Global wealth inequality

I came across Change the Rules this week, a campaigning network looking at the causes of inequality. If you’re a regular reader of blogs like this one, the facts in this video won’t be new to you, but they’re well presented. At their extremes, the inequalities of global wealth are eye watering.

As always, some people watch videos like this and are moved by the sense of injustice. Others aren’t. Inequality is a natural consequence of a capitalist system, they tell me. It creates winners and losers and that’s unavoidable, and we should just accept it.

That’s nonsense. First, it’s nonsense that this situation is unavoidable. Yes, a certain level of inequality is inevitable, but suggesting that these extremes are natural assumes a level playing field and that poor countries just aren’t doing the right thing. That’s not the case.

If you watched to the end of the video, you’ll have seen some of the reasons why global inequality persists. Unfair trade rules, tax evasion and debt are just some of the factors that tilt the global economy in  favour of those who are already  plenty rich enough. The dollar as the global reserve currency is another often forgotten aspect. The controlling stake of the developed countries in international institutions such as the IMF and the UN is another.

Secondly, it’s nonsense to say that we should accept it. It’s obvious that those disadvantaged by this system would call for greater inequality, but a fairer distribution of wealth is in the interests of the rich as well as the poor.

Extremes of inequality undermine society and create conflict, dividing communities and polarising politics. It erodes trust and makes cooperation difficult as sides protect what they have. Power concentrates in the hands of the richest, weakening democracy and suppressing progressive change. Inequality creates a culture of envy and materialism, driving unsustainable levels of consumer debt as people live beyond their means to try and keep up – a factor in the financial crisis and the ongoing slow recovery. Along with unsustainable debt, this materialist lifestyle is unsustainable environmentally too, putting a strain on the earth’s resources and atmosphere. (As I’ve described before, climate change is not something that America quite literally cannot afford to ignore)

So let’s not be satisfied with the lazy answer that inequality is okay. It’s in everyone’s interests to level the playing field.

12 Comments on “Global wealth inequality”

  1. jeffmowatt April 16, 2013 at 1:54 pm #

    Jeremy, it was this poterntial to create conflict that US President Bill Clinton was warned about in 1996 in the P-CED paper proposing an alternative to traditional capitalism. The same warming was made repeatedly including here in the UK over the next 16 years.

    The solotion to leverl the playing field became a social business model and enlightened self-interest. The phrase ‘we are all in this together” will be familiar later.

    “Allowing that some people do not matter, as things are turning out, allows that other people do not matter and those cracks are widening to swallow up more and more people. Social enterprise is the first concerted effort in the Information Age to at least attempt to rectify that problem, if only because letting it get worse and worse threatens more and more of us. Growing numbers of people are coming to understand that “them” might equal “me.” Call it compassion, or call it enlightened and increasingly impassioned self-interest. Either way, we are all in this together, and we will each have to decide for ourselves what it means to ignore someone to death, or not.”

    http://www.p-ced.com/1/node/60

  2. Nathaniel Smith April 16, 2013 at 3:12 pm #

    Astonishing. Absolutely agree Jeremy. I’ve also written about the need to address global inequality if we are to chart a sustainable future (http://expatentpreneur.com/2013/03/29/why-equality-is-fundamental-to-a-sustainable-future/). It’s a significant part of the reason that no agreement came out of Copenhagen – who are we to tell developing countries that they need to stop industrialising and improving material quality of life when they can see what we have in the West? Lester Brown’s Plan B also highlights eradicating poverty as one of the 4 key targets if we are to live sustainably.

    • Jeremy April 17, 2013 at 10:17 am #

      Yes, global inequality is a major obstacle to international cooperation. It’s also vital to sustainability because so far we rely on growth alone to raise people out of poverty. If growth is unsustainable, then as growth stalls poverty reduction will stall too. So we have to think much more creatively about how to share and create wealth more equitably.

  3. Fay Helwig April 16, 2013 at 7:21 pm #

    Here in rural Australia words like level playing field result in scornful laughter, because all tariffs were abolished several years ago on foods, but not on other products. Thus tinned pineapple comes in from the Phippines, Kiwi fruit from Italy, oranges from the USA and other concentrates from China, just to mention a few. But, our wages were never reduced, so processing plants for tinned beetroot and tomato sauce (to name two) have closed and the companies that owned these factories are now processing vegetables in other countries and sending them to Australia. Because of the rising value of the Australian dollar, (we are not money printing like other nations) many manufacturing enterprises are closing. Our retailers find they can more easily sell food from around the worl or Toyota cars produced in Japan despite tariffs to protect the manufacturing industries. Such tariffs make it incredibly expensive for Australian farmers who have to buy their tractors, tyres, fertilizer etc from oversas. A level playing field would only exist if there was no currency or trade wars and all countries abolished all tariffs.
    n your dreams!
    But our politicians decided to play on the world stage beginning by abolishing all tariffs on food stuffs, thus hurting the very people who produce the food. Although Australia is still an exporter of beef, wheat and rice we are now importing more than half our food. This is rediculous, when we could be producing food to feed all our population, plus many more millions.

