Index of Disproportionate Inequality (IDI)

For two months, our cyber group of “free-enterprisers” has focused on reaching a consensus as to which nation practices “optimal capitalism.” A big and lofty project… but the Internet has made this type of mega-thinking possible by shrinking world summits and seminars to the level of community discussions.

We started our cyber get-togethers almost two years ago to share our common pedigreed interest in the realm of business and economics, doers some and teachers others. A diverse group (six Europeans, three Asians and two from North America- Carl, a Canadian from ‘Vansterdam’ and yours truly) looking for a roundtable to sound off.

Our accents, filtered by the keyboards, may not be discernible, but our views can express, at times, deep disagreements- often responding to wide cultural differences. All eleven realize that capitalism as an economic-political system has jumped into the 21st century with a lion share of the world’s population, invoking a quasi-religious status with most nations which have declared themselves democracies.

We also agree that capitalism is not monochromatic, covering a wide spectrum of issues dealing with regulations. Competitiveness, taxation, “social costs” for present or future generations, are regulated in manner and degree by autonomous nations. Which brings us to the ever present question: which model of capitalism is best, the least or the most regulated? Any votes for… the “properly” regulated?

Carl and I live 350 freeway miles from each other, allowing us to occasionally meet in person and carry our friendship beyond cyberspace. Last week in Seattle, we brainstormed the idea of quantifying success for a capitalist society in both social and economic terms, a braid of intertwined social harmony with economic attainment.

We both recognize that reasonable income inequality is both expected and accepted in society. However, inequality carried to the extreme, without scruples, is the perfect poison pill for any political system. So we took a first step to quantify degrees of socio-economic success or failure in capitalistic societies.

Our resulting product is an index that measures the ratio in household income between highest 10% and lowest 10% of the nation’s households. We call it the “Index of Disproportionate Inequality.” Unlike GINI, the index that measures the distribution of family income, the IDI accentuates the existing differences, and is a better leading indicator for socio-political change.

After analyzing the most current economic data from 69 nations, we decided that only 30 of them were appropriate for our task. Critical factors were maturity as “capitalist nations” and minimal requirements in per capita GDP. (Source for raw data: http://www.odci.gov/cia/publications/factbook/index.html). Our thesis: the lower the IDI, the smaller the economic disparity and higher social harmony. The IDI results obtained for the thirty nations are as follows:

Japan, at 4.5, leads the pack of nations, something expected of a country with a reputation for taking excellent care of its people.

The “B” group, composed of 14 developed nations, with IDI scores ranging from 5.1 to 9.7, includes in order of achievement: Finland, Norway, Sweden, Taiwan, Germany, Belgium, Canada, Spain, Austria, Netherlands, France, Portugal, South Korea and Switzerland.

The “passing grade” group, ranging from 11.6 to 14, included: Thailand, Israel, United Kingdom, Denmark, Australia, Italy, Ireland and Turkey .

The United States came next (24th of 30) with an IDI of 16.9 (households in the lowest 10% receiving only 1.8% of the economic pie, while those in the highest 10% received 30.5%).

The remaining 6 nations comprise the “flunking" group with scores ranging from 22.6 to 68.6 were: Malaysia, Mexico, Chile, South Africa, Colombia and Brazil.

I don’t believe that this index, in and of itself, can determine which nation practices “optimal capitalism.” But it does provide us with an important tool to shoot down political demagoguery used to defend ill-advised social and economic policies that widen inequality and bring social unrest.

“You have yet to see the worst of it,” Carl prophesizes, “with America losing what’s left of its social conscience under the Bush administration.” He claims that the IDI for the US will reach the mid-20s.

I think “compassionate conservatism” already got us there!