At one point or another, we all have wondered why some people have more money than they could ever spend, while others do not have enough to secure even the most frugal of meals. Why some countries are lit with fireworks that their citizens look at from gravity-defying skyscrapers while others are crippled with ongoing epidemics. Why, if in theory we all have access to the same opportunities, there is such disparity among and within countries? What is being done to remedy it? The issue of wealth and income inequality is perhaps one of the most heavy-hitting ones in current society, and it is also among the most obvious.
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As the developed world lines up for the purchase of the new smartphone, somewhere in a developing country a woman is burning firewood to light up her home, which lacks electricity. From access to basic services to opportunities for life improvement, justice and possession of power, in the world, historically, wealth and income have been decisive factors on whether a person will be able to fulfill their potential or not. It is imperative, then, to understand the workings of wealth and income inequality in order to close the widening gap between the earnings and net worth of the top 1% and the rest of the world, disregarding ethnic background, sex, religion and any prejudice that may place a person at disadvantage when compared to another.
As defined by Ray (1998), economic inequality is “the fundamental disparity that permits one individual certain material choices, while denying another individual those very same choices”. Economic inequality, much like poverty, is a multidimensional issue with endless causes and just as many consequences. It affects virtually all aspects of a person’s life, including “education, health, nutrition, security, power, social inclusion, income or consumption and assets” (McKay, 2002). Also worth noting is that there is not any one cause for the presence of economic inequality between two individuals, rather, both causes and outcomes are deeply correlated and work interchangeably. For example, McKay cites educational inequality as possibly reflecting gender disparities.
There are three main types of economic inequality, namely those that best reflect an individual’s position within the economic distribution: income inequality, wealth inequality and pay inequality.
Other authors describe the types of economic inequality as: inequality of outcome —which is an umbrella term for all of the mentioned above- and inequality of opportunities. The latter of which occurs “when individuals are denied access to institutions or employment, which limits their ability to benefit from living in a market economy” (Economics Online, W/D). While it cannot be said that inequality of opportunities is the sole contributor to outcome forms of economic inequality, it is perhaps the most important causing and perpetuating factor of this issue.
From a moral standpoint, the existence of an increasing income gap is horrendous. There is no possible justification for a few rich households to make a disproportionally larger chunk of the national income compared to the general population, especially with the socio-economic problems it can carry. However, economists are torn on the implications of income inequality and whether it is positive or negative.
Photo Credit: Business Insider using data from OECD
Economists had forecasted that in developing countries, industrialization would lead to an expansion of the internal income inequality rate driven by a minority of entrepreneurs. Income inequality would later contract as the rest of the population caught up. However, this proved to be untrue in countries such as China, where income inequality among all socio-economic sectors is growing. Ben Chu, from The Independent points out that this is a warning sign: “When rising national income and economic productivity in a still developing country does not result in a fall in income inequality, that’s a decent indicator income is being expropriated by a politically-connected minority, rather than genuinely earned”. Chu also says that “extraction by exploitative developing world elites is one of the most serious threats to the trend of greater global income equality, not only because of its direct impact on the aggregate figures, but because vested interests tend to obstruct the economic reforms that poor countries need to keep growing”.
This could jeopardize the falling trend of income inequality across all countries seen from 1998 to 2008, when countries such as China and India started a rapid economic growth. This growth lead to a massive amount of people moving from their rural homes to cities, where they got higher incomes working in manufacturing plants and the building industry. As said by Branko Milanovic, leading expert on the issue, the decrease in the global income inequality rate can only be sustained “if countries’ mean average incomes continue to converge and if high inequalities within countries ae kept in check”. Which is the exact opposite of what is happening in China and other countries.
Photo Credit: Flickr
Photo Credit: Flickr
According to a report on inequality developed by Oxfam using data from Credit Suisse, in 2015 the richest 62 people had as much wealth as the poorest half of the world’s population. In comparison, the same amount was held in 2010 by 388 people.
The organization blames a global network of tax havens for allowing the rich to hide trillions of dollars from their countries’ governments. The president of Oxfam America, Raymond C. Offenheiser, said that: “Tax havens are at the core of a global system that allows large corporations and wealthy individuals to avoid paying their fair share, depriving governments, rich and poor, of the resources they need to provide vital public services and tackle rising inequality”.
The report, which contained information that 9 in 10 companies from the World Economic Forum’s strategic partners had presence in at least one tax haven, was dismissed at this conference as “bogus” and “misleading” for the way its metrics were developed. Oxfam used a system of adding up assets and subtracting liabilities as a mean to estimate net worth, which placed indebted university graduates from the US Ivy League in a worse-off position than, say, a farmer in Africa.
However, Oxfam is not alone in its claims. In an article written by Patricia Cohen for the NY Times, Professor Jeffrey Winters says the figures from the report show an acceleration of the accumulation of wealth in a few people. Winters also says that a marked stratification is showing even among the 1%, where the gap between those at the top and the bottom of the wealthy pyramid is increasing.
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Observations from both Branko Milanovic and the Oxfam report point towards an alarming reality: The rich are using their status, position and influence to further concentrate their wealth. Wealthy people have benefitted from massive economic events, such as China’s rapid growth and the Wall Street crash of 2008 to increase the amount of money in their bank accounts, and although there are some social-minded millionaires, the increasing economic inequality worldwide is disparaging.
Millionaires in the USA, the poster children for people who have significantly increased their wealth since the financial crash of 2008, are doing so in a crumbling country. America’s education, health care and other social services are underfunded and the living standards of the working people are declining, furthermore, class tensions in the country are reaching a boiling point. Ironically enough, USA was the only country to increase its wealth in the midst of the financial crash, which has caused significantly damage to world politics, namely those between the global imperialist superpowers.
This is what the unsustainable, unbridled quest for money and power has brought us to, and it is on us, as Professor Winter points out, to “adopt policies that make it harder for the ultra-wealthy to shape our government and society, or we can do what we have been doing, which is greatly facilitating the ability of the rich to shape society”.
Is America Having the Wrong Conversation About Income Inequality? By Gillian B. White
Top 1 Percent Own More Than Half Of the World’s Wealth by Patrick Martin
How Wealth Inequality Exacerbated The Great Recession by Sam Pizzigati
5 Key Takeaways From The World’s Widening Wealth Gap by Andrew Soergel