From lower educational attainment to poor mental health, poverty negatively affects life chances in several ways.
Being in poverty has a negative effect on an individual’s life chances. Being poor means you are more likely to…
struggle to pay the bills and be financially vulnerable.
have to rent rather than buying your own house, which is correlated with poverty.
have to rely on Free School Meals for your children, which is correlated with lower educational achievement.
suffer poor health throughout your life and lower life expectancy.
suffer mental health problems throughout your life.
end up getting stuck in a debt-cycle, where you pay more to service the debt.
This post explores some of the statistical evidence on the relationship between poverty and life chances, looking at a range of evidence collected by the office for national statistics and other agencies such as the Joseph Rowntree Foundation. The point of this post is simply to provide an overview of the statistics, and offer a critique of the limitations of these statistics. I’ll also provide some links to useful sources which students can then use to explore the data further.
What is Poverty?
There are different definitions and measurements of poverty, but one of the most widely used in the UK is relative poverty after housing costs (AHC). If household income is below 60% of the median household’s income, adjusted for family size and composition, they are in relative poverty.
The Joseph Rowntree Foundation uses this measure along with two other thresholds, tracking relative poverty using a total of three poverty thresholds.
Poverty threshold: 60% of median income
Deep poverty threshold: 50% of median income
Very deep poverty threshold: 40% of median income.
Relative poverty thresholds for 2020/2021
These are adjusted for household composition to reflect the different costs of living alone, compared to living in a couple, and with children.
Weekly median income 2020/2021
Poverty threshold (60% of median)
Deep poverty threshold (50% of median)
Very deep poverty threshold (40% of median)
Single adult, no children
£274
£164
£137
£109
Couple two children
£472
£283
£236
£189
Lone parent, two children*
£566
£340
£283
£226
Couple two children*
£764
£458
£382
£306
*Assumes one child is aged under 14 and one 14 years or older.
According to this measurement there were 13.5 million people, or 20% of the U.K. population living in low-income households in 2020 /21.
Life chances
Life chances are your chances of achieving positive outcomes and avoiding negative outcomes throughout the course of your life – such as succeeding in education, being happy, or avoiding divorce, poor health and an early death.
Five ways poverty affects life chances
Poverty negatively affects people’s life chances. Being poor means…
You struggle to pay the bills (having to choose between heating or eating).
You have to pay rent rather than owning your own home.
You’re kids are more likely to fail their GCSEs.
You were more likely to die from Covid.
You’re more likely to suffer from poor mental health.
Poverty means you can’t pay the bills
Those earning lower incomes are more likely to struggle to pay their bills and suffer from other forms of financial vulnerability.
Someone earning £10 000 a year is twice as likely to report not being able to save or struggling to pay the energy bills compared to someone earning £50 000 a year, and four times more likely to report not being able to afford unexpected expenses.
56% of adults earning less than £10 000 a year reported that they found it difficult to afford energy bills compared to only 26% of adults earning more than £50 000 a year.
38% said they were unable to afford hidden expenses compared to 10% of the richest quintile.
Those with lower incomes are almost three times as likely to report being depressed compared to those with higher incomes.
6% of people in the lowest quintile of earners report being depressed compared to 2% of those in the highest quintile of earners.
Those in the lowest quintile are also more likely to report ‘lacking energy’ or ‘feeling worthless’, and more likely to report a number of conditions which correlate with poor mental health.
Poverty is not having access to the basic things in life, considered normal in a society.
A working definition of poverty is: The condition of not having access to those things considered ‘basic’ or ‘normal’ within a society (1)
Origins of the Concept
The academic use of the concept can be traced back to Seebohm Rowntree’s (1901) study of Poverty in York, which set the tone for much later work which sought to uncover the extent of poverty in society.
In the late 1950s Peter Townsend developed a relational concept of poverty based on lifestyles, from which he distilled 12 recurring items, such as ‘household does not have a refrigerator’, into a poverty or deprivation index. This is a relative, rather than an absolute concept of poverty.
Later studies have used questionnaires to find out what people themselves define as necessities in order to measure ‘relative poverty’.
