Rising inequality – the main risk facing the world?

Sounds like some socialists voicing their discontent, doesn’t it. But it’s what world leaders are telling The World Economic Forum. The Economist‘s economics editor, Zanny Minton Beddoes, is of the same opinion. In this short video she explains why rising inequality around the world is rapidly becoming a major headache:

The World Economic Forum’s Global Risks 2013 Report highlights wealth gaps (severe income disparity) as a bigger problem than unsustainable government debt in a survey with over 1,000 leaders.

Opinion of world leaders – not “the usual subjects” 

It would be different if it was  Occupy Wall Street or leftists that lamented inequality. That it’s top leaders of business, finance and government indicates how serious the problem is. As you know, The World Economic Forum network consists of high level leaders.  The fact that they are worried should make us worried. More than we are about sovereign debt apparently.

Will democracy decline?

Inequality has widened for decades in two thirds of the rich countries and many emerging economies, including India and China. But the global crisis has made it even more of a problem, not least because of the austerity measures being implemented.

It’s in times like these that democracy declines and autocrats get the opportunity to grab power. When I lived in London, I used to frequently attend seminars at the think tank Chatham House. Their senior research fellow and author Charles Emmerson has written Eve of Disaster, an analysis looking at why 2013 eerily looks like the world of 1913, on the cusp of World War. I am sure you will find interesting and food for thought.

Do you agree with world leaders that rising inequality is the main risk facing our world? If so, what do you think should be done to stop income disparity getting completely out of hand? Should austerity be abolished and economies stimulated to make them grow and hence have a positive impact on inequality? What’s your suggestion? How can we make life better for more people so they spend money and hence improve the world economy? Or are you of the opinion that rising inequality is a good thing and that the leaders telling the WEF it’s the main problem facing the world are wrong?

Video: EconomistMagazine

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43 Responses to “Rising inequality – the main risk facing the world?”

  1. Doreen Pendgracs Says:

    Quite a timely post, Catarina, as the "Idle No More" protest is well underway here in Canada, protesting against the government for not addressing the poverty issues among aboriginal First Nations peoples here in Canada. Even though Canada is one of the most prosperous countries in the world, residents of the First Nations reserves often live in poverty and at Third World standards. But unfortunately, in Canada, just as in other countries where there are groups facing inequalities, the leaders of some of the aboriginal communities have been found to be corrupt and misusing funds allocated by the federal government for the sake of bettering the lives of their people. I have no answers to this most unfortunate state of inequality. Just wanted to bring it forward in the event you were unaware.
    My recent post born to blog

  2. catarinaalexon Says:

    Thank you Doreen. Interesting points about native Canadians. Am not an expert on Canada, but I would be surprised if income disparity isn't growing there as in other developed countries? It is in Sweden, another of the best performing countries in the world.

  3. Geek Girl Says:

    I am no expert on this subject and I can see no easy solutions at hand. I suspect that the problem is probably not that far away from reaching critical mass. I shudder to think what will happen when it does.
    My recent post How To Draw – Easy Drawing Lessons

  4. Jon Jefferson Says:

    In the US we have been feeling this for quite some time now. I remember when my wife and I were just married the job I was working at the time, I was making roughly the same as my wife's father who had been at his job for 20 years or so. My wife's parents were moderate middle class at the time. Looking at it all now, our wages have not gone up but what it takes to survive has. That same wage now (which is quite common) places you, if you are lucky, within the realm of poverty.
    My recent post Where your mind wanders

  5. Leora Says:

    Ideally, I would want to know more details before commenting. For example, is it that the rich are getting richer and the poor staying poor or the poor are getting to be a bigger group or are the poor getting to be a bigger group AND are getting poorer? I suspect it's the last one. In any case, Catarina, you do a great job of getting us interested in the topic. I suspect the answers economists suggest vary according to their biases.
    My recent post Admin Information for a Facebook Business Page

  6. catarinaalexon Says:

    Leora, poverty is on the increase and the poor are on top of it getting poorer as you say. The recent economic crisis has made the problem fatal. Unemployment has got out of hand and most likely the jobs lost will not be filled again. Just read an article in Swedish about the huge problem of poverty in Israel. But it's not even an issue for the upcoming elections. It was thought that the widening income disparity would be important, but instead the issue is ignored.

