Last Updated on August 2, 2017 by Karl Thompson
Global wealth inequality is increasing, but how can we explain this, is this is a problem, and what could we do to make the world a more equal place?
Trends in Global Wealth Inequality and Poverty
According to the 2016 Global Wealth Report produced by Credit Suisse, wealth inequality in 2016, measured by the share of the wealthiest 1 percent and wealthiest 10 percent of adults, as compared to the rest of the world’s adult population, continues to rise.
While the bottom half collectively own less than 1 percent of total wealth, the wealthiest top 10 percent own 89 percent of all global assets.
NB – You need to look at the pyramid below carefully, what it shows (to compare the very top and bottom) is as follows:
- The richest 33 million people (0.7% of the world’s population ) control $116 trillion, or 45.6% of the world’s wealth, or more than $1 million each
- The poorest 3.5 billion people (73% of the world’s population) control only $6.1 trillion of wealth, or less than $10, 000 in wealth each.
NB – Inequality is no longer simply a matter of poor people living in less developed countries and rich people living in more developed countries -there are plenty of millionaires in low and middle income countries – the report notes that ‘today, emerging nations are home to 18 percent of the world’s ultra-high net worth population. China alone accounts for 9 percent of the top decile of global wealth holders, which is well above France, Germany, Italy, and the United Kingdom.’
However, this is hardly cause for celebrations, it simply means that not only is global inequality increasing across the world as a whole, but also within most countries in the world – there are billions of poor people living right alongside those millionaires in low income countries!
The infographic below, taken from the World Economic Forum Website (published 2015), displays global wealth inequality more simply, and it’s also easier to remember:the richest 1% control 50% of the world’s wealth, while the poorest 50% control less than 1%.
Finally, to turn to trends in inequality over time, the chart below, also taken from the World Economic Forum website, shows how the global share of wealth controlled by the wealthiest 1% has increased from 45% to 50%, while the share of the ‘other 99%’ has decreased from 55% to 50%. (The chart below is derived from Oxfam’s 2016 Report: An Economy for the 1%?)
Oxfam further notes that:
- The wealth of the richest 62 people has risen by 45% in the five years since 2010 – that’s an increase of more than half a trillion dollars ($542bn), to $1.76 trillion.
- Meanwhile, the wealth of the bottom half fell by just over a trillion dollars in the same period – a drop of 38%.
- Since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while half of that increase has gone to the top 1%
Some Potential Problems with Statistics on Global Wealth Inequalities
- Firstly, there are issues with reliability when tracking global inequality – different nations tally income and wealth in different ways, and some nations barely tally reliable stats at all
- Secondly, you may have noticed that you get different figures depending on what groups your comparing – things look very different if you compare the top 1% to the rest, rather than comparing the top ten percent to the the bottom ten percent, or the top 50% to the bottom 50%. You might like to think about which is the most ‘valid’ comparison to give you a fair idea of global wealth inequalities (tough question!?)
Why has Wealth Inequality Increased?
What we are asking here, in short form is – how have the rich got so rich, and why have the poor lagged behind? In this section I summarise for changes which are correlated with increasing wealth inequality, all taken from the the Oxfam Report referred to above: Neoliberal economic policy; the global tax haven system, the growth of the financial sector and increasing returns to capital versus labour:
Neoliberal Economic Policy
Neoliberal Economic and policy changes over the past 30 years – including deregulation, privatization, financial secrecy and globalization – have supercharged the ability of the rich and powerful to to further concentrate their wealth.
For example, companies working in oil, gas and other extractive industries are using their economic power in many different ways to secure their dominant position. They lobby to secure government subsidies – tax breaks – to prevent the emergence of green alternatives. In Brazil and Mexico, indigenous peoples are disproportionately affected by the destruction of their traditional lands when forests are eroded for mining or intensive large-scale farming. When privatized – as happened in Russia after the fall of communism for example – huge fortunes are generated overnight for a small group of individuals.
The Global Network of Tax Havens
A powerful example of an economic system that is rigged to work in the interests of the powerful is the global spider’s web of tax havens and the industry of tax avoidance, which has blossomed over recent decades. The system is maintained by a highly paid, industrious bevy of professionals in the private banking, legal, accounting and investment industries.
As taxes go unpaid due to widespread avoidance, this leads to cuts in vital public services and that governments increasingly rely on indirect taxation, like VAT, which falls disproportionately on the poorest people.
This global system of tax avoidance is sucking the life out of welfare states in the rich world. It also denies poor countries the resources they need to tackle poverty, put children in school and prevent their citizens dying from easily curable diseases.