Today national governments also use ‘poverty lines’, which is usually set at 50-60% below the national average household income.
Absolute and Relative Poverty
Sociologists generally recognize two definitions of poverty – absolute and relative
Absolute poverty is grounded in the idea of material subsistence -the basic needs which must be me in order to sustain a reasonably healthy existence, mainly food, shelter and clothing. By these standards, there are still hundreds of millions of people around the world who live in absolute poverty, mostly in Sub-Saharan Africa and rural India.
However, the problem with the concept of absolute poverty is that there is no universal definition of it, and definitions of need are culturally variable: for example the !Kung bushmen do not regard themselves as living in absolute poverty, but many people in the West may define them as suffering from this condition.
Most sociologists today use the concept of relative poverty, which relates poverty to the standards of living in a particular society. The main reason for using relative poverty as a measurement is that as societies ‘develop’, people tend to adjust their ideas of what counts as a ‘necessity’ upwards – for example in poor areas of less developed countries, running water and flush toilets are not generally regarded as necessities, while in more developed countries refrigerators and telephones may be regarded as necessities.
Critics of the relative poverty measurement argue that it detracts our attention away from the more serious issue of ‘absolute poverty’, which is potentially life threatening, whereas those living in relative poverty (in the UK and other developed countries at least) tend not to be starving.
However, measuring relative poverty is useful as it highlights injustice in society and groups which experience discrimination and marginalization – women, some ethnic minorities, the young and the old are more likely to be in relative poverty than other groups.
Individual and Social-Structural Explanations of Poverty
Explanations of poverty tend to either blame the individual (‘blame the victim’ approaches) or blame society (structural, or ‘blame the system’ approaches).
Blame the victim approaches tend to argue that poverty has always been with us, and always will be, they see society as generally fair and offering opportunities to individuals for advancement: if individuals fail to take advantage of these opportunities it is down to their own lack of effort, and those individuals who fail to ‘rise up’ in the system have no one else to blame but themselves.
Such ideas were popular in 19th century Britain, when work houses were developed to deal with the poor (the ‘failures’), and had a resurgence in the 1980s when New Right/ neoliberal ideas explained poverty as the fault of individuals themselves, probably the most classic statement of this being Charles Murray’s theory of the underclass in which he blamed persistent poverty on an over-reliance on benefits and an unwillingness to work on the part of the long term unemployed.
‘Blame the system’ approaches can be traced back to R.H. Tawney who argued that poverty is a key factor in explaining social inequality which results in extremes of wealth and poverty.
These approaches focus more on how the structure of society systemically disadvantages some groups rather than others – inequalities in class, gender, ethnicity and physical ability all make it more difficult for some to take advantage of opportunities, and this is no fault of the individual when discrimination or cultural capital possessed by the elite class effectively block opportunities for some while opening them up for others on an unequal basis.
Blame the system approaches also point out that major structural changes in society can also affect poverty levels – the decline of manufacturing in the UK from the 1970s for example led to declining job opportunities for large sections of the traditional working classes, while the flexibilisation of work patterns as part of neoliberal working regimes have locked millions of workers in the UK into temporary, low paid jobs during the 1980s and 1990s.
From this structuralist point of view, social policy is the solution to poverty, two recent examples being the introduction of the minimum wage and the expansion of in-work benefits.
Criticisms of the Concept of Poverty
Absolute poverty is difficult to measure because there is no universally agreed concept of ‘needs’, and the same criticisms can be applied to relative poverty – if we are to base the definition of this on not having certain items, then it is impossible to escape subjective interpretations of what the cluster of ‘necessary items’ should be.
The concept of relative poverty has also been criticised as only actually measuring inequality, rather than poverty, so the concept lacks clear meaning – – at least the concept of ‘absolute poverty’ helps us to identify people in real need, whereas it is not necessarily possible to say this about someone who is in ‘relative poverty’ when they level of it keeps rising with increasing standards of living.
Focusing on relative poverty detracts attention away from those in absolute poverty.
Some sociologists have moved away from the concept of poverty in favour of ‘social exclusion’ which focuses instead on the processes which deny poorer people access to certain citizenship rights.
