Economic INEQUALITY

➡️ Economic Inequality in a Capitalist Society – Can we close the gap?

Economic inequality effects almost every country in the world. Unequal distribution of wealth, income, and opportunity traps people in a cycle of poverty preventing them from climbing the social ladder meanwhile serving the interests of the rich.

Inequality is driven by capitalism, globalisation, greed, a corrupt global financial system, and poor trade deals.

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“The world's five richest men have more than doubled their fortunes since 2020—at a rate of $14 million per hour—while five billion people have become poorer.” - Oxfam

Inequality is growing, and it is no accident. With billionaires taking up 7 out of 10 CEO or principal shareholder positions in the world's biggest corporations, power and control is vastly skewed in their favour. This self-serving centralisation of power makes the rich richer, and the poor poorer.

Multinational corporations generate unimaginable profits by exploiting labour, dodging taxes, breaking regulations, manipulating markets, and privatising public services.

The world’s top 1% own more wealth than 95% of humanity and covid-19 served only to worsen the gap. The wealth of billionaires rose more in the first 2 years of the pandemic than in the previous 23 years combined. Economic inequality is bad for everyone. It lowers economic growth, creates political polarisation, and destroys the fabric of society.

“A nation will not survive morally or economically when so few have so much and so many have so little” – Bernie Sanders

We have reached a crossroad - How wide are we willing to let the wealth gap grow before we finally transform our economies into fairer and more dignified systems? The supremacy of billionaires needs to end and organisations such as Stamp Out Poverty, The Equality Trust, and Oxfam are working hard to push governments to change, to ensure workers receive fair pay, to introduce a wealth tax, and to stop funnelling endless profits to shareholders.

What are the Causes of Economic Inequality?

Economic inequality is driven by a combination of factors including wage disparities, unequal education opportunities, systemic discrimination, and capital accumulation. These factors are often linked in that unequal access to quality education ensures that low-income families remain in poverty due to lack of skills and opportunities.

This educational divide ensures that higher-income families can afford better opportunities for their children, perpetuating a cycle of privilege. Technological disparities further exacerbate the gap as those with access to digital resources gain the skills needed to take advantage of high-paying jobs.

Discrimination plays a huge role in the creation of inequalities - Race, gender, ethnicity, sexual orientation, age, and disability systematically limit access to lucrative jobs and economic resources. In 2023, 18% of Black people in the U.S. were living below the poverty line, that same figure for white people was 8%. The situation is even bleaker for Black women.

Unequal distribution of wealth is also sustained through generational wealth. Money which is passed down through inheritance allows people to then invest in assets such as stocks and real estate, which is then taxed at a much lower rate, or not at all. Those who are able to invest can accumulate wealth much more quickly than those who cannot, which is one explanation for why the wealth gap keeps increasing over time. Such high concentrations of wealth within certain families and communities limits social mobility and widens the economic gap.

Globalisation although being a driver of economic growth and a creator of jobs, often serves to only benefit countries and individuals with higher levels of capital, technology, and skills. Many developing countries find themselves stuck in low-value-added sectors of the economy, such as manufacturing and production. This perpetuates income disparities with wealthier nations and prevents developing nations from improving their economies.

French economist Thomas Piketty is an expert on the long-term evolution of income and wealth distribution. He predicted that without intervention, wealth inequality will increase over time, largely due to higher rates of return on capital in comparison with economic growth. He warned of the significant social and economic challenges that this trend brings and what we are witnessing globally today.

What Impact does Economic Inequality have?

The negative social and political effects of economic inequality are well documented. High levels of inequality are linked to economic instability, financial crisis, debt, and inflation. When a significant portion of the population lacks sufficient income, overall consumer demand is reduced, which can stifle economic growth. Countries with lower levels of economic disparity experience more sustainable growth.

From a social perspective, economic inequality creates low trust in institutions and high levels of social dissatisfaction as groups feel marginalised, forgotten, and hopeless. Limited access to quality education, healthcare, and social funding produces higher levels of crime, drug use, incarceration, teenage pregnancies, obesity, mental illness, and a host of other issues. Educational performance is significantly lower, as is life expectancy, the status of women, and levels of social cohesion.

In the U.S., a woman who turned 50 in 1970 and whose mid-career income placed her in the bottom one-tenth of earners had a life expectancy of about 80.4. A woman born in the same year but with income in the top tenth of earners had a life expectancy of 84.1.

In the UK, the education gap between private school students and disadvantaged students is stark. More than 70% of private school students are university graduates by the age of 26. This figure is less than 20% for children from the poorest fifth of households. When skills accumulation is stifled, this chokes economic and social mobility, as well as human development, which in turn slows economic growth.

Tackling Economic Inequality – Solutions and Strategies

Governments have several tools at their disposal to tackle economic inequality, getting them to use them is a different story all together. Progressive taxation, where higher income individuals are taxed at higher rates, can redistribute income more fairly. In the UK, a country struggling with vast economic inequalities, a modest wealth tax on richest 0.3% of the population could generate £10 billion for public spending.

Currently, the majority of UK millionaires and billionaires actually pay lower rates of tax than ordinary working people such as teachers and nurses, this is because income is taxed at a higher rate than wealth meaning that those who gained their wealth through investments or rising property values (the majority of millionaires), pay a lower percentage of tax.

Public support for a wealth tax is overwhelming - 78% advocate for an annual wealth tax for those with assets worth over £10 million. Taxing the rich already takes place in Colombia, France, Norway, Spain, and Switzerland. Tax is a tool that can be used to create a more equal society and to help fund services that benefit the wider community.

Investing in education and workforce training can help equalise opportunities and enhance skills for those from every background. Additionally, enforcing anti-discrimination laws and regulations can help ensure all citizens have equal opportunities to succeed.

On a corporate level, the rigged global financial system, through a series of loopholes, allows multinational corporations and the super-rich to avoid paying their fair share of tax. Scandals such as the Panama Papers and the Paradise Papers revealed the true extent of the problem and how the use of offshore tax havens has become standard business practice.

Tax havens are now used by 9 out of 10 of the world's top 200 companies draining massive amounts of tax money out of the country and away from essential public services.

Equality – For a Better World

Without strong policies to counter current economic trends, inequality will continue to rise unabated. With the adverse effects of such widespread inequality well documented in both developing and developed nations, policy makers must finally step up to implement change for more inclusive prosperity.

Excellent campaigns from NGOs are putting pressure on governments to instigate change and we must continue to show our support by spreading the word on social media, attending protests, emailing local leaders, and sharing important resources such as this one.

It is the world's poorest who pay the price for the such blatant wealth hoarding. Our world is not short of wealth, the problem lies in the unfair distribution of it. We are the 99%, and we will not pay for the mistakes of the 1%.

Author: Rachael Mellor 28.10.24 licensed under CC BY-ND 4.0

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