Almost a third (30%) of rich Africans’ wealth – a total of $500bn – is held offshore in tax havens. It is estimated that this costs African countries $14bn a year in lost tax revenues. This is enough money to pay for healthcare that could save the lives of 4 million children and employ enough teachers to get every African child into school.
Tax avoidance is a problem that is rapidly getting worse and has rightly been described by the International Bar Association as an abuse of human rights and by the President of the World Bank as ‘a form of corruption that hurts the poor’.
Increasing Returns to Capital Versus Labour
One of the key trends underlying increasing wealth inequality is the increasing return to capital versus labour. In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth. In contrast, the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing.
NB This article in The Economist challenges the idea that there are increasing returns to capital versus labour!
The Growth of the Financial Sector
The financial sector has grown most rapidly in recent decades, and a recent study by the OECD10 showed that countries with oversized financial sectors suffer from greater economic instability and higher inequality. Certainly, the public debt crisis caused by the financial crisis, bank bailouts and subsequent austerity policies has hurt the poorest people the most.
NB 1 -if you want more theoretical explanations of increasing inequality – look at Dependency Theory and World Systems Theory – much of this is applicable here. You might also like to look at ‘Why Nations Fail‘.
NB2 – given that measuring inequality involves measuring relative wealth – that is what percentage share to the richest 10% control compared to other 90%, for example, then we’re necessarily looking at a zero sum game – If the richest 10% go from controlling 40% of the world’s wealth to 60% of the worlds wealth, then the amount of wealth controlled by the other 90% of the population must fall from a 60% share to a 40% share.
Is Increasing Global Inequality a Problem for Humanity?
Neoliberals argue that increasing inequality isn’t necessarily a bad thing, the important thing is that even though the rich have got richer compared to the poor, the poor have also got richer, just not as rapidly as the rich and the middle.
However, Oxfam argues that growing economic inequality is bad for us all for the following reasons:
- It undermines growth and social cohesion and the consequences for the world’s poorest people are particularly severe.
- Had inequality within countries not grown since 2010, an extra 200 million people would have escaped poverty. That could have risen to 700 million had poor people benefited more than the rich from economic growth.
- The International Monetary Fund (IMF) recently found that countries with higher income inequality also tend to have larger gaps between women and men in terms of health, education, labour market participation, and representation in institutions like parliaments.
- The gender pay gap was also found to be higher in more unequal societies. It is worth noting that 53 of the world’s richest 62 people are men.
- From and ecological point of view, there’s even more injustice: the poorest people live in areas most vulnerable to climate change, the poorest half of the global population are responsible for only around 10% of total global emissions. The average footprint of the richest 1% globally could be as much as 175 times that of the poorest 10%.
What can we do to make the world a more equal place?
Oxfam notes that inequality is not inevitable. The current system did not come about by accident; it is the result of deliberate policy choices, of our leaders listening to the 1% and their supporters rather than acting in the interests of the majority. It is time to reject this broken economic model.
As a priority, Oxfam is calling on all world leaders to agree a global approach to end the era of tax havens
World leaders need to commit to a more effective approach to ending tax havens and harmful tax regimes, including non-preferential regimes. It is time to put an end to the race to the bottom in general corporate taxation. Ultimately, all governments – including developing countries on an equal footing – must agree to create a global tax body that includes all governments with the objective of ensuring that national tax systems do not have negative global implications.
In addition Oxfam is calling on leaders to take action to show they are on the side of the majority through doing the following:
- Keep the influence of powerful elites in check: for example by reforming the regulatory environment, particularly around transparency in government; separating business from campaign financing; and introducing measures to close revolving doors between big business and government.
- Share the tax burden fairly to level the playing field: by shifting the tax burden away from labour and consumption and towards wealth, capital and income from these assets; increasing transparency on tax incentives; and introducing national wealth taxes.
- Pay workers a living wage and close the gap with executive rewards: by increasing minimum wages towards living wages; with transparency on pay ratios; and protecting workers’ rights to unionize and strikes.
- Use progressive public spending to tackle inequality: by prioritizing policies, practice and spending that increase financing for free public health and education to fight poverty and inequality at a national level. Refrain from implementing unproven and unworkable market reforms to public health and education systems, and expand public sector rather than private sector delivery of essential services.
Credit Suisse – The World Wealth Report (November 2016)
Oxfam – An Economy for the 1% (Jan 2016)
Inequality on the Rise? (2012)