Continuing relevance
Research on poverty has demonstrated that a substantial amount of people in both the United Kingdom and the United States are in poverty at any one time, and that there is a clear link between socio-economic structures and the persistence of poverty in modern societies.
Signposting and related posts
Poverty is one of the most important concepts within A-level sociology.
I teach poverty along with the related concept of relative deprivation as part of my introduction to sociology module in first two weeks of the course.
Gender inequality is an extremely important aspect of development. Even if we put aside the significant social justice issues associated with the historical power differences between men and women, when you have half the population that are disempowered with less access to education, employment and healthcare, that alone is enough to drastically skew the social development statistics downwards!
Hence there is an argument that promoting gender equality should be the primary development goal, simply because it’s the easiest way to have a positive knock on effect in every other area of social life.
The commitment to achieving gender equality remains unfulfilled:
In 2019, one in five young women aged 20 to 24 was married in childhood (down from one in four in 2004). In Sub-Saharan Africa, one in three young women was still married in childhood.
In 2020, almost 25% of MPs in national parliaments were women (up slightly from 22.3 per cent in 2015). Women hold 36 per cent of elected seats in local parliaments.
In 2019, 28 per cent of managerial positions in the world were occupied by women (up from 25 per cent in 2000).
Women are still less likely to work than men. They make up half of the world’s working-age population but only 39 per cent of the world’s workers.
Only 55% of married or in-union women aged 15 to 49 made their own decisions regarding sexual and reproductive health and rights.
In 2019, 73 per cent of the laws and regulations needed to guarantee full and equal access to sexual and reproductive health and rights were in place (based on data from 75 countries).
At least 200 million girls and women have been subjected to female genital mutilation (data from 31 countries where the practice is concentrated). The harmful practice is becoming less common, but progress is not fast enough to meet the global target of its elimination by 2030.
The coronavirus pandemic is hitting women and girls harder than men:
Globally, women make up three quarters of medical doctors and nursing personnel.
Women already spend three times as many hours as men on unpaid care work at home. The closure of school and day-care centres has put an extra burden on women to provide home-learning for their children.
Reports from several countries suggest that domestic violence against women and children is also rising during the global lockdown.
Statistics on Global Gender Inequality
The World Economic Forum produces the Global Gender Gap Report, which in 2020 noted that none of us will see global gender equality in our life time as it will take almost 100 years to achieve global gender equality at current rates of progress!
It measures gender inequality by using 14 indicators in 4 categories:
Economic Participation and Opportunity
Educational attainment
Health and Survival
Political Empowerment
It reports similar global stats to the United Nations, but is more useful for finding out the country rankings by gender inequality. If you download the report and scroll to the back, you can even look at each individual country’s score card for each indicator.
Another ‘gender equality world ranking’ system is The Women Peace and Security Index. This is a bit more niche/ focused than the WEF report and measures gender inequality in countries by using 11 indicators in 3 categories:
Inclusion
Security
Justice
The world country rankings for both the above two monitoring tools are similar:
2019-2020
Global Gender Gap Report
Women Peace and Security Index
Top five countries for gender equality
Iceland Norway Finland Sweden Nicaragua
Norway Switzerland Finland Denmark Iceland
Bottom five countries for gender equality
DRC Syria Pakistan Iraq Yemen
South Sudan Pakistan Syria Afghanistan Yemen
The countries with the highest ‘Peace and Security Scores’ for Women.
Discussion Questions
Explore the rankings above. (1) Are you surprised by any of the results. (2) Do you think any of these indicators are more valid/ important than others as measurements of gender equality?
NB the material below is from 2017 and is pending an update, which will be forthcoming! (You know the score, not enough time to update everything as often as you’d like!)
Gender Inequalities in Employment
For every dollar earned by men, women earn 70-90 cents.
Women are less likely to work than men – Globally in 2015 about three quarters of men and half of women participate in the labour force. Women’s labour force participation rates are the lowest in Northern Africa, Western Asia and Southern Asia (at 30 per cent or lower).
When women are employed, they are typically paid less and have less financial and social security than men. Women are more likely than men to be in vulnerable jobs — characterized by inadequate earnings, low productivity and substandard working conditions — especially in Western Asia and Northern Africa. In Western Asia, Southern Asia and Northern Africa, women hold less than 10 per cent of top-level positions.