  7. catarinaalexon Says:

    Yes Cheryl, it's getting out of hand and it will take a long time before something is done about what world leaders call the main risk we face. It's no coincidence that leaders said it in a survey. If they had said it on record ultra right politicians would have called them socialists and they would have had to face the kind of treatment Obama has had from parts of the republican party.

  8. catarinaalexon Says:

    It has been going on in the whole world since the 1980's Jon.

  9. msjenniferwoodard Says:

    Catarina,

    Girl I have to make sure that I am fully awake before I read your posts, they are always so deep. This time I am at a loss really, I believe that inequality is a problem. I would prefer that instead of the rise of autocrats we would see a rise in civil fighting for equality. I hope that people will stand up for themselves instead of allowing themselves to be further controlled, I fear the later may be the case. As for a solution, this one I don't have a clue to. I usually have some thoughts on what can be done or at least tried about things, haven't got a clue. I don't think we have hit critical mass yet, but if is coming all around the world. Should be something when we hit that mass. I suspect we will turn against one another before we turn against our governments, we are showing signs of us turning against one another now. I think possible because we don't know how to attack the people (government, rich) that we are really upset with.

    We will see,
    Great job as usual, always give something to think about,
    Jenn
    My recent post The Four Steps to Using your Blog for Online Lead Generation

  10. Jeannette Paladino Says:

    Catarina — the income inequality is quite noticeable in the U.S., particularly with Republicans in charge of the House of Representatives where money bills originate. The very rich get favored in tax treatment at the expense of the middle class. The CEOs of companies here make huge salaries and other perks and find tax loopholes to keep most of it. The middle and lower economic classes don't have access to those loopholes. As billionaire businessman Warren Buffet has observed, his tax rate is lower than his secretary's.
    My recent post Does Your Personal Brand Reflect Who You Are and What You Do?

  11. catarinaalexon Says:

    Thank you Jennifer. 2013 has many similarities with 1913 before the Fist World War. Unless politicians get their act together and do something about rising inequality things will start happening. Suddenly something happens that sparks developments we would rather avoid. Interesting that you say in the US people are turning against each other. That is most likely happening in some European countries as well.

  12. catarinaalexon Says:

    Agree with you completely Jeannette. And the same is happening in the whole world. It's all part of the philosphy that the Republicans in the House are pro. It's been exported all over the world and has made 2013 similar to 1913 on the cusp of World War I. It's just a question of where in the world there is a spark and events we would rather avoid will start snowballing. Unless of course, politicians get their act together and do something to alieviate the situation.

  13. msjenniferwoodard Says:

    Yeah I bet if we were able to take a close look at some of the things that are going on it would boil down to the inequality around the world and the things that people are doing to one another. I just don't think that people realize that that is were they are is coming from and convince themselves it is because of another persons race, religion or whatever.

    We will see how things turn out, hopefully not like 1913, people have a lot more weapons to bad things with to harm other people, masses of people.
    My recent post The Four Steps to Using your Blog for Online Lead Generation

  14. keepupweb Says:

    Catarina, As usual, you've cast a light on a very current topic. I find the rising inequality here in the U.S. to be particularly disturbing. The middle class is shrinking and there are no signs that the reckless spending by our government will be curtailed. We seem to be set on the same course for another four years.
    My recent post Time to Tweak Your Twitter Strategy

  15. Michael Akerib Says:

    Fully agree together with the destruction of jobs through technology. Jeremy Rifkin was right in The End of Work. A few years ago a Russian journalist (sorry I forgot his name) said that with the present trend in poverty, the time was ripe for a Communist revolution and he hoped there was not a fat bearded German working at the British Library and a Russian emigré in Geneva ready to hop on a train and start the revolution.

  16. catarinaalexon Says:

    Glad we agree about the problem of rising inequality, Sherryl.

  17. catarinaalexon Says:

    Glad we agree Michael. Let's hope history doesn't repeat itself:-)

  18. catarinaalexon Says:

    Good points, Jennifer.

