Social inequality deprives us of outstanding individuals. A conversation with Dr. Paweł Bukowski, lecturer in economics at University College London and the Polish Academy of Sciences
Winston Churchill said: unequal distribution of wealth is a natural feature of capitalism. Will the currently dominant rentier model only lead to further enrichment of the elites?
The fact that people get rich to varying degrees is not exclusively a feature of capitalism. In communism, which is widely regarded as a system that lies on the other side of the spectrum, these inequalities are actually not particularly branded. In fact, reading Marx, he speaks very little of inequalities. They are mostly treated as a secondary issue. Actually, it was Mao Zedong during the Cultural Revolution who was more keen on leveling the income and wealth. By contrast, in the Marxist-Leninist version of communism, some degree of inequality is acceptable.
Capitalism by its very nature always generates disparities in income and wealth, while the crux of the matter is the scale of that disparity. There are capitalist countries like Sweden, with very little income inequality. In contrast, in others, such as the US, this inequality is much greater. But when we look at wealth inequality, we find that in Sweden it is quite large, only slightly smaller than in the United States.
Therefore, the picture is much more complicated. It depends on what form of capitalism we examine, because there are a lot of them. From Anglo-Saxon to continental European. Also, not all types of inequality necessarily coincide. We can rank countries according to income inequality, but the distribution in terms of wealth inequality or inequality of opportunities will look very different. Inequality of opportunities is the third concept in discussing disparities. We no longer talk about how much income or wealth someone has, but ask “to what extent their success in life depends on their economic background?”. And here, too, we find that while communist countries such as Poland in the 1970s or 1980s, for example, had fairly low income or wealth inequality, inequality of opportunity was not all that low. Churchill’s aforementioned thought begins to get more complicated the more we delve into the subject of inequality. Therefore, the statement that all capitalism always generates inequality is not true.
Poverty and wealth – are they defined by the state of one’s wallet, or rather by the state of mind? And why, despite the global progress of civilization, economic inequality is growing?
It is not that inequality is an indispensable part of the progress of civilization or globalization. This is partly our choice. Let me start at the beginning. In the 1950s, Simon Kuznets, one of the most prominent economists of the 20th century, made the observation that in the initial stages of economic development, inequality increases. On the other hand, after reaching a certain stage of development, according to his theory, inequality should begin to decrease. This coincided to some extent with empirical data, as indeed in the following decades the level of inequality in the West, and especially in the East, fell in almost all countries.
However, starting from the 1980s, the trend began to reverse – suddenly inequality was on the rise. At this point there was a shift away from the Kuznets curve. This made economists realize that inequality doesn’t always have to fall, or rise. It depends a bit on us, on society. The fact that inequality was falling was due to specific actions by governments around the world. The fact that they have been rising since the 1980s is also due to specific institutional arrangements.
Therefore, I would advise against fatalism. Whether inequality increases or decreases in the future is, in a sense, the result of economic changes, technological changes, but also specific actions at the state level.
Speaking of action at the state level: according to populists, the wealthy are getting rich on the backs of the poor. Is redistribution, higher taxes for the wealthy and social assistance the solution to this problem?
Yes and no. Economists generally agree that instead of redistributing, it is better to predistribute.
The fight against inequality can be fought on two fronts. We can affect inequality through predistribution and try to influence how much a given employee earns. At this stage, we operate through, for example, trade unions. We also have a minimum wage, which helps to establish a base income for the poorest.
Probably the most important tool of predistribution is education, by which I mean equal access to education for everyone. Providing everyone with the right skills means that people will earn similarly in the future, because everyone will have similar, high skills. In this approach, predistribution is about levelling the playing field not by passing the money from one pocket to another, as taxes and transfers do, but by creating an economic environment where total earnings are more or less equal. Of course, this does not always work.
This is where redistribution comes in. We recognize that the level of inequality is not satisfactory, and, at the same time, we do not want to introduce a minimum wage, so the solution is taxes, i.e. a progressive tax – encumbering the rich to a greater extent. This is not the best method, because such actions always cause some disturbances in the economy. Taxes are not an effective tool for correcting income at all. However, sometimes they are a necessity. In Poland, a pathological situation has arisen in which redistribution – in the form of taxes, transfers, contributions – does not change the level of inequality at all. Paradoxically, it helps the richest to become even richer. If we look at what percentage of income goes to the richest percent of Poles before and after taxes are calculated, it turns out that this figurative slice of the pie increases after taking into account all the taxes. The wealthiest contribute less than the rest of society. The middle class loses the most. In the context of inequality in our country, I believe that this is one of the key things to fix.
Does the free market exist or not? Or maybe it has never existed, as some economists claim? What should countries do to free themselves from the influence of wealthy elites and ensure true economic freedom?