When all work – paid and unpaid – is considered, women work longer hours than men. Women in developing countries spend 7 hours and 9 minutes per day on paid and unpaid work, while men spend 6 hours and 16 minutes per day. In developed countries, women spend 6 hours 45 minutes per day on paid and unpaid work while men spend 6 hours and 12 minutes per day.
Gender Inequalities in Education
The past two decades have witnessed remarkable progress in participation in education. Enrollment of children in primary education is at present nearly universal. The gender gap has narrowed, and in some regions girls tend to perform better in school than boys and progress in a more timely manner.
However, the following gender disparities in education remain:
31 million of an estimated 58 million children of primary school age are girls (more than 50% girls)
87 per cent of young women compared to 92 per cent of young men have basic reading and writing skills. However, at older age, the gender gap in literacy shows marked disparities against women, two thirds of the world’s illiterate adults are women.
The proportion of women graduating in the fields of science (1 in 14, compared to 1 in 9 men graduates) and engineering (1 in 20, compared to 1 in 5 men graduates) remain low in poor and rich countries alike. Women are more likely to graduate in the fields related to education (1 in 6, compared to 1 in 10 men graduates), health and welfare (1 in 7, compared to 1 in 15 men graduates), and humanities and the arts (1 in 9, compared to 1 in 13 men graduates).
There is unequal access to universities especially in sub-Saharan Africa and Southern Asia. In these regions, only 67 and 76 girls per 100 boys, respectively, are enrolled in tertiary education. Completion rates also tend to be lower among women than men. Poverty is the main cause of unequal access to education, particularly for girls of secondary-school age.
Gender Inequalities in Health
Women in developing countries suffer from….
Poor Maternal Health (support during pregnancy) – As we saw in the topic on health and education, maternity services are often very underfunded, leading to hundreds of thousands of unnecessary female deaths as a result of pregnancy and child birth every year.
Lack of reproductive rights – Women also lack reproductive rights. They often do not have the power to decide whether to have children, when to have them and how many they should have. They are often prevented from making rational decisions about contraception and abortion. Men often make all of these decisions and women are strongly encouraged to see their status as being bound up with being a mother.
Gender Inequalities in the Experience of Overt Violence
Around the world, women are more likely to be…
Victims of Violence and Rape – Globally 1/3 women have experience domestic violence, only 53 countries have laws against marital rape.
Missing: More than 100 million women are missing from the world’s population – a result of discrimination against women and girls, including female infanticide.
At risk from FGM – An estimated 3 million girls are estimated to be at risk of female genital mutilation/cutting each year.
Girls are more likely to be forced into marriage: More than 60 million girls worldwide are forced into marriage before the age of 18. Almost half of women aged 20 to 24 in Southern Asia and two fifths in sub-Saharan Africa were married before age 18. The reason this matters is because in sub‐Saharan Africa, only 46 per cent of married women earned any cash labour income in the past 12 months, compared to 75 per cent of married men
Gender Inequalities in Politics
Between 1995 and 2014, the share of women in parliament, on a global level, increased from 11 per cent to 22 per cent — a gain of 73 per cent, but far short of gender parity.
Sources
Most of the above information is taken from the sources below…
The government regards such poorer families as a “burden to the state” and so forces its own citizens who fall in love with non-EU citizens to shove off and set up their family life elsewhere.
According to research conducted by Oxford University, nearly 40% of the working UK population wouldn’t be eligible to live here with their non-EU partner – that breaks down to 27% of men and 55% of women. The majority of young people don’t earn enough either. And the statistics are worse if you have a child. So, if you’re a young women and you fall for a handsome stranger from a distant land, it is highly unlikely the Home Office will allow you to remain in this country if you want to live together.
This is a nice link to the families and households topic, showing how immigration and cross-cultural marriage is only for the rich. The poor, it seems, are doomed to marry locally. It’s also a nice tie-in with the social class and family sub-topic.
