The Evil of Inequality

In most of the world, the difference in income between rich and poor is growing, and the wealthy consume more while the poor are forced to live ever more frugally. Justin Frewen discloses the nature of global and domestic inequality. 

In the two previous pieces of this mini-series, we looked at the ‘evils’ of poverty and hunger. While poverty and hunger are frequently in the news, the third of our three ‘evils’, inequality, is seldom covered. To a large extent, the reality of inequality is ignored or at best downplayed. However, in the early 1950s, the first UN resolutions on development focused on inequality rather than poverty. Unfortunately, this decline of interest in inequality is not an indication of any improvement in global equality.   

According to the 1996 UNDP Human Development Report (HDR), the period 1960 to 1991 saw the richest 20% increase their share of global income from 70% to 85% while that of the poorest 20% declined from 2.3% to 1.4%. (UNDP HDR, 1996, 13) In spite of an exponential expansion in world trade, 86% of global income went to the 20% of the world’s population living in ‘developed’ countries. Bill Gates, Warren Buffett and Paul Allen, the world’s three wealthiest individuals had total assets of US$156bn, a figure in excess of the combined GNP of the 43 least developed countries, home to over 600 million people. 

The first decade of the twenty-first century has provided few signs that these staggering levels of inequality will be reduced anytime in the near future. The 2008 United Nations University-WIDER report revealed that over half of all global assets were the property of the richest 2%, with 40% owned by the top 1% and 85% by the top decile (10%). Meanwhile the poorest 50% had to make do with a paltry 1% of total global wealth. On average, the richest 10% enjoyed 3,000 times the accumulated wealth of those in the bottom 10%. While 1.2 billion people are obliged to survive on US$1.25 a day, there are almost 500 billionaires worldwide.

However, such extreme inequality does not only exist between different states. It is also an issue of increasing domestic concern as state level trends in inequality are far from encouraging. As the 2005 UNDP HDR reported:

While income gaps between countries account for the lion’s share of global inequality, income disparities within many countries rival in scale the inequalities in global income distribution. In Brazil the poorest 10% of the population account for 0.7% of national income, and the richest 10% for 47%. Inequalities within Sub-Saharan Africa are also very large. In Zambia, for example, the ratio of the income of the richest to the poorest 10% is 42:1.

Approximately 80% of global citizens live in states with rising income differentials against a mere 4% where they are contracting. This trend holds true for states experiencing significant or negligible economic growth both in the North (Northern Hemisphere) and South (Southern Hemisphere). Perhaps the most striking example of increasing inequality in the North is the US, where between 1973 and 2005 the richest 0.01% saw their incomes rise by 250% at the same time as the bottom 90% experienced a real average income fall of 11%.

Nevertheless, shocking though these statistics are, disparity in the most unequal nation of them all, Brazil, is still inferior to that between different states.

It would appear, therefore, that the world’s bounty is increasingly being consumed by an ever smaller proportion of our planet’s inhabitants, with the vast majority virtually reduced to living off their scraps.

It is therefore hard to argue with Jan Nederveen Pietersee when he writes:

Overall discrepancies in income and wealth are now vast to the point of being grotesque. The discrepancies in livelihoods across the world are so large that they are without historical precedent and without conceivable justification — economic, moral or otherwise… The growth of extreme poverty coincides with an explosion of wealth over the same time period. (2002, 1023-4)

However, while this might be true, what effect, if any, does inequality have on peoples’ lives and their societies?

At the international level, perhaps the clearest indication of the effects of global inequality can be seen in the differing rates of life expectancy and mortality rates. According to the World Health Organization (WHO) a child born in Afghanistan in 2004 had a life expectancy of 42 years, in Botswana and Zambia 40 years, and in Sierra Leone only 39 years. On the other hand, those fortunate enough to be born in Canada or France had on average 80 years to experience the world, an Australian or Swede 81, and a Japanese child 82 years. Even Ireland, at the lower end of the ‘developed’ world in this category might hope for 78 years, the same as the US or Cuba.

