The Millennium Development Goals (MDGs), which officially ended in 2015, was considered as a success development agenda. Many of its objectives had been successfully achieved. In the recent decade for instance, global extreme poverty has been successfully reduced by more than half, declining from 1.9 billion in 1990 to 836 million in 2015 (UN 2015, p.4). Over the last three decades, the size of “the global pie” has more than doubled, reaching to nearly $78 trillion in 2014 (Oxfam, 2016). While global fight against poverty has resulted in significant decrease in extreme poverty, inequality between the rich and the poor remains and tends to increase (Hoy, 2015). Moreover, the “Leave No-one Behind” agenda has failed to reach those who are most marginalized and vulnerable, of which women and girls are the most excluded one (Stuart and Woodroffe, 2016).
This essay attempts to present empirical evidences of existing inequality and the reasons behind them. The structure of this essay is as follow. The first section explains the concept of inequality and some of its dimensions. This is followed by discussions of whether inequality is decreasing or not. The discussions are divided into three different sections (inequality of income, inequality of wealth, and inequality of opportunities: from gender perspective). Reasons of why inequality matters and exists are presented in the following section before concluding comments.
The first questions that often come up when talking about inequality is: What is inequality? Inequality of what? Inequality of whom? Inequality in what time horizon? Some might argue that inequality is identical to poverty, and they are related to each other, but inequality to some extent is different from poverty. According to McKay (2002), inequality focuses on differences in living standards across the aggregate population, while poverty often concerns only on those who live below a certain threshold level, such as global or national poverty line. However, inequality is not only about income or living standards. Variations in inequality between people or groups of people, between individuals or groups of individuals, and between countries or within countries are complex and multidimensional (Sen, 1992). It can involve inequality of wealth, opportunity, achievement, freedom or rights (Bourguignon 2015, p.10).
Similar to poverty, inequality can be in absolute terms (about differences) or relative ones (about ratios) (Ravallion, 2013).However, the measurement of inequality overtime commonly focuses on relative differences of income inequality, while underestimating the absolute differences. Using the relative inequality as a single approach may lead to failure in addressing the widening gap between the ‘haves’ and the ‘have-nots’ in the real terms (Hoy, 2015). As an illustration, imagine two persons (A and B) with different amount of incomes. The income of A (the poor) is $1,000 per annum, while the annual income of B (the rich) is $10,000. The ratio (relative inequality) of this two-person income is 1:10, while the absolute difference between them is $9,000. Assuming that their incomes rise to $5,000 and $50,000 respectively. The ratio of income between them is unchanged (1:10), but the absolute difference between them is five times larger ($45,000). If the incomes of A and B increase by the same amount (increase by $10), the ratio (relative inequality) falls from 1:10 to 1:9.9, but the absolute difference between them remains the same ($9,000).
Over the period 1988-2008, global inequality, as commonly measured by a Gini index, did not change very much. In 2008, the global Gini index was around 70.5%, a decline of approximately 2 percentage points over the two decade period (Lakner and Milanovic, 2013). In 2011, this Gini index had declined to 67% (Milanovic 2016, p.118). There is no doubt that declining in inequality is a good sign, particularly for the poor, indicating that global economic growth is enjoyed by all and income is distributed evenly. However, the reality is the other way round.
A detailed analysis by Milanovic (2012) shows that the declining inequality is due to the dramatic growth of Asian countries particularly the two emerging economy powerhouses, China and India (Lakner and Milanovic, 2013). In fact, according to Edward and Sumner (2013), decrease in the aggregate global inequality can be attributed to rising prosperity in China alone (p.36). They argue that if China is excluded, global inequality actually increased in the 1980s and 1990s, although it had been relatively unchanged between 2000 and 2010. This indicates that global economic growth is concentrated in particular countries, and only enjoyed by them. Between 1988 and 2011, around 46 percent of overall growth was only enjoyed by those at the top 10%, while only 0.6% went to the bottom 10% percent (Oxfam 2016, p.3). The figure is even shocking when looking at the top 1% of income earners.