There is a very wide range of non-governmental organisations (NGOs). NGOs are groups of concerned citizens who are independent of the government and business, and are thus nominally non-political and non-profit organisations. NGOs typically have charity status and raise funds through a combination of voluntary donations from the public, but also grants from governments and other international development institutions.
Many NGOs are tiny, focusing on development in one region and specializing in one area, others, however, are global institutions, have huge budgets and work in several countries on numerous types of development project. This section focuses on these larger ‘aid organisations’ with an international focus – such as Oxfam and Action Aid. Although such organisations have an international focus, they still have a tendency to divide their attention so they focus on hundreds of different micro-level projects at one time.
Commentators generally point to four functions of NGOs in development
The development function – Probably the most obvious – This typically involves focusing on small scale aid projects such as local irrigation schemes, or developing rural health and education schemes in conjunction with local communities.
The Empowerment Function – More so than with private companies and Governments – NGOs aim to ‘empower’ local communities – This involves striving to give local communities a role in how aid projects are developed, but also lobbying International institutions like the European Union to establish trade rules which do not unfairly advantage Western companies and farmers. (We’ll come back to this point later).
The Education Function – Oxfam is a good example of an NGO that puts a lot of money into developing education for schools and advertising to keep developing world issues in the public consciousness.
The ‘emergency aid function’ – when natural or social disasters occur – Earthquakes, Hurricanes, Famines for example – NGOs are often the front line in the delivery of emergency aid.
Dependency theorists argue poor countries are often dependent on low value primary products for export, which the West then adds value to!
Andre Gunder Frank (1971) argues that the reason trade doesn’t work for poor countries is a legacy of colonialism – before independence, the colonising power simply took these commodities. After independence, developing societies are often still over-dependent on exporting these primary commodities, which typically have a very low market-value, and rich countries are happy to keep things this way because this enables them to stay rich.
Four reasons why free trade doesn’t always promote development
Dependency Theorists point to at least the following reasons why trade doesn’t help poor countries develop:
Poor countries are often dependent on low value, primary products for their export-earnings.
Value is added to primary commodities by rich countries.
The terms of trade are often biased against poor countries
Poor countries have been pressurized into exporting to clear their debts.
Poor countries export low value, primary products
According to Elwood (2004) three commodities accounted for 75% of total exports in the poorest 50 countries, but because of the declining value of such commodities, the developing nations need to export more and more every year just to stay in the same place. One developing nation leader described it as ‘running up the downward escalator’. For example, in 1960, the earnings from 25 tons of natural rubber would buy four tractors, today it would only buy one.
One example of a country which appears to be still dependent on the export of low value primary products is Malawi:
Malawi – dependent for most of its income on one primary agricultural product – Tobacco. (Source.)
However this may not apply to that many African countries today. According to data from Statista, while there is still a colonial legacy which affects African exports, more African countries have moved towards exporting oil and gas which are more profitable than the more traditional agricultural commodities.
Value is added to primary commodities by rich countries
Primary products such as cocoa, tea and coffee, sell for relatively low prices, so the farmers growing and selling such products make relatively little. However, once these products have been processed, branded and turned into the goods you see on the supermarket shelves, they can sell several times the original price. The problem (for developing countries) is that most of this processing and branding is done in the West. Thus, poor countries stay poor, and rich countries get rich.
With some commodities, there are several links in the chain of trade – take coffee for example – it goes from grower (in Ethiopia for example), to the local buyer, to the exporter, to the roaster (in Germany for example), to the supermarket and then to the consumer – 6 links in the chain. A bag of coffee might cost the consumer £2.50 in the supermarket, but the grower is lucky (very lucky) if they receive even 10% of this.
This infographic on the economics of coffee from Visualcapitalist shows shows how little poor farmers make from coffee compared to the end retailers. The breakdown is as follows:
growing – $0.07
exporting coffee – $0.16
Roasting – $0.35
distribution – $0.04
retail $2.17
total = $2.80
So the farmers growing the coffee get around 2% of the end price!
The terms of trade are often biased against poor countries
Western nations impose tariffs (import taxes) or quotas (simply limits on how much a country can import) on goods from the developing world, which seriously impairs the ability of poor countries to make money from exports.
