is destitute, and an executive of a large private organisation. In such a case, the destitute person lives in absolute poverty, but also has a high degree of relative poverty, when compared to the executive. It is the difference between them that matters. Notice, by extension, that one can be living a comfortable, middle-class lifestyle and still be relatively poor, if the difference with the rich is big enough. This difference in the economic value attained by people in different circumstances is what we commonly call ‘economic inequality’. As demonstrated, it relates more strongly to relative poverty than to absolute poverty.

The GINI (Geographic Inequality Index) coefficient is a good measure of relative poverty. It evaluates the degree of economic inequality based on the population subgroups of a country and their relative access to financial resources across geographically defined areas. Generally, a GINI coefficient of 0 indicates perfect economic equality (very little difference between those with the most and those with the least), while a GINI coefficient of 1 indicates perfect economic inequality (a massive difference between those with the most and those with the least).

If we are interested in relative inequality, especially its link with crime, the GINI coefficient is therefore a useful research tool. Numerous studies have found moderate to strong correlations between relative inequality and violent crime in particular. Fajnzylber, Lederman and Loayza (2002) found that the correlations between the GINI coefficient and homicide were about .54 and .55 respectively, which means that economic inequality accounts for approximately a third of the variance of the homicide rates in a given country. This is irrespective of absolute poverty levels, which were controlled for to make the comparison between countries in the studies accurate. The World Bank, in their analyses of the GINI coefficients of American states and countries across the world, found that the GINI coefficient accounted for about half of the variance in homicides (Szalavitz, 2017). These are staggering statistics, indicating a strong causal relationship between economic inequality and violent crime.

It is critical to notice that these results are not necessarily contingent on absolute poverty, so solving that does not automatically solve the problem of crime. In other words, even if a population earns an income above the poverty line and is able to meet their basic needs, there would likely still be a high crime rate in an environment with high levels of relative poverty. Again, it’s the difference the matters, even if its ‘just’ the difference between middle class and super rich.

South Africa has one of the highest GINI scores in the world at .63 in 2015. It is therefore no coincidence that one of the most violent nations in the world also has one of the highest levels of relative poverty.

Although this link can easily be understood from a macro-economic perspective, the danger of these findings may resonate at a micro-level within South African organisations. They hold a stern warning regarding inequality in the workplace, most vividly in pay gaps in both the public and private sectors.

Although the GINI coefficient predicts violent crime relatively well, there is little evidence currently regarding how pay gaps within organisations may affect the conduct of employees. What if the GINI coefficient were calculated for organisations, measuring the income of the poorest unskilled labourer and comparing this to the highest-paid CEO? Would we find the same trend, that organisations with the highest pay gaps succumb to the highest levels of corporate crime, misconduct, and counterproductive work behaviour?

Some evidence to support this has already emerged. The most transparent case is the ENRON debacle. Executives at ENRON flaunted their income to other employees, using this as a proverbial carrot to lure entry-level employees into taking big risks for supposedly big rewards. This resulted in one of the biggest cases of accounting fraud and unethical behaviour ever observed, with numerous employees being implicated. In South Africa, we only have to remember the Marikana tragedy, which would never have occurred were it not for the severe imbalance in social and economic power between miners and mine bosses.

We are now able to ask the most important question: why do people who perceive relative poverty engage in acts of crime? This kind of behaviour makes more sense if Socioanalytic Theory is considered. Hogan (1982) found that people generally are driven by two forces, namely, the need to get ahead (a desire for status in social groups) and the need to get along (a desire to be liked and to fit in to social groups). Status can be obtained in numerous ways, though the primary indicator of status in the modern world is income.

These two drivers (the need to get ahead and get along) are very important for the success and performance of individuals who, under normal conditions, are quite adaptive. However, if high levels of economic inequality are thrown into the mix, people may try anything to address the perceived imbalance. This may translate into behaviours that prioritise the need to get ahead, sometimes at the expense of getting along. In other words, self-interest becomes much more important than other-interest when inequality and relative poverty are thrown into the mix.

Human beings generally have a tendency to compare themselves with the Joneses, whether in a gang-riddled community or in the workplace. In the case of the latter, employees tend to compare themselves with their colleagues and leaders. Is it not possible that employees of an organisation may engage in unethical conduct, simply to address their own perceptions of relative poverty, in a sort of warped ‘Robin Hood’ endeavour? If there is anything we have learned from how inequality affects crime rates, it is that organisations should be wary of the signals they send to employees when senior leaders are paid exorbitant salaries. Relative poverty/inequality may in fact be a strong driving force behind corporate crime and corruption in both the public and private sectors in South Africa.

This in no way idealises a socialist environment. People should be able to profit from their work. But there is no wisdom in continuously increasing pay gaps between senior leadership and general employees in organisations. Indeed, such behaviour could have dire consequences for the moral conduct of employees and organisations.     

References

Becker, G. S. (1968). Crime and punishment: An economic approach. Journal of Political Economy, 76, 169 – 169. Doi: 10.1086/259394

Crime Stats (2019, July). Crime Statistics Simplified. Retrieved from https://www.crimestatssa.com/national.php

Fajnzylber, P., Lederman, D., & Loayza, N. (2002). Inequality and violent crime. Journal of Law and Economics, 45, 1 – 40.

Hogan, R. (1982). A socioanalytic theory of personality. Nebraska Symposium on Motivation, 55 – 89.

Szalavitz, M. (2017, December). The surprising factors driving murder rates: Income inequality and respect. Retrieved from https://www.theguardian.com/us-news/2017/dec/08/income-inequality-murder-homicide-rates


Paul Vorster

 

Dr Paul Vorster is a Research Specialist at The Ethics Institute. He holds a doctorate of Industrial Psychology, which he attained from the University of Johannesburg.