Inequality: the international context

The World Economic Forum which hosts the Davos meetings has described Inequality as ‘one of the key challenges of our time’ and the most significant of the top ten trends facing the world in 2015. Their concern chimes with widespread disquiet about the adverse impact of inequality on both society and economic stability. The extent of global inequality has been documented by Oxfam which shows that almost half of the world’s wealth is now owned by just one percent of the population. The poorest half own less than one percent.

Vast inequality at the global level is mirrored at the national level: in the UK the richest 1% of households in the UK now holds more wealth than over half of the population making it one of the developed world’s most unequal nations. The richest 1,000 people alone own more wealth than 40% of the population, or 25.6 million people. Meanwhile, over a million people are reliant on food banks, 22% of whom “struggle with insecure work, low wages and high living costs.

Is inequality a necessary price for economic development?

While many on the left point to the immorality of a system that can give rise to such vast disparities of wealth and income, supporters of the free market economy point out that such a model has transformed our world for the better. Freed from government restrictions on trade and investment, the economies of developing countries such as India and China have moved closer to the market societies of the west, lifting millions out of poverty. In the two decades since 1990 the global rate of absolute poverty has halved. How is that immoral? Inequality is not a useful measure of anything. What matters is poverty reduction and the Capitalist model has been supremely successful in this.

But has it? And is such a model sustainable? A growing global middle class, aspiring to emulate the high-income lifestyles of the west is expected to push up demand for water by nearly a third by 2030, and demand for both food and energy by half as much again. The growth in carbon emissions from international transport alone is set to skyrocket. How does that square with the need to avoid ecosystem collapse and catastrophic climate change?

And what of the social tensions that accompany vast inequalities in the benefits of growth? India, an exemplar of the free market model, is plagued by a Marxist inspired lethal insurgency that has grown as rapidly as its economy, one described by the former prime minister Manmohan Singh as the country’s “biggest internal security threat”. The insurgency draws strength from the deep sense of grievance and anger felt by many rural Indians who have seen little benefit from India’s rapid economic growth. Some 42% of its 1.21 billion people remain on less than $1.25 a day while Inequality has doubled in the last 20 years . Caste and other related factors also play a role in the conflict and India’s experience suggests that it is clearly facile to assert that a free market model can be left to get on with solving the problem of poverty without any state intervention to both mediate conflict and ensure fair distribution of the benefits of growth.

What is the impact of inequality?

The most complete body of evidence presented so far is by The Equality Trust whose ground breaking research shows that more equal societies experience a whole range of benefits from longer life, better mental health, higher levels of trust and improved child wellbeing as well as reduced obesity, drug abuse and violence. A composite index in the form of a line graph is shown below while more data and line graphs produced by the Equality Trust for each of the social dimensions can be accessed by following this link>>>health and social problems are worse in more unequal countries

Right wing commentators often argue that inequality drives competitive individualism and aspirational values that lead to material improvement for oneself and wider society. Yet the findings of the inequality trust are the opposite: beyond a certain point inequality reduces social mobility and opportunities for advancement in contrast to more equal societies such as Norway, Sweden and Denmark.

The economy itself may also be subject to instability and financial collapse. Studies by two senior research officers at the IMF found that once a country had entered a period of growth, income distribution was by far the most important factor associated with how long that growth lasted; the more equal the distribution the longer the growth period lasted. A separate paper by the same authors concluded that extreme inequality not just shortened periods of economic growth but could trigger financial collapse. As the authors put it “The recent global economic crisis, with its roots in U.S. financial markets, may have resulted, in part at least, from the increase in inequality”.

Another major report ‘Fair Society, Healthy Lives’ by professor Marmot also brought together a wealth of data linking inequality and health in the UK. The report highlighted the social gradient in health – the lower a person’s social position, the worse his or her health. This proved to be the case at every grade, including middle and upper stratas of society, not just those who were least well off. The report concluded that action should focus on reducing the gradient in health and not just focus on poverty reduction experienced by the bottom tenth of the population.

The report also highlighted the impact of inequality in illness on the economy: productivity losses of £31-33 billion per year, lost taxes and higher welfare payments in the range of £20-32 billion per year and additional NHS healthcare costs well in excess of £5.5 billion per year. If no action is taken, the cost of treating the various illnesses that result from inequalities in the level of obesity alone will rise from £2 billion per year to nearly £5 billion per year in 2025.