At the same time as restricting imports from poorer countries, Western governments subsidize some of their own industries. This results in over-production in some sectors, which can result in cheap, subsidized Western goods being dumped on poor countries, which undermines local industries in poorer countries. This happened in Haiti in the early 1990s, when cheap, subsidized American rice was dumped on the Haitian market, forcing local rice farmers out of business (because the American rice was cheaper.
This 2015 video from Al Jazeera focuses on this issue in Kenya – Kenyan cotton farmers are finding it very difficult to compete with subsidized American cotton farmers. You get to see the large scale U.S. operation which is subsidized by the American government, who exports their cotton: the US is the largest cotton exporter in the world. And you also get to see how American cotton production contrasts with the much smaller scale nature of Kenyan cotton production, cotton which they cannot export because they cannot compete with the subsidized US cotton.
More recently, OXFAM has been concerned with the recent increase in bilateral ‘free trade’ agreements (FTAs). For example, in 2007, the EU singed FTAs with India which opened up Indian markets to the import of poultry and dairy products, despite the fact that 85% of demand is met locally by Indian farmers, and the introduction of big supermarket chains into the Indian marketplace.
In 2020 War on Want argued that aggressive new post-Brexit trade deals between the UK and Ghana hit Banana exporters in Ghana with £20 000 worth of tariffs a week, putting the livelihoods at risk.
Exporting to clear debts
The World Bank sees loans and debt as a ‘normal’ part of development, and poor countries are required to maintain repayments on (often low-interest) development loans to be eligible for more loans, thus keeping up repayments on loans is a crucial part of development for many countries.
Ellwood (2004) argued that this has resulted in the ‘social violence of the market’ – the constantly escalating pressure on farmers and workers in the developing world to produce more for less, which results in a problem called ‘immiserating trade’ – the more a developing country trades, the poorer it gets.
Conclusions
Marxists conclude that the terms of world trade are far from equal. Developing countries are very much junior partners in global trading relationships and are consequently exploited by more powerful countries, TNCs and their agents.
Signposting and Sources
This material is relevant to the Global Development module. This is an option in the second year of A-level sociology,
References
Chapman et al (2016) – A Level Sociology Student Book Two [Fourth Edition] Collins. ISBN-10: 0007597495
The Millennium Development Goals (MDGs) were adopted by 189 nations during the UN Millennium Summit in September 2000. Eight MDGs were developed which responded to the world’s main development challenges.
The goals ranged from halving extreme poverty rates to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 – form a blueprint agreed to by all the world’s countries and all the world’s leading development institutions.
They have so far galvanized unprecedented efforts to meet the needs of the world’s poorest. The UN is also working with governments, civil society and other partners to build on the momentum generated by the MDGs and carry on with an ambitious post-2015 development agenda.
The MDGs aimed to measure development in eight categories, using 60 separate indicators. The final two goals were aimed more at developed countries, aiming to monitor things such as carbon dioxide emissions, development aid donations and fair trade rules.
Following the success of the eight MDGs, they have since ‘developed’ into seventeen global goals for sustainable development
The Global Goals for Sustainable Development
The Millennium Development Goals – Progress to 2015 (selected)
The infographics below provide the headlines….
And some further MDG achievements….
The proportion of undernourished people in developed regions halved between 1990 and 2015.
In 1990, nearly half of the population in the developing regions lived on less than $1.25 a day. This rate dropped to 14 per cent in 2015.
The average proportion of women in parliament has doubled
The net loss of forests has reduced from an average of 8.3 million hectares annually in the 1990s to an average of 5.2 million hectares annually between 2000 and 2010.
Remaining Development Goals (selected)
At the global level more than 800 million people are still living in extreme poverty
Globally, an estimated 795 people are malnourished
Globally, 300 million workers lived below the $1.25 a day poverty line in 2015.
The proportion of the working-age population that is employed – has fallen from 62 per cent in 1991 to 60 per cent in 2015.
In countries affected by conflict, the proportion of out-of-school children increased from 30 per cent in 1999 to 36 per cent in 2012.
Globally, about three quarters of working-age men participate in the labour force, compared to half of working-age women.
