Moisés Naím — In focusing on capital earnings, the economist overlooked a critical factor: corruption

In focusing on capital earnings, the economist overlooked a critical factor: corruption

In order for this discussion to be valuable, however, the problem requires a more complete diagnosis. It is not accurate to assert that in countries like Russia, Nigeria, Brazil, and China, the main driver of economic inequality is a rate of return on capital that is larger than the rate of economic growth. A more holistic explanation would need to include the massive fortunes regularly created by corruption and all kinds of illicit activities. In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites (a factor that is surely at work too).Corruption-fueled inequality flourishes where there are no incentives to hinder it. 

To channel Piketty, inequality will continue to rise in societies where “c > h.” Here, “c” stands for the degree to which corrupt politicians and public employees, along with their private-sector cronies, break laws for personal gain, and “h” represents the degree to which honest politicians and public employees uphold fair governing practices. Corruption-fueled inequality flourishes in societies where there are no incentives, rules, or institutions to hinder corruption. And having honest people in government is good, but not enough. The practices of pilfering public funds or selling government contracts to the highest bidder must be seen as risky, routinely detected, and systematically punished.

The Atlantic
The Problem With Piketty’s Inequality Formula
Moisés Naím | contributing editor at The Atlantic, a senior associate in the International Economics Program at the Carnegie Endowment for International Peace, and the chief international columnist for El Pais and La Repubblica, Spain's and Italy's largest dailies

Unfortunately, in shining light on corruption, Naím doesn't mention control fraud, systematic tax evasion, and money laundering in the United States, UK, and Hong Kong, nor does he mention intellectual capture, regulatory capture and state capture. I guess he hasn't read people like Bill Black that document it.

See also, Thomas Piketty and the End of Our Peaceful Coexistence With Inequality

Economic disparities aren't new. But from Piketty to the pope, talking about them is.