Based on scenario conducted by Hoy and Samman (2015), even if the incomes of the ‘have-nots’ have the same growth rate with the ‘haves’ or three percentage points faster, the absolute gap between them will continue to grow and this would have actually resulted in a slight increase in global poverty rate (p.26). In Brazil, for example, the richest 10% saw their income increase from $218 billion to $412 billion (89%) and the poorest 50% saw their incomes increase much faster, from $51 billion to $164 billion (220%) between 1988 and 2011, yet the absolute gap between had increased to $248 billion (Oxfam 2016, p. 37). In more recent and sort period (between 2002 and 2011), income growth for the bottom 40% was more than two times that of the top 5%, but the absolute difference between their average incomes in the same period was more than doubled (Krozer, A 2015, p.15). At 2015 growth rates, the gap between the average incomes of the bottom 40% and top 5% in Brazil would not start shrinking until 2080 (Krozer, A 2015, p.15).
A study by Hoy (2015) found that countries that experienced long periods of positive growth across the distribution, absolute inequality continued increasing in all regions. The increased gap between the top 10% and bottom 40% is ranging from one to six percentage points, of which the fastest increase was in Europe and Central Asia (5,56%/year), and the slowest increase was in Middle East and North Africa (1,1%/year) (Hoy 2015, pp.14-15).
Another study by Nino-Zarazua et al., (2016) has found that during the last forty years relative global income inequality (the blue line in Figure 1) has decreased from 0.739 in 1975 to 0.631 in 2010, but increased substantially from approximately 0.65 in 1975 to around 0.72 in 2010 in absolute terms (the red line in the graph). Similar to others (e.g. Bourguignon 2013; Lakner and Milanovic 2013; and Edward and Sumner 2013), Nino-Zarazua et al., (2016) note that declining global inequality and inequality between countries is particularly due to the extraordinary economic performance in developing countries, such as China and India.
Figure 1 Trends in global inequality from a relative and absolute perspective
These all indicate that the impressive global progress has not been pro-poor. According to Hoy and Samman (2015), if growth was pro-poor and the incomes of the bottom 40 percent grew by 2 percentage point faster than the average growth, global poverty could be at half the level it is today.
Inequality of wealth
In terms of wealth, the gap between the rich and the poor is even greater than income gap. In 2014, the richest 1 percent of people in the world owned around 48 percent of global wealth, while the rest (52%) was shared by the other 99 percent (Hardoon, 2015). In 2014, it was predicted that the richest 1 percent will own more than 50% of the total global wealth by 2016 (Hardoon 2015, p. 2). In fact, this richest 1 percent had owned more than half of the total global wealth in 2015. In addition, the average wealth of each adult belonging to the top 1 percent of the wealthiest is $1.7 million, over 300 times greater than the average wealth of each adult in the bottom 90 percent, although the wealth of the poorest 10 percent is zero or negative (Oxfam, 2016). In 2015, it was also reported that the total wealth of the richest 80 individuals in the Forbes list increased by $6 billion within four year period (from $1.3 trillion in 2010 to $1.9 trillion in 2014 (Shorrocks et al. 2015). This amount equalled to the total wealth of the bottom 50 percent. This 80 billionaires had aggregate wealth of greater than $2 trillion, meanwhile the wealth of the bottom 50% of the world population has fallen by about $1 trillion in the previous five years (Hardoon, 2015). In 2015, the wealth of the bottom 50% of the world population equalled the total wealth of just 62 individuals in the top 1 percent (Oxfam 2016, p. 2). This illustrates that wealth is concentrated in just a few people.