  19. JeriWB Says:

    Higher education needs to be made more affordable, and the quality of education needs to improve as well. People need to ask what is education for and realize many programs often function on traditional notions that do not serve the needs to today's students. Anything done to help business will not be successful until society can do more to take care of itself. Hegemonic practices are the root cause of all this.
    My recent post Author Interview: Candy Korman

  20. catarinaalexon Says:

    Agree with you Jeri. Another thing is that manufacturing needs to move back to the West. All countries in the world have citizens with capacities ranging from geniuses to imbeciles. What are the ones with a lesser IQ going to do? Higher education is not the solution for them:-)

  21. Amin Says:

    Why does the West think that it's own form of "democracy" is the only form of viable Democracy? A thinking person, if he/she examines the situation with an un-biased view, will put together 2-and-2 and see that the western type of democracy has resulted in there being classes of society – those who have plenty and those who have little, thereby bringing about inequality. Those who have plenty can enjoy nutritious food, medicine, and material plenty. Those who have little enjoy hunger, little or no medical care, and hardly be able to possess the basic necessities of life – shelter, security, etc.

  22. catarinaalexon Says:

    Amin, exporting US democracy the way America has done is wrong and should never have been attempted. All countries should be allowed to develop at their own pace. However, you have inequality all over the world, including in the Middle East. Rich people there have everything and poor people nothing. And the same applies to Africa, Asia, Latin America and even North Korea.

  23. findingourwaynow Says:

    I very much agree. The gap is widening between the haves and have nots. Education and meaningful job creation is the true key to narrowing this growing gap. The saddest part of this is the hunger that exists with poor young children. I not sure how all this can be addressed but it does need to be addressed and sooner rather then later. :-)
    My recent post Let’s Celebrate, “D.R.E.A.M. Catchers” NOW In Print: Book

  24. catarinaalexon Says:

    Glad we agree Susan.

  25. @patweber Says:

    The common denominator seems to be: government. My sense is, at least in the USA, is that regardless of political preference, our government and by reasoning our representatives, are corrupt to their core. We found that out 2 years ago when it was found, on all sides of our political spectrum, our own elected government representatives, were engaging in insider trading – talking about the rich getting richer. If there is this common denominator holding back a more equal balance in wealth, until we enact things like term limits, eliminate a pension for life for serving just one term, hold our representatives accountable to results, then NOTHING changes. And then nothing will change because as a society US citizens have become complacent in some ways.

    The bible for reference says, there will always be poor among you. If that is true, they of course, even if we close the gap, there will be poor. As someone becomes richer, let's say a garbage pickup employee, and leaves that "post", then certainly someone has to come along and fill that empty post.

    For sure it is a complex situation and likely not solved in my lifetime.
    My recent post Introverts Can Break the Groupthink Model by guest blogger Kalen Smith

  26. Susan Oakes Says:

    As always a very interesting article Catarina. There has always been inequality but the crisis has widen it and it I believe is also occurring in my country. We talk about the 2 speed economy and the politicians talk up how well our economy is but that is due to our resources boom. For many the gap between those struggling and those doing well is widening. Politicians will not act as unfortunately they make decisions based on political interests rather than what is best for the people. This is highlighted by taxes they bought in due to a small third party that is keeping them in government.

  27. catarinaalexon Says:

    Great point Susan. Politicians main priority is to get re-elected.

  28. catarinaalexon Says:

    Agree with you Pat.

  29. akandrewwriter Says:

    Well despite the grim nature of the post, in some ways I was pleased to see that economists are actually concerned. It gives one hope that perhaps politicians might think it beneficial to change the trend towards a growing gap. It certainly is not going that way in the UK though with austerity measures in abundance. Interesting take on the problem Catarina. Thank you
    My recent post MuseMedium: The Future and Joyce Carol Oates

  30. catarinaalexon Says:

    Glad you like it AK. It will take a long time before Europe starts growing again thanks to the austerity madness:-)

  31. Kelly Wade Says:

    Its hard to say what the biggest problem facing our world is today because they're are so many. Obviously, this is one of the biggest items of concern on the plate for world leaders but I'm guessing everyone has different opinions and solution suggestions on it. The problem is that all different countries can't get on the same page with what the largest problem is so efforts are dispersed rather than focused.
    My recent post Tips for Avoiding the Flu

  32. Michel Says:

    There will always be people more equal than others …. That reality !

