Inequalities are now one of the main global problems as they pose a major threat to economic growth and social crisis. The United Nations Department of Economic and Social Affairs (UNDESA) shows in its World Social Report 2020 how income inequality has increased in many developed countries and in some middle-income and developing economies. The report finds that income and wealth are increasingly concentrated in the hands of the richest 1%. It shows that technological innovation, climate change, urbanization and international migration are the reasons for this inequality. The coronavirus crisis only worsens poverty and inequalities within and between societies. It harms children in school and further affects students in underdeveloped and developing countries who do not have the opportunity to learn virtually. During the pandemic, people who work in low-wage sectors suffer more than those who work in high-wage sectors. For example, well-educated and well-paid employees may continue to work from home, but low-paid workers such as garment workers and people working with small and medium-sized enterprises are hit the hardest.
Why should we care about inequalities? Some argue that we should focus on poverty reduction, not inequality. A model by economist Simon Kuznets, known as the Kuznets curve, is a meaningful model used for this argument. Kuznets argues that inequality is an undeniable result of the early stages of economic growth, and that it will eventually shrink as growth progresses with an increase in per capita income. He therefore suggests focusing on growth and poverty reduction. But many studies show that economic growth does not help reduce inequality until the government takes special action. There are powerful arguments as to why inequalities require urgent political attention.
First, a society that has higher inequalities tends to have more internal conflicts and destabilization of social cohesion. This is because when inequalities persist across generations, the excluded tend to challenge the progress that has bypassed them. Francis Fukuyama shows in his research article “The Latin American Experience (2008)” that inequality delegitimizes the political system as people fight for their parts. Professor Richard G. Wilkinson also shows in an article on the impact of inequality, published in the Social Research Journal in 2006, that the homicide rate is consistently higher in societies with larger income differences. . Global Trend 2030 also finds that growing inequalities in Africa will intensify tribal and ethnic conflicts.
Second, higher income inequality is an obstacle to poverty reduction. The poor are less likely to get their share of the development pie where inequalities are high. Economists Roy van der Weide and Branko Milanovic found in a study on the impact of global inequality that high inequality has a positive impact on economic growth, but that it mainly benefits the wealthy group of a society. . They also argue that economic growth in a highly unequal society further widens the gap between the rich and the poor. Thomas Piketty in his book The capital in the 21st century also argues that the return on capital is always greater than economic growth, making those who have it richer and those who don’t have poorer. The poorest also suffer more where the market mechanism is weaker, because a poor person will not have a loan if they cannot satisfy the lender without collateral. Thus, the lack of income limits their investment in business, health and education of children. Thus, the poor live the vicious circle of poverty.
Third, income inequality traps can trigger an increase in intergenerational inequality and hamper social mobility. Inequality traps describe a situation in which the total distribution of income is stable due to the different dimensions of inequality (social, economic, political and cultural) which interact to defend the richer group from downward mobility and to prevent the poor to progress. Economist Vijayendra Rao argues that in a patriarchal society, women do not receive an equal share of property and face restrictions on movement. In addition, girls are often not sent to school and women are less likely to work outside the home. Thus, this social system keeps women dependent on men and keeps them in an inequality trap. Like the example of women and girls in a patriarchal society, the unequal distribution of power allows the rich to have good policies in their favor and to maintain their social status, argues Vijayendra Rao. In an unequal society, a poor family finds it difficult to ensure uninterrupted education for its children, which in turn prevents them from accessing more gainful employment and changing social status.
Fourth, inequalities are a matter of concern when it comes to achieving the Sustainable Development Goals (SDGs). The United Nations Sustainable Development Goal 10 is about reducing global inequalities. The goal is to achieve and maintain the income growth of the poorest 40% of the population at a rate higher than the country’s national average by 2030. Inequality is also an important determinant for achieve the goal of zero extreme poverty by 2030. One world Bank study reveals that the poverty rate will fall below 3% if the income of the poorest 40% of the population increases by 2% faster than the national average, but the poverty rate will remain at 10% if the income of the poorest 40% grows to less than 2 percentage points of the average national income.
So, to achieve a good democratic system, a stable political and social structure, as well as sustainable growth, we need to reduce inequalities. Initiatives have been taken to resolve the problem, but most of them have been unsuccessful. In addition, the coronavirus crisis has worsened the situation by hampering current poverty reduction actions and will pull back households that have crossed the poverty line. More policies and social actions are needed to reduce inequalities. UNDESA suggests in its report that promoting equal access to opportunities, inclusive tax policies that benefit employment and disability, and legislation that combats prejudice and discrimination and promotes greater Participation of marginalized groups is necessary to minimize income inequalities. An anti-poverty group, Global Citizen, in collaboration with a research agency, Glocalities, conducted a poll in 25 countries during this pandemic and found that eight in ten people think billionaires should come forward during this crisis to end poverty and inequality. Oxfam has shown in a report that the richest eight billionaires in the world are as rich as half the world’s population. Oxfam finds that if an additional 0.5% tax could be imposed on the wealth of the richest 1% billionaires over the next 10 years, it would equal the investments needed to create 117 million jobs in the education and health. The bottom line is: a concerted global effort and a burden-sharing attitude are needed to tackle poverty and inequality.
Rajib Tripura is a foreign affairs analyst and a graduate of the Crawford School of Public Policy, Australian National University.