As the rich get richer, tackling inequality is a global struggle

RASHMEE ROSHAN LALL October 17, 2019

A homeless person sleeps in a street of downtown Madrid, Spain, on the eve of the International Day for Eradication Poverty. Juan Carlos Hidalgo / EPA

Thursday is International Day for the Eradication of Poverty. The UN-designated day has been around for more than three decades but is arguably much less widely marked or well-known than, for example, International Women’s Day, World Water Day or the International Day of Peace.

But the eradication of poverty should, by rights, be the biggest international day of them all. It’s not just about reducing the number of people — one in 10 in developing regions — who still live on less than $1.90 a day, the internationally recognised poverty line set by the World Bank. It is also about addressing grinding income inequalities, within countries and between them. As the Overseas Development Institute, a UK think tank, put it: “Inequality matters in its own right and it is key to reducing poverty. Inequality and poverty affect each other directly and indirectly through their link with economic growth.”

This means October 17 is also about tackling inequality, which fuels a profound sense of deprivation and despair. Along with the climate crisis, rising inequality is one of the biggest global challenges today. The roiling of world politics and the rise of nationalism versus globalism is about the struggle over resources and income streams, who gets to be prosperous and at what cost, and whether it’s a zero-sum game.

In the 1970s, China was closer to that of the most egalitarian Nordic countries; now, it is approaching a level that is almost comparable with the US

This is the context of Donald Trump’s “America First”, which some regard as immoral in its refusal to consider the implications for the poor worldwide. Right-wing nationalist political forces across Europe, too, revel in a kind of self-involvement that leaves little room to care about the unfortunate and deprived in other parts of the world. In fact, Sunday’s victory in Poland’s national election of the ruling Law and Justice party was mostly about appealing to people who felt left behind by economic changes after the fall of communism in 1989. The party has pushed illiberal values alongside strong social spending and sound economic management.

What is clear is that voters in many parts of the world seem increasingly willing to make the trade-off between liberal democratic values and the promise of reduced economic inequality. As the not-for-profit World Economic Forum noted in 2017: “Despite unprecedented levels of peace and global prosperity, in many countries a mood of economic malaise has contributed to anti-establishment, populist politics and a backlash against globalisation.”

Two key points are worth noting straight off. An unequal distribution of wealth increased in every region of the world from 2007 to 2016. And inequality between the poorest in the rich world and the richest in the poor world is not as great as it once was because from the late 1980s, China and other poor countries began to grow faster than the rich world, even as inequalities began to increase in many advanced economies. Taken together, it is obvious that rising inequality might prove to be more consequential globally than the fact that an estimated 783 million people — 11 per cent of the planet — currently live below the international poverty line.

That may sound harsh but there is some logic to the argument. China is a good example. The Chinese model suggests that substantial and sustained poverty reduction is possible, even in a populous country, if the government sets its mind to it. But China is also a salutary warning. More than 700 million Chinese people have been lifted out of poverty since the country launched its economic reform programme in 1978. And Beijing is considered to be on track to achieve its objective of eradicating poverty altogether — it still affects 30 million people in rural areas — by 2020. That’s a decade ahead of the UN agenda for sustainable development goals.

Even so, the level of inequality in China has only grown from the late 1970s, according to the findings of a study co-authored by the influential French economist Thomas Piketty. In the 1970s, it was closer to that of the most egalitarian Nordic countries; now, it is approaching a level that is almost comparable with the US. The study estimated that the share of national income earned by the top 10 per cent of the Chinese population has increased from 27 per cent in 1978 to 41 per cent in 2015, while the share earned by the bottom 50 per cent has dropped from 27 per cent to 15 per cent. Clearly, poverty reduction is a hard but more achievable goal than the elimination of income inequality, because the latter requires the entire system to change and somehow become more inclusive.

This is a worldwide struggle. The wealthy and powerful in every society resist redistribution, by taxation and other means to level the playing field. In his 2014 bestselling book Capital in the Twenty-First Century, Mr Piketty argued that unchecked capitalism concentrates wealth, and that wealth accumulated in the past grows faster than output and wages — and in so doing, “the past devours the future”.

This is a good way to understand the remarkable political developments in the US, the richest country in the world. Mr Trump became president in 2016 on the promise to reverse inequity. He proceeded — in his sole legislative accomplishment to date — to introduce tax cuts for the wealthiest people in America. It was the largest US tax overhaul in more than three decades and merely served to guarantee that there would be less in the national kitty to pay for public services, including health care and education. In effect, it accentuated the inequality already corroding the American dream. The CIA World Factbook ranks the US 39 of 157 countries in terms of the Gini index, which measures family income distribution within a population. Mr Trump’s tax cut can only contribute to systemic disenfranchisement and rising political anxieties.

The implications are obvious — and not just for the US. The pervasive and increasing concentration of global wealth among the top 1 per cent marks a return to a pattern that prevailed before the First World War. It is a dispiriting thought for those who thought the 21st century would usher in a better world.

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