  33. dave Says:

    Wealth is built by human minds agreeing that technology is worth more than gold, silver, oil, and land… A culture that "shares", including mind-share with trust in each other is the wealth building ingredient. WEF opinions are just "lucky" people that happen to make money in this world, being at the right place at the right time. The funding to feed the poor communities comes from the middle class, managed by the elite. More intelligent policy would be to OPEN up all the boarders and governments should talk directly to each other rather than going through third parties. e.g. U.S. govt talks through Switzerland when policy is being discussed with Iran. It was international news when the U.S. Navy talked to a crew of Iran? Why not let Americans freely go to Iran, N. Korea, Suddan, and other hot-spots. I have attended N. Korea discussions 2007 where the State dept. showed up, but they did NOT talk the language of N. Korea people visiting Seattle WA. Why? Who is buying all the low priced Iranian oil? Let me take the risk to go where I want with agreement not to rescue me – should I be kidnapped.

  34. catarinaalexon Says:

    True Michel, but regardless of that how inequality is rising is making world leaders worried.

  35. catarinaalexon Says:

    Thank you for conveying your opinion, Dave.

  36. Sunny Says:

    I read recently that income inequality in the US has reached its highest level since the Great Depression–93% of the income is made by 1% of the people. Quite startling really. It should be distributed more evenly, though in a perfect world I don't think it would be completely flat. Income should still reflect the amount of work you put in and the majority of people simply aren't willing to work hard.

    Still, it shouldn't be this unequal. Income inequality is a big drag on growth–the IMF did a study on the question in April of 2011, In their words income equality matters if a country is to sustain long term economic growth: "We find that longer growth spells are robustly associated with more equality in the income
    distribution. For example, closing, say, half the inequality gap between Latin America and
    emerging Asia would, according to our central estimates, more than double the expected
    duration of a growth spell. Inequality typically changes only slowly, but a number of
    countries in our sample have experienced improvements in income distribution of this
    magnitude in the course of a growth spell. Inequality still matters, moreover, even when
    other determinants of growth duration—external shocks, initial income, institutional quality,
    openness to trade, and macroeconomic stability—are taken into account. "
    My recent post China economy’s growth points to gradual recovery

  37. catarinaalexon Says:

    Glad you agree Sunny. Good and true points you are making.

  38. Tim Jochim Says:

    Inequality and economic growth. It's very simple: If the median APC exceeds 1.0, then slow growth or recession are a mathmatical certainty. Much of the current economic stagnation and jobless recovery is a direct result of fiscal policies from 2001 to 2009 that re-distributed wealth and income from the bottom to the top. Also read Joe Siglitz article in NY Times, Jan 21, 2013. Tim Jochim

  39. catarinaalexon Says:

    True, Jochim.

  40. Slim Says:

    Well, yes, Catarina. (I believe the first of your articles I read was about population shifts to the city which touched on that topic.) By way of metaphor: "The haves are growing arithmetically, the have-nots are growing geometrically." SF

    The efforts to raise people from population is a good thing. Then there are the unwanted consequences: What I am working on now is when people rise from poverty, the consumption goes up. This results in greater competition for what is there while taking away from those who have less.

    Regards
    My recent post Underestimating China Again

  41. EpicEcoEcon Says:

    UN ILO report : Global Employment Trends 2013: # of jobless people worldwide increase by 4,2 million in 2012 to 197 million — nearly 13% of those without employment were age 24 and under. and at Davos– Oxfam International states " world's richest earned $240 billion in 2012…and from tax havens to weak employment laws the richest benefit from a global economic system that works in their favor. " So we have the wealthy accumulating more wealth for the wealthy on the backs of everyone else. Oxfam estimates that tax havens hold as much as $32 trillion or third of all worldwide wealth and that closing them could net $189 billion in additional tax revenues.

  42. catarinaalexon Says:

    Correct – that's why inequality is the main risk facing the world.

  43. catarinaalexon Says:

    True Kelly. The WEF rated inequality as the main risk followed by sovereign debt, lack of natural resources and so forth. So all the main issues were covered but inequality was still regarded as the most problematic.

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