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:

Considering that we last week looked at how to raise productivity and equality, it’s propitious to re-publish this post about inequality. 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. And considering that Oxfam in 2015 concluded that the richest 1 percent of people in the world will soon own as much as the remaining 99% the gap between the haves and havenots is still increasing.

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.

Top leaders believe it's essential to look for ways to improve equality

Top leaders believe it’s essential to look for ways to improve equality

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 Picture: World Economic Forum

79 responses

  1. 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.
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  2. 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.
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  3. 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.
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  4. 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.
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  5. 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,
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  6. 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.
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  7. 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.
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  8. 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.

  9. 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.
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  10. 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.

  11. 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. 🙂
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  12. 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.
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  13. 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.

  14. 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
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  15. 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.
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  16. 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.

  17. 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. "
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  18. 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

  19. 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.

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  20. 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.

  21. 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.

  22. Until we get money out of politics I doubt this will ever be solved. There was a documentary made around 2012. One of the inherent problem, likely across the world, is the corruption that goes on between some of the uber wealthy, the lobbyists and politicians. If there is a law they want passed, they pay for it. Often it is laws that prevent them from paying higher taxes and for people like me, hard working and regular citizens, footing the bill for what they paid to get out of. I sure would love someone to have an answer instead of continuing to look at the crystal of problems causing it. In the meantime rising inequality continues throughout the world
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  23. Catarina, as always you touch on the bigger issues, the ones with no easy answers. The 1% don’t really have to do much to get richer, they can basically put their money into safe investments and still make a fortune. The average person doesn’t have the resource to compete with that and the poor of course are right outside the circle. So yes, there is rising inequality – the rich get richer, the middle class is at a standstill and the poor are fighting to survive. I really don’t see how the trend can be reversed and that can have other serious problems besides the economic ones.

  24. There are so many problems in the world but inequality is huge. I wish that nations could really get together and agree on solutions but they all have their own agendas fueled by politics and re-election, etc. In the US, only the rich get richer, generally. Entrepreneurs who aren’t dependent upon employers setting salaries can earn more with careful planning and hard work.

  25. Completely agree with you on this one Caterina. The whole idea of “trickle down” economics should be now be thoroughly discredited, because it is just not trickling on down. I think one step that would help address this is if tax policy was geared to benefiting businesses that create jobs and that invest their earnings in the growth of their business rather than rewarding executives and shareholders.

  26. Another thought-provoking post Catarina. I don’t know if rising inequality is the world’s biggest problem, but it is a significant one. Not only is it inherently not right in my opinion, the continuing gap leads to instability and dictator-like control. It’s interesting that the economists are concerned about it.

  27. There is widespread acknowledgement of the issue of inequality, and though some might argue that it isn't the most important economic issue depending on your locale and culture. I think the disparity of opinion is wider when it comes to solutions to the problem…because that gets all tangled up in politics. And that's never a good thing:)

  28. Interesting I was just listening to an radio program talking about the disparity of wages in San Francisco, making the city unlikeable to many. Who work there. With the high incidence of wealthy high tech firms now located there, the proposal was that that supposed low paid jobs- janitors etc. did not have to be so, and if the wages for unskilled work were sufficiently raised then it would go at least partway to solving the problem. I of course agreed, and do not see the need , when their is abundant wealth available for it not to be spread about. In short 'share the wealth!'
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  29. An interesting (re)post, Catarina, especially coupled with last week's one and the reference to Charles Emmerson's Eve of Disaster piece. It's certainly food for thought!

    There's little question that inequality is a serious problem and it's good to see world leaders are talking about this, even if they are as much a part of the problem as the richest among us – look at the fees that (ex) politicians command for speaking, etc., apart from the rampant corruption of the political classes in many countries, such as my own.

    The question, though, is what feasibly can be done about it. Raising taxes doesn't work – people are too mobile and changing countries is quick. Even with those who can't easily move, raising taxes yields no significant benefits anyway as other means can be found to reduce the tax burden. It's also counter-productive insofar as it tends to lead to lost jobs.

    What is clear is that small businesses around the world are the main creators of new jobs, so perhaps governments should look to reducing taxes and red tape and encouraging small businesses to be formed and to grow.

    A lower overall tax base that people see as fair would mean less tax avoidance or evasion and should ultimately raise the revenue realised while encouraging job creation.

    Perhaps this is worth a try as it's clear the current approach isn't working.

  30. Gosh, I see the gap widening between the haves and have-nots every day. It makes for an uneasy feeling all around. Providing a good education and meaningful work is truly the key to narrowing this growing gap. To me, it’s heartbreaking to see the hunger that exists with young children in these have-nots families. I not sure how it can be addressed, but it sure does need to be and soon. Otherwise, I fear for the next generation.

  31. That is scary that analysis shows 2013 looking very similar to the year 1913. I can see the gap widening and it is a growing problem. We need a strong middle class, and if that disappears, many problems will follow.

  32. Catarina,

    I had not heard that the richest 1 percent in the world would soon own as much as the remaining 99%. It is painfully obvious that the gap between the haves and have-nots is increasing. I have no answers. The outlook is dismal to me. We can only hope that our upcoming election will change the landscape of politics here in the US but I don’t think anyone is optimistic about that.
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  33. I think one of the issues why inequality in industrial countries is rising, is a lack of competition. When the world had communism, workers had to be paid a fair price for their labor. There was always a threat of communalism expansion if workers were not paid a fair price for their labor. That threat is now gone, so workers are at the mercy of capitalists who now look only at profits.

  34. There are lots of problems all of have to cope with today but inequality seems to be a major one. It worries me that the younger generation will have it even tougher than us in spite of them being educated and with professional careers. I really don’t know how this problem can be sorted.

  35. Catarina, I’ve been concerned about the rising inequality for some time and have stated more than once that a revolution is coming. To compare the situation today to 1913 is even more frightening than my own thoughts which assumed small unrests caused by those less fortunate. If history is any indicator, we are doomed to repeat our mistakes.

  36. This is something I’ve been thinking about while watching the news lately. Throughout history, it’s never benefited anyone in the long term to be alone in the upper echelons on society and wealth. It usually leads to beheadings and all sorts of unpleasantness. It seems like the whole society does better when equality prevails. The question is how to make that happen?

  37. Catarina, You’ve inspired me to gain knowledge about the global economy.I’m trying to find information that includes a variety of viewpoints. I’m still absorbing and processing what I ‘ve found. I try to look at what makes sense. What doesn’t make sense to me is the world has made tremendous gains in medicine and technology. Such great minds at work, with everything but the economy. There’s a part of me that doesn’t buy it, I believe these great minds know exactly what to do, they don’t want the change. I feel the same way about politicians, they don’t want the changes they know exactly how to implement because if the world ran smoothly, the politicians would be out of work.

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