Women continue to experience significant gaps in terms of poverty, labour market and wages, as well as participation in private and public decision-making
Between 1990 and 2012, global emissions of carbon dioxide increased by over 50 per cent.
The map below shows the regions where most and least progress was made over the 15 years of the Millennium Development Goals.
Sub-Saharan Africa remains the region where the most progress is to be made.
Some strengths of the MDGs as indicators of development
Much broader range of indicators (60) – more validity! – Good for professional development workers!
Includes the developed nations (these also have targets – 7 and 8 especially)
NB – These have now become the ‘sustainable development goals’.
Some limitations of the MDGs as indicators of development
Not very ambitious – halving poverty by 2015, given up on the idea of ‘economic growth’.
Problems with some indicators – e.g. ‘finishing primary school’ doesn’t tell us about quality of education or how many days actually spent in school.
Do the MDGs lack ambition?
Sources Used
The main source used to write this post was the United Nations ‘Millennium Development Goals Progress Page’.
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.
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.
The richest 10% are 133 times wealthier than the poorest 10%. This post explores statistics on wealth and income inequalities in the UK
The wealthiest 10% of households in the UK are 133 times richer than the poorest 10% of households (1).
The disposable income of the richest 20% of households is 4.5 times greater than the poorest 20% (2).
Wealth Inequalities in the UK
In 2018-2022:
The richest 1% of households had a median wealth of more than £3.6 million.
The richest 10% of households had a median wealth of £1.9 million.
The poorest 10% of households had a median wealth of just £15,400.
This means the wealthiest 10% of households were 130 times richer than the poorest 10% of households. The wealthiest 10% were 233 times richer.
Components of wealth
As measured by the ONS wealth is made up of four main components:
Pensions
Property
Other physical assets
Cash savings
For the wealthiest households, private pensions make up a more significant portion of wealth. Pensions as a proportion of wealth becomes less significant the poorer the household is.
In middle-wealth households, property is the most significant proportion of wealth.
This probably means that for the ‘middle wealthy’ they are not as affluent as may appear. Most of these people will live in those households, no income is derived from that portion of their wealth. In contrast, pension wealth, which wealthier households have a lot more of, yields an income.
Trends in wealth distribution
The wealth of the richest 10% of households has decreased in the very long term. In 1900, the top 10% controlled over 50% of wealth. This declined to a low of 26.5% in 1970, but then increased to 38.7% in 2013. The proportion of wealth controlled by the top 10% has declined slightly over the last decade (3)
In 2021 the top 10% controlled 35.7% of wealth, compared to the bottom 50% who controlled only 20.4% of wealth.
According the Equality Trust, by 2023, the richest 50 families in the UK held more wealth than half of the UK population, comprising 33.5 million people.
Income inequalities in the UK 2022
Median equivalized disposable income for the richest 20% of households was £66002 in 2022, compared to £14508 for the poorest 20% of households (2).
This means the richest 20% of households had an income 4.5 times greater than the poorest 20% of households.
Disposable income is income after taxes and benefits. Equivalized means income is adjusted to take account of household composition because costs are different for single people, couples and families.
60% of this median income is £19409 which means that every single one of those households in the bottom quintile is in poverty, as are around half of the households in the second quintile.
It should be no surprise based on the above distribution that 13.4 million people or 20% of the population were living in poverty in 2020/2021.
The Joseph Rowntree Foundation also has measures of deep poverty, set at 50% of median income at £16174 a year and very deep poverty, at 40% or just under £13 000 a year.
Poverty has deepened in recent years, with more people falling into deep and very deep poverty. Based on the above distribution for example every household in the bottom quintile is in deep poverty, some will be in very deep poverty!
A more detailed income distribution
The Institute for Fiscal Studies has developed an online calculator where you can enter your income to see where you fit in to the distribution in the UK.
If you enter your income and costs you will show up as a red bar. (My screen capture below doesn’t show a red bar as I entered a fake high income, so my bar is off the scale to the right!).
What the graphic below shows is how many millions of people earn roughly what weekly income. Each bar represents an increase in income of around £7.
I put two arrows in to demonstrate that most people receive between £200 and £550 per week.