In terms of child mortality, the consequences of inequality are also evident. Being born in Sweden rather than Swaziland meant a baby had a 30 times greater chance of making it to five. Similarly, a Canadian child was 17 times more likely to reach the age of five than a Cambodian child. 

Such global inequality presents a major obstacle in the fight against poverty. It is simply not possible to effectively tackle poverty by relying solely on improving economic performance. The problem of socio-economic inequality has to be openly recognised and tackled. Failure to adopt such an approach will result in the gains from economic development flowing into the coffers of the wealthier sections of the population, leaving the poor as badly off as ever. 

Furthermore, the reduction of absolute poverty in itself without a corresponding decrease in inequality or relative poverty would hardly be a satisfactory outcome. Inequality tends to play a significant role in the marginalisation of relatively poorer people.

Inequalities in education, employment, health, social and political participation can all bring about increased poverty and marginalisation. The UN’s Report on the World’s Social Situation 2005 – ‘The Inequality Predicament’ – stresses the role of inequality in creating social breakdown. Higher rates of inequality impact negatively on overall social cohesion and the general well-being of a state’s citizens. In a detailed study of rich market democracies ‘The Impact of Inequality’, Richard G. Wilkinson demonstrates that more equal societies have relatively lower rates of homicide and violence as well as superior life expectancy and health standards.

However, there are still those who oppose efforts to reduce inequality – or more correctly increase equality – as being detrimental to freedom. They claim that such a policy inhibits the ability of individuals to realise their innate potential to become a successful entrepreneur, lawyer or whatever. In reality, the opposite is true. In addition to helping move people out of poverty, real equality would emphasise the possibility of individual development by providing people with sufficient resources to enable them do so.

Nor should we tolerate the idea that inequality is morally acceptable while the market works its magic, as argued by those who adhere to the belief that the answer to inequality lies in an improved global trading system. Similarly, it is imperative that we reject the fatalistic contention that inequality is one of those incontrovertible realities, impervious to correction.

Given the unprecedented levels of international inequality, it is clear that there will be a need for some form of redistribution policy in favour of greater equality. Such a reallocation of resources in favour of the poorer sections of our global community would reap enormous gains in tackling the scourges of hunger and malnutrition.

Indeed, the need for redistribution has been widely acknowledged by global development institutions. Even the World Bank in its 2006 World Development Report (WDR) – ‘Equity and Development’ – recognised the need for the implementation of redistribution policies.

However, just how such a redistribution of resources might come about is not an easy task. Firstly, it would be imperative to obtain international collaboration and commitment, a task of leviathan proportions in itself. Secondly, there would need to be a move towards a more cooperative and equitable approach to global affairs along with a corresponding reduction in the current ‘cut-throat’ nature of international free-trade competition.

Crucially, these developments would necessitate either the freely given cooperation of commercial interests, particularly major transnationals or, should this not be forthcoming, the introduction of enforceable new regulations to curb their operations and influence. It is hard, though, to imagine such a shift in the tectonic plates of international commerce anytime in the near future, given the economic power and political leverage of major international corporations.

It is, however, worth noting that despite the general increase in inequality globally, 12 of the Latin American countries for which there was sufficient data, experienced a decline in inequality between 2000 and 2006. This rise in equality was directly due to the adoption of redistributive policies, in particular the closing of the earnings gap between skilled and low-skilled workers and the increased in government transfers to the poor. 

Although it is difficult to imagine a global redistribution programme obtaining international agreement in the short term, there are still egalitarian policies that can be implemented in the meantime. As Thomas W. Pogge has highlighted certain advances in equality can be achieved independent on resource redistribution. There are many policy measures such as the relief of poverty, nutritional improvement and local community empowerment, for example, that would help to increase equality.

Finally, it is incorrect to look at inequality as being solely an issue concerning the poor. On the contrary, it is intrinsically connected with and cannot be dissociated from either wealth or poverty, as both are fundamental elements of the one system. In order to correct this system and eliminate the gross inequality existing today, the present economic system may need to be reformed in its entirety.