Inequality of opportunities: from gender perspective
Many studies (e.g. Mincer, 1958; Murray et al., 2013; Ukhova, 2015; UN Women, 2015; Stuart and Woodroffe, 2016) found a strong causal relationship between inequality of opportunities and inequality of income. Meanwhile inequalities of opportunities are often related to gender inequality (Gonzales et al., 2015). Globally around 75% of working men (aged 15 and over) are in the labour force compared to 50% of working women in the same age group (UN Women, 2015, p.79). Among the 50%, women constitute nearly 67% of unpaid works, and those who are in paid works earn on average 24% less than men (UN Women 2015, p.44). These inequalities put women more vulnerable to poverty. In Latin America and the Caribbean, while the percentage of people stayed below the poverty line between 1997 and 2012 had declined from 44.8% to 32.7%, due to the absence of opportunities the proportion of women compared to men lived in poor families increased from 108.7 women for every 100 men to 117.2 women for every 100 men in the same period (UN Women 2015, p. 45). In 2008 in Ghana, the ratio of completing primary education or above between the poorest Gruma women and non-poorest women from other ethnic groups is 1:3.7 (Stuart and Woodroffe 2016, p.75).
In addition, many emerging economies tend to focus more on overall growth and poverty rather than specifically targeting vulnerable groups, including women. Not surprisingly then if the gap between men and women seems unchanged. For instance, China, Russia, Indonesia and Turkey, where economic growth has been successfully maintained, the reduction in overall gender gaps is very slow (Ukhova 2015, p.249).
Even if opportunities for women to participate in the economy have been in place, women remains discriminated, making them more disempowered in relation to men. In 2009, female fruit pickers in Morocco were facing frequent violations of rights, including harassment and low minimum wages (Wilshaw et al., 2015). In 2014 in Sub-Saharan Africa, 84.3% of women are in vulnerable work, including unpaid family work, whereas in many developing countries 75% of women worked in informal sector (UN Women, 2015). Every day, women spend almost 2.5 times more on unpaid work than men (UN Women, 2015).
In addition, according to Sen (1992, p. 122), while payment rates matter to achieve income equality between men and women in most societies, there are systematic inequalities in the freedoms, which are not deductible to differences in income or resources. For instance, even if inequalities of property ownership are completely eliminated, there can be severe inequalities arising from diversities in productive abilities, needs, and other personal variations (Sen 1992, p. 120).
Why inequality persists?
The causes of existing poverty and inequality are as complex as the poverty and inequality themselves. In general, poverty and inequality share some causal factors, including colonialism, capitalism, industrialisation, globalisation, disproportionate power and influence, unequal international power and so on (Miller, 2010). This paper, however, only covers capitalisms, disproportionate power and influence.
According to Piketty (2014), income disparities are the consequence of unequal pay for work and larger inequalities in income from capital. He argues that the much larger income gap from capital is due to the extreme concentration of wealth particularly in developed countries, where the rate of return on capital is higher than the rate of national economic growth. In wealthy countries, such as France, Britain, Germany, Italy, the United States and Japan, per capita income was approximately 30,000–35,000 euros in 2010, while per capita private wealth was between 150,000– 200,000 euros (five to six times annual national income) (Piketty 2014, p. 50). According to Piketty (2014), however, such average income figures hide huge discrepancies between the top and the bottom of income deciles. He points out that annual per capita income of 30,000-35,000 euros does not necessarily mean that everyone earns that amount. In fact, he further argues, many people earn much less than 30,000 euros a year, while only few people earn dozens of times that much (p.51). The same vein to private per capita wealth, an 180,000-euros per capita wealth does not mean that every single person owns that much capital. Many people own much less, some people even have nothing, while millions of euros of capital assets are in the hand of only few people (Piketty 2014, p.51).
In terms of income distribution, over the past three decades the share of income going to labour has been declining in most countries around the world, while the capital share has been rising (Neiman and Karabarbounis, 2013). This illustrates that gains from the growth are only enjoyed by capital owners. Consequently, those who own capital (commonly the rich) will become richer than those who have no capital (labour) become poorer. For example, in the United States where income inequality between 1980s and 2010s rapidly increased simultaneously with increases in share of top decile in national income (rosed from less than 35% in 1980s to around 50% in 2010s) (Piketty 2014, p.24).
