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Insights into Editorial: What rising inequality means

 

Introduction:

The COVID-19 pandemic has exposed the stark divide between the rich and the poor.

At this juncture, evaluating the state of inequality serves as an eye-opener on the income/wealth divides prevailing across regions.

Such divides are represented in terms of the share of income/wealth among the top 10% of the population against the bottom 50% of the population.

Rising inequality of wealth and income across countries has been pointed out by the latest edition of the World Inequality Report.

 

Income and wealth differences among various regions in the world:

  1. With regard to income, the top 10% of the global population share 52% of the total income, while the bottom half survives with a mere 8.5% of it. This leaves the 40% in the middle with 40% of the income.
  2. This distribution shows the tendency of a rising middle class with lower disparity in income, but it also shows that the status of the poor is worsening day by day.
  3. In terms of wealth, the top 10% of the global population own 76% of the total wealth, while the bottom 50% share a mere 2%.
  4. The practice of unabated accumulation has been possible in the absence of effective measures of redistribution on the one hand and the absence of measures discouraging undue accumulation on the other.
  5. Furthermore, India is one of the worst performers as far as inequality is concerned, as per the report.
  6. This is further supported by the fact that there was a 35% increase in the net worth of the billionaires in India during the novel coronavirus disease (COVID-19) pandemic, when India’s growth was negative 10%.

 

Levels of inequality in various regions of the world:

This inequality varies across regions. It is moderate in Europe and sharp in Africa.

  1. The top 10% have an income share of 36% in Europe vis-à-vis the top 10% with a share of 58% of the total income in West Asia and North Africa.
  2. This disparity shows that worsening inequalities are avoidable with appropriate measures in place.
  3. The share of income among the top 10% has been varying across regions indicating that the global picture is an aggregation of the most uneven distribution of income and wealth.
  4. While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory, the prevailing pattern across countries does not follow the same.
  5. The average income levels seem to be poor predictors of the levels of inequality, with high-income countries such as the U.S. having higher levels of inequality as against countries such as Sweden, which have moderate levels of inequality.
  6. Similar contradictions are also seen when we contrast middle-income nations such as Brazil, India and China as against Malaysia and Uruguay.
  7. Hence, emerging inequalities are not necessarily an outcome of rising levels of income in the post-liberalisation era, but a depiction of poor redistributive policies towards discouragement of accumulation by governments with due sensitivity towards inequalities.
  8. Such a contention is evidenced with the rise in inequalities in the U.S. and India as against a moderate rise in China.
  9. A reading across regions shows that global inequality is being largely contributed by South Asian, Southeast Asian and Latin American countries, Sub-Saharan Africa, West Asia and North Africa.
  10. This pattern is confirmed based on a ratio of average incomes of the top 10% to the bottom half which ranges in 5 to 50+ depicting the kind of disparity in income otherwise.
  11. The situation worsens further in the wealth domain. The top 10% own 76% of the total wealth compared with the bottom half which owns 2%.
  12. This means that we are keeping 50% of the population under-endowed to a degree of 15 to 20 times against the privileged.
  13. One wonders whether such a disproportionate distribution of wealth is sustainable in the long run.

 

Forming of rich nations, poor governments:

  1. This prevailing pattern of wealth concentration and differential levels of income around the world has also resulted in rich nations having poor governments.
  2. In fact, many governments are relatively poor with very limited resources, as resources are gradually moving into private hands.
  3. Such a situation has two underpinnings: one, governments have a limited capacity to act on inequality aversion measures and two, private interests overshadow the distributional fairness of wealth.
  4. The scenario is undoubtedly an outcome of the ineffectiveness of redistribution measures and also a complete absence of measures that discourage accumulation.
  5. Some additional features of this exposition of inequality also relate to imbalance of women’s share in income as well as the ecological inequities indicated by the differential carbon emission levels.

 

Consequences of rising in Income Inequality:

  1. This goes against constitutional ideas of equality of status and opportunity and the equitable distribution of wealth.
  2. Regional imbalances will pose a serious threat to cooperative federalism.
  3. The government must promote inclusive growth by promoting measures like land reform, social security pensions, scholarships and skill training for vulnerable communities.
  4. It must also explore introducing inheritance tax for the super-rich.
  5. Private sector investment is also a necessity and that has to be encouraged by improving the business environment, discouraging tax-terrorism, and promoting pro-enterprise policies.
  6. According to Oxfam erosion of workers’ rights; excessive influence of big business over government policymaking and the relentless corporate drive to minimize costs to maximize returns to shareholders are major causes of income inequality.
  7. It is clear that Covid-19 pandemic has more severely affected the vulnerable section of the society, especially in terms of employment and education.
  8. Concerted efforts are required, for ensuring enabling conditions for these sections to be educated and employed along with social security provisions, to provide them a level playing field in the labour market.

 

Conclusion:

Focus also needs to be placed on reducing disparities in capability domains like education and differential endowments (tangible and intangible) that have the potential to sustain inequalities.

The most unfortunate part of the prevailing inequality is the great homogeneity among the bottom half and the extreme disparity among the top 10%.

This has led to an increase in the number of billionaires in the world while billions don’t have the means for a decent life.

Quality of public services like health and education is also a great leveller and the government must also focus in this regard.

The Central government and NITI Aayog should evolve policies to correct inequalities between states and bring out cooperative federalism in its true form.

A comprehensive plan to promote inclusive growth is the only solution to address the income inequality problem in India.