You can also see from the above bar chart that there are more people clustered towards the middle-left. Relatively few people have very high incomes!
The different shades of green are just to make the graphic easier to read.
All of the people in the first light shade of green to the left will classify as being in very deep poverty, with incomes of less than £190 a week.
Trends in income inequality
Disposable income inequality has increased considerably since 1977. As measured by the Gini Coefficient, income inequality has increased from 24.5% in 1977 to 34.7% in 2022 (4).
The Gini coefficient takes values between 0% and 100%, with higher values representing an increase in the level of inequality. A value of 0% indicates complete equality, a value of 100% complete inequality. A 100% score would mean one person (or household) has all the income.
Signposting and related posts
Poverty is a concept that is often linked with wealth (you might crudely say that poverty is the opposite of wealth).
Wealth and income inequalities are closely correlated with social class, although economic measurements are just one indicator of social class, which is a broader concept, also encompassing social and cultural capital (if we are going to use the latest social class survey – see here for an introduction to the concept of social class.
The three country case studies below all suggest that although neoliberal policies might promote economic development in the long run, in the case of Chile at least, there are some significant negative consequences of this pathway to development.
Chile in the 1970s
Boliva in the the 1990s
India – Contemporary
NB – If you’re here for a blog post about Neoliberalism in India – please click here (I moved it!)
Chile
The following clip from ‘The Shock Doctrine’ outlines the ‘neoliberal experiment in Chile from 1973 onwards, the very first neoliberal experiment in development.
Following the overthrow Salvador Allende, the democratically elected but Socialist President, the American backed Dicator Augusto Pinochet implemented neoliberal economic reforms.
These were written for him by by a group of American economists known as ‘The Chicago school’, headed by Milton Freedman.
Examples of neoliberal policies reforms included the cutting of taxes on imports to 10% (previously Chile had the second most protected economy in the world) and the privatisation of state owned companies.
In the short term – the policies increased unemployment and inflation and inequality and human misery which led to massive social unrest which Pinochet oppressed violently killing tens of thousands of people.
However, 40 years later… Chile is one of Latin America’s leading economies.
Neoliberals might argue tens of thousands of lives is a price worth paying for rapid wealth creation
Neoliberalism in Bolivia
This video clip from ‘The Corporation’ summarizes the case study of water privatization in Bolivia in the 1990s.
In the early 1990s, one local administrative area within Bolivia was forced to privatise the previously state owned water supply as part of a ‘Structural Adjustment Programme’
A Multinational took over running the water supply for a profit
The poorest people couldn’t afford to pay for water.
This led to massive protests which the government violently suppressed.
In this case the government eventually renationalised the water supply due to popular demand.
Did neoliberalism help development?
If you define progress as the right to clean water then no.
If you define it as increasing profit for European Transnationals then yes.
Neoliberalism in India
Arundhati Roy notes that ‘Trickle down hasn’t worked in India, but gush up certainly has’
She notes the following three ways in which the Elite in India Benefit from Neoliberal Policies
Corrupt government officials sign a ‘Memorandum of Understanding’ (MoU) with a Corporation which privatises a chunk of publicly owned land, giving that corporation the right to use that land to establish a business – this either takes the form of mining the raw materials from under the land, or establishing a range of other projects such as Agribusinesses, Special Economic Zones, Dams, and even Formula One racing circuits.
Taxes are typically kept very low in these deals – often sow low in that local people see little of the financial benefit of the new business. This is especially true were mining is concerned. In 2005, for example, the state governments of Chhattisgarh, Orissa, and Jharkhand signed hundreds of memorandums of understanding with private corporations, turning over trillions of dollars of bauxite, iron ore and other minerals for a pittance – royalties (effectively taxes) ranged from 0.5% to 7%, with the companies allowed to keep up to 99% of the revenue gained from these resources. (Allowing people like Ambanni to build their 27 story houses, rather than the money being used for food for the majority of the Indian population.)
In a third strand of Neoliberal policy, companies are subjected to very little regulation. It seems that they are allowed to develop their projects without protecting the environment or paying any compensation to people who are negatively affected by these projects.
