The Global Inequality Gap: Rich & Poor

 

Wealth inequality is even greater than income inequality; where a person lives accounts for two-thirds of any differences in wealth between people.

Photo by MART  PRODUCTION

Over the past several decades, global inequality has declined between countries as trade expanded access to low-income population; however, within most high-income economies it has increased significantly.

Inequality Causes

There is an urgent need to reduce global inequality, as it is one of the primary drivers of economic instability and political polarization. A growing gap between rich and poor erodes trust in public institutions and weakens democratic governance; furthermore it threatens geopolitical stability while restricting those living in poverty from attaining decent lives.

Global inequality has grown substantially over time in most countries, reflecting both an increase in incomes for wealthy population segments and stagnant or decreasing growth for lower-income groups. These trends were compounded during and following the global financial crisis, widening income gaps between rich and poor further.

The causes of growing inequality are many and varied, ranging from failing to adapt to globalization and technological progress; shifting tax policy that favors corporations and wealthy individuals; reduced bargaining power among workers, long-standing racial and gender discrimination as well as governments failing to invest adequately in education and labor markets in developing nations.

Global wealth inequality is on an upward trend, with the top 10% owning nearly as much wealth as all 3.1 billion people combined. This dramatic trend can be explained by several factors including increased investment returns; skyrocketing stock market valuations; surging real estate prices; and lower corporate taxes for those earning the most.

An equitable world is possible, but requires an unprecedented shift in how we think and discuss poverty, inequality and development. For this to occur, decisions made in boardrooms, international climate conferences and national governments must reflect the perspectives and solutions from women, workers and marginalized communities who live there.

To address the increasing inequality gap, governments must implement policies that promote education, employment opportunities, labor market flexibility, affordable housing and wage increases while investing in social sectors like health and education while raising taxes on wealthier individuals and companies.

Inequality Consequences

Inequality damages human well-being by diminishing opportunities to grow, achieve one's potential and lead a healthy life. Its effects are both immediate and long-term, impacting every member of society no matter where they reside.

Inequality affects all areas of human flourishing - health care, education, jobs and economic security among others are affected. A key driver of inequality are power imbalances which arise as a result of cultural, political and societal forces such as gender discrimination or caste systems that limit low-income peoples access resources or market forces that lead to concentration of wealth or income among few individuals.

COVID-19's global pandemic amplified inequality in multiple ways, including through job losses at high wages and stock market drops that marked their steepest since 2008. Furthermore, low-wage workers were much harder hit than wealthy individuals - who saw increased home values and stock gains during this period - as low wage workers lost much more opportunities than did rich investors who saw their wealth increase with rising property values and stock investments. 

This trend toward greater economic insecurity contributed to rising global inequality since 2008 as rising debt levels drove down economic growth further while fuelling economic contraction during 2010, continuing apace with 2008 financial crisis outbreak and global recession of 2010.

Global poverty rates have declined significantly over the last two decades, yet income gaps between countries are widening and widening within countries. 

Many factors contribute to rising inequality: technological innovation and changes to tax policies; gig economies and digital platforms such as Uber; reduced bargaining power for workers and long-standing racial and gender discrimination exacerbate this disparity further. Geopolitical shifts further compound these imbalances by disrupting supply chains that depend on trade, leading to hardship among emerging economies that rely on trade for growth.

Rising inequality poses a threat to democracy, fuelling antidemocratic, authoritarian movements which threaten the stability of democracies worldwide. Additionally, unequal treatment breeds mistrust and undermines social cohesion - and countries with higher inequality tend to grow less than those with lower inequality due to concentrated wealth/income and limited opportunity for the poorest households stifling potential future growth opportunities.

Inequality Solutions

Inequality affects every facet of life, including health, education, opportunity and political participation. Inequality increases poverty rates through hunger and climate breakdown while curtailing human rights through discrimination and violence. 

According to estimates in 2018, inequality contributed to the deaths of 21300 people every day - or one every four seconds - including lack of access to vaccines and healthcare in poor countries, climate change impacts and wealthier nations exploiting natural resources.

Since 2000, income inequality in most advanced economies has steadily increased as top earners saw their incomes soar while lower-earners struggled to keep pace. Meanwhile, global inequality has decreased due to faster economic development in emerging markets driving decreasing intercountry disparity.

Although inequality has seen some improvements over the years, inequality still remains high globally. The problem has been further compounded by populist and nativist movements which many researchers attribute to rising economic disparities; researchers also link it with rising insecurity caused by wealth disparities. Furthermore, some countries can give wealthy individuals outsized influence over government policies due to these disparities between rich and poor.

To address these problems, policies that can reduce inequality and foster inclusive prosperity are required. Such measures include supporting unions and minimum wages; making tax codes more progressive; taxing wealth alongside income, among others. Some experts and politicians endorse these initiatives while others maintain that they will stifle economic growth and innovation - especially regarding taxes; Democrats typically favor progressive tax codes while Republicans often support lower taxes.

A key strategy to building healthy communities lies in investing more in people. This involves providing all children access to quality early childhood education and free higher education; offering workers adequate wages, job security and advancement opportunities; as well as advocating policies to aid poorer communities thrive. Recognizing that one child's chances for living a long and fruitful life depend on many external factors outside their control--including living in an area with strong infrastructure, strong schools, safe drinking water sources and high levels of security are crucial considerations in building healthy environments for growth.

Conclusions

Between 2008 and 2013, global inequality did indeed decline for the first time since the Industrial Revolution. This positive development was caused by robust income growth among populous developing nations that helped close gaps with high-income nations. Still, global inequality remains important as differences in living standards across nations often dictate more than internal competition or individual effort - thus making location far more important in shaping life expectancies and earning power than knowledge or effort alone.

Rising inequality remains an enormous threat to human flourishing; people need more than money in order to lead fulfilling lives and realize their full potential. They require access to quality health and education services, a safe environment and freedom from physical, social, and emotional strain - which all constitute capabilities essential to individual flourishing and society's well-being.

When societies are highly unequal, poor people typically have less access to capabilities they need for survival, increasing the odds that they suffer mental illness, poverty and premature death. Furthermore, their participation in politics and civic life becomes limited thus further diminishing their contributions to public good. Furthermore, climate-related disasters such as hurricanes or heat waves could disproportionately impact them while policies to limit greenhouse gas emissions would likely increase energy bills further eroding their quality of life.

Future success requires meeting these challenges head on and providing people with the capabilities necessary for flourishing. This guide draws together research from numerous sources, such as Peterson Institute's 2019 conference "Combating Inequality", work presented at that conference and other publications from PIIE. It offers an overview of current trends in inequality as well as possible causes and consequences as well as policy options available to mitigate its growth; but no single solution fits all cases due to its inherent relationship with national institutions and political realities.