March 14, 2023
ISLAMABAD – The World Inequality Report 2022 shows a very dark picture of inequality around the world. The report discusses four types of inequalities: income inequality, wealth inequality, gender inequality, and carbon inequality.
The world wealth and income data show a very high level of inequality around the world, where the share of the bottom 50 per cent of the world population in total global wealth is just 2pc, while the share of the top 10pc is 76pc.
The global income is also not evenly distributed, where the bottom 50pc of the poorest global population earn just 8.5pc of the total global income, whereas the richest top 10pc earn 52pc of the global income. This shows that global wealth appears to be more unequally distributed than global income.
The bottom half of the world’s population is almost entirely deprived of the capital. The judicious distribution of fruits of development is not possible in this high level of inequality. Though we see the economic growth figures published by all the governments, how equally the growth is distributed matters the most. GDP (the proxy of economic growth) does not capture the variations in human well-being and ignores inequality.
The bottom 50pc of the poorest global population earn just 8.5pc of the total global income, whereas the richest top 10pc earn 52pc
Gender inequality is also very high; women make up only 35pc of the global labour income, whereas men make up the remaining 65pc. Gender parity is also a major issue around the globe.
The same is the case with the fourth type of inequality discussed in the report, carbon inequality, where the top 10pc contribute 48pc to carbon emissions (personal carbon footprint). The historical evidence shows that this extreme level of inequality is not only high but is also persistent.
The report analyses 200 years of data from 1820 to 2020 and concludes that global inequality increased from 1820 to 1920 due to colonialism. The colonial domination of the world played a central role during that period. The data from 1910 to 1980 show a reduction in inequality due to increased social spending and progressive taxation. This period is considered the golden period for the social welfare states.
This trend changed between 1980 to 2020, when the inequality level again started to increase due to the neo-liberal policies enforced by global financial institutions like International Monetary Fund and the World Bank. Due to this, the level of inequality in 2020 is the same as in 1910 (at the peak of colonialism). This neo-colonialism is also behaving in the same manner as classic colonialism did.
Women make up only 35pc of the global labour income, whereas men make up the remaining 65pc
Deregulation, privatisation, liberalisation and lower progressive taxation contributed to this extreme inequality. This has increased the economic polarisation around the world because the rise of social spending and redistribution was relatively slow over the last four decades due to the flawed trickle-down economics mantra.
The argument of trickle-down economics, adopted in the late 70s and early 80s, has not worked and is not working at all because global tax revenues and global social expenditures have decreased since 1980. This has resulted in an extreme level of inequality within countries. Concerning wealth inequality, North America is the unequal region of the world, whereas Europe is the equal region.
The world economic system has become extremely hierarchical both between countries and within countries. This shows that economic growth is not distributed fairly and the social safety nets are not wide and deep enough.
The trend indicates that the net private wealth is much higher than the net public wealth, which means there are fewer resources/revenues available to the governments to go for social spending.
The data shows a decrease in the level of net public wealth around the world, where China has the most net-public wealth, which is around 30pc of the total wealth and most developed countries even have negative net public wealth, i.e. the USA, the UK, and Japan.
This means that individuals and corporations have become richer, but governments have become poorer. Without major economic policy changes, the future is bright for the global elite due to the existing system, which is highly archaic and supports the status quo.
This high level of income and wealth inequality leads to extreme concentration of economic power in a tiny segment of society. The report argues that inequality within a society is fundamentally a result of political choices rather than an inevitable phenomenon.
This depends on how society decides to organise its economy, which means the rights given to and constraints imposed on different stakeholders and economic actors. Only public deliberation and political institutions can address all these problems.
Several policy options are suggested in the report to reduce this high level of inequality: progressive wealth and income tax, adoption of inheritance tax, increase in corporate taxes, ending tax evasion by multinational corporations and wealthy individuals, increase in public spending in education, health, and ecological transition (redistribution and socialisation of income and wealth), fairer economic policies and fairer development pathways.
To make the tax system progressive and to achieve tax justice, it is a must to have more taxes on income and wealth and fewer taxes on consumption. All these measures need a political choice to reduce inequality. This requires a new form of internationalist, egalitarian political mobilisation around an alternative global economic model because the old one has failed drastically.
The writer is a post-doctoral fellow at the University of Alberta and Associate Professor at COMSATS University Islamabad
Published in Dawn, The Business and Finance Weekly, March 13th, 2023