There are two concepts that are often mixed-up. One is the competitive market, and the other is the free market. If there was an ideal world for an economist, it would be one of perfect competition. In other words, a situation where we have a lot of companies, a lot of employees, and none of these entities are able to influence the price level or the level of wages on their own. To put it simply, this is the situation that generates the most prosperity at the level of society.
The problem is that a free market does not always lead to this, or is often the opposite of a market of full competition. In a free market situation, certain players, companies, employees may emerge, who have greater market power and use it to block other participants. An example would be large technology companies buying up start-ups at an early stage of development in order to eliminate potential competition in the future. This was the case with Facebook and Instagram.
And here the question arises about the extent to which the state should interfere in these processes. In my opinion, it should interfere, but in a reasonable way. It should monitor situations when one of the players clearly abuses its market or economic power, including political power through lobbying, in order to build a stronger position on the market at the expense of the competition.
Without addressing inequality, will the potential for further economic growth in Europe soon run out? What can sustainable demand for products and services give us?
Inequality can definitely be a drag on economic growth. Considering the extreme case, when the poor are so destitute that they can’t buy anything at all, then demand for many products will disappear, with disastrous consequences for producers.
In our book “Inequalities Polish-style” we argue that there is an even more fundamental reason why inequality can hinder development. It concerns more the factors of production and less the demand itself. In a society with great inequality, it is increasingly difficult for exceptionally talented, intelligent people born into poorer families to obtain an appropriate level of education. As a result, we may lose outstanding individuals in society – teachers, artists. Companies may lose excellent employees or innovators.
Research conducted in the US shows that the person’s birthplace, the environment in which they grew up, has an absolutely crucial impact on whether such a person will be, for example, an innovator or not. One of the key elements of this process is access to role models, authorities, mentors. This is more important than financial incentives, such as low taxes.
This is especially important in the geographical context. Children from poorer backgrounds do not share the same social and educational networks as wealthier children. The economy is actually losing this human capital. Meanwhile, most economic theories say that human capital is currently key to growth, especially in economies such as Polish one.
Up to a certain point, the main factor driving the economy is physical capital, i.e. machines, factories, railways, etc. When a country reaches a medium-high level of development, buying another machine no longer contributes to development to the same extent as educating more employees and innovators. Physical capital alone is no longer enough. Human capital is needed. In my opinion, this will be the key to development in Poland over the next 10-20 years. Just like it was in the USA and Western countries.
In Poland, development has long been based on industrialization, on being the “little China” of Europe. In my opinion, this model is slowly running its course. In a sense, we are victims of our own success, because as wages rise, production in Poland ceases to be profitable. We need to start thinking about what’s next. What will be Poland’s development model for the 20 years to come?
We live in a time when robotization, automation, and implementation of artificial intelligence are extremely important factors. How can they affect social inequalities?
These factors have been playing a major role since the 1980s. Globalization and automation, on the one hand, cause a shift in the center of gravity from labor to capital. For example, when a worker is replaced by a machine, it is the person who owns the machine that benefits. That is, the person with capital who invested in the machine. This mechanism increases the distance between the workers as a class and the capitalists, i.e. entrepreneurs, businessmen who own capital.
Until now, low-skilled workers usually lost out on these changes. Robots replaced simple manual work. Similarly, globalization usually involved outsourcing, causing the disappearance of medium-low-skilled professions in the West and shifts to the East, mainly to Asia, but also to Central and Eastern Europe.
This benefitted employees with higher qualifications. For example, if a robot replaces an ordinary production worker, someone still has to program the robot and maintain it. Such a situation favors highly qualified employees. Those whose skills are complementary to the robot, not substitutable.
These two effects working together have led to increased inequality. Both between the capitalists and the workers, and among the workers themselves.
This is where a new technology enters the stage – AI. In my opinion, it will cause capitalists to distance themselves even further from the rest. However, all this technology, at present, is based only on a few companies that develop and improve it – they will probably also gain the most.
As for the second mechanism, paradoxically, highly qualified people may lose the most from the implementation of artificial intelligence. Will AI replace a cleaner or a production worker? It is unlikely to take over manual work, but AI may thin out the ranks of computer scientists, lawyers, academics or journalists.
Dr. Paweł Bukowski is a lecturer in economics at University College London and the Polish Academy of Sciences. He is also associated with the London School of Economics. In his work, he deals with social inequalities and the economics of the labor market. Winner of many international research grants. He is a co-founder of the expert group Dobrobyt na Pokolenia (Prosperity for Generations) and a member of Concilium Civitas. His book “Nierówności po Polsku” (Inequalities Polish-style) was recognized as the Scientific Business Book of the Year 2024 by Puls Biznesu and was nominated for the Marcin Król Award (Finalist Book).
Last Updated on May 8, 2025 by Samir Malki