Based on data from the Penn World Table, the average share of income for labour across 127 countries had dropped from 55% in 1990 to 51% by 2011 (cited in Oxfam 2016, p. 12). Some might argue that this decline is due to the low productivity and growth output. Although the argument is possibly true, declining labour share of income is not always because of low productivity. Between 1973 and 2014, for example, net productivity in the US rose by 72.2%, but the hourly pay for the workers grew by only 8.7% (inflation was adjusted in the pay) (Bivens and Mishel, 2015). This reflects that productivity improvements and output growth do not lead to a proportional increase in incomes for workers. In Myanmar many garment workers work overtime but could not afford basic needs, such as food, shelter, and health services with the incomes they earned (Wilshaw et al., 2015).
Disproportionate power and influence
According to Stiglitz (2015), growing inequality is not only because of concentration of wealth of capitalists, but also because of disproportionate power and influence of government policies. He argues that political inequality tends to hinder the free market mechanism from achieving the most optimal outcomes. In practice, however, pure market mechanism is often disrupted by either buyers or sellers that are constantly seeking to gain more benefits over competitors. Under such circumstances, government interventions, commonly known as Keynesian economic model, often comes up. However, maintaining political institutions that are keen on distributing political power and political access to broader society in which a small number of people have become disproportionately rich may be difficult (Acemoglu and Robinson 2015, pp. 19-20). Subsidies are the common incentive government provide to private sectors to assure that they remain economically robust. In 2009, leaders of the G20 countries promised to gradually reduce subsidies for fossil fuel production, but the evidence suggests the opposite. Governments in G20 provided annual subsidies worth $444 billion for supporting fossil fuel production in 2013 and 2014 (Bast et al. 2015, p.2). This amount is nearly four times the estimated amount of total global subsidies for the year 2013.
Lobbying is another type of power and influence that drive inequality. Between 2010 and 2014, the American Petroleum Institute (API) expended around $360 million on lobbying the US government to undermine the implementation of Section 1504, an act that requires fuel production companies to reveal any payment made to governments worldwide for each project (Oxfam America 2015, pp.3-4).
Why equality matters?
Mankiw (2013) claims that nothing wrong with inequality since it provides incentive for competition and innovation, which are good for the economy. While some degree of inequality might stimulate growth, extreme inequality leaves the most vulnerable people far behind, creating health and social problems and threatening social cohesion and political stability (Dabla-Norris et al. 2015). In addition, inequality undermines the overall economic growth. When income is concentrated in the hand of just few people, the propensity for the rests to participate and invest in the economy will be restricted, and this will slow down the economy (Leigh, 2015). Dabla-Norris et al. (2015, p.7) point out that an increase in the income of the poor leads to higher economic growth, while an increase in the income of the top income earners results in lower growth. High inequality also leads to intergenerational inequality, hindering further reduction in poverty (Liu, 2016).
It is undeniable that global extreme poverty has been significantly reduced. However, progress in the fight against inequality is lacking. The observed decrease in global inequality is primarily due to significant growth in fast performing economies (China and India in particular). This hides the increasing within-country inequality. Inequality is often associated to income. Yet, it is not only about income, but it is also about variations of factors, including wealth inequality and inequality of opportunities. The existence of destructive capitalism and power imbalances, which are often in favour to the capital owners and the power holders, makes fight against poverty and inequality difficult. In addition, the past development agenda failed to reach the poorest and the most vulnerable people (commonly women). This is partly because researchers and policy makers relied heavily on household survey, which ignores individuals within the household, in formulating policies and programs. It is not surprising then if the gap between the “haves” and the “haves-not” continues widening, avoiding the poor and those who are more disadvantaged due to various factors, such as sex, age, disability, ethnicity, or geographic location, to get out of poverty trap. If the aim is to witness zero poverty by 2030 as stipulated in one of SDGs’ targets, then reducing within-country inequalities along with targeting those who are the poorest and the most vulnerable is vital.
UN, see United Nations
WB, see World Bank
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