  4. DevonChap April 16, 2013 at 8:02 pm #

    The thing is, this ‘global rise in inequality’ has coincided with the greatest fall global fall in inequality in history and the greatest advancement in human welfare. Sure in country inequality has risen in nearly every country but global inequality has fallen. This I put down to the ‘neo-liberal’ economic system with its free trade and free movement of capital that allows a few to become extremely rich.

    In the first 30 years after the second world war the global economic system did not encourage capital flows, it was kept at home and via financial repression and high taxes taken to lower inequality and build New Jerusalem. The already richer countries in the main grew faster than poor ones. While in-country inequality fell, global inequality did not.

    Then came Thatcher/Reagan and globalisation. Capital was free to move and financial repression no longer was possible. The result was some people got very very rich. But at the same time growth rates in the poorer countries on Earth rose. Hundreds of millions have been raised out of poverty. We have hit the Millennium poverty reduction target years early, despite being behind on the government to government type ones.

    It is the poor countries, the ones without much of their own capital that benefit from free movement of capital. It is investment there from outside that spurs on their growth.

    The only thing worse than being exploited by capitalist bastards is not being exploited by capitalist bastards.

    • Jeremy April 17, 2013 at 10:40 am #

      You can always be relied on to summarise the textbook answer Devonchap. Unfortunately it’s not nearly that simple, and much of what you’ve just said is mythical. A couple of specifics:

      1. “growth rates in the poorer countries on Earth rose”. No they didn’t. Economies in Sub Saharan Africa were growing at a rate of 1.6% a year in the 1960s and 70s. With the arrival of the Thatcher/Reagan era, that nosedived to 0.2%. Inequality soared, and so did poverty rates. The percentage of people living on less than $1 a day was falling in the 70s, but began rising at the end of the decade and rose consistently throughout the 80s. There are all kinds of reasons for that – my only point is that your glossy view of neo-liberalism is really not that simple.

      2. Yes, hundreds of millions of people were lifted out of poverty. The ones that achieved the most dramatic results have been China and India – both of whom reject the neo-liberal consensus and play by their own rules.

      More importantly, you’re doing exactly what I’m warning about – explaining away inequality as natural, and ignoring the problems that make it worse. As I say, of course there will be inequalities within a capitalist system. But by endlessly stating that, you turn a blind eye to the biases of international institutions, tax evasion and odious debt.

      • DevonChap April 17, 2013 at 1:07 pm #

        Its not like in 1983 suddenly the whole world economy became ‘Thatcherite’ or ‘neo-liberal’. Africa was suffering the fall out of terrible statist economic policies and over-borrowing to pay for them. Only in the mid 1990s did reforms in the liberal mold start taking place, about when the economies there started picking up.

        China and India don’t totally reject the neo-liberal consensus. India was playing by its own rules and ran out of money in the early 1990s. Only then did it open up part of its economy and those are the parts that have boomed. The rest that is mired in the remains of the license raj is still hopeless. In China the state capitalist companies are being carried by the non state owned ones. Both India and China would not have succeeded as much as they have without the developed world opening their markets to them. Free movement of gods and capital allowed them to export their way to development. Previous economic policies designed with limiting inequality in countries had up to that point been far less friendly to free trade. Yet globalisation is at the heart of the rise of in country inequality. A few, the most talented, can sell their services across many countries, so the rewards of success are much larger. The rest in the wealthy world just carry on as before but the capital and opportunities are raising billions from poverty.

        The fundamental fact that looked from a global level inequality if FALLING, not rising alongside the greatest increase of human well-being in history. If for that to happen a small number of people become astronomically wealthy then I’m happy with that trade off. The rules, despite what the video says, are working.

        You have an a priori view that inequality is bad. Hence you feel it is lazy not to agree with you. I’d call that lazy reasoning. We may have $100 billion worth of tax evaded by international companies in Africa per year. But then there is $500 billion worth of private capital investment in Sub-Saharan Africa by companies and individuals per year. Capital investment that drives growth and jobs. That is 5 time the amount of government aid they get. When you tax something there is less of that thing. If we were to botch rules against tax evasion then we risk the growth of the countries with the very poorest.

        The way to deal with ‘odious’ third world debt is for the debtors to grow their economies so that the stock of debt become small in comparison to the size of their economy. Its how we worked off our Napoleonic war debt.

        I would agree that trade rules should be changed to further open our markets to poorer countries. Of course since many of them currently have mainly agricultural produce that might undermine the local food movement neo protectionism but oh well.

        • Nathaniel Smith April 17, 2013 at 2:21 pm #

          Interesting. Enjoying the discussion. DevonChap you make an excellent point that ‘Change the Rules’ do not reference any of their sources and for that I’m not willing to read anything in to their argument. Unfortunately, you make the same mistake in your argument that the Thatcher neo-liberal economic system is behind a reduction in global inequality. Jeremy has stated figures that suggest the opposite, and it seems tenuous to suggest that it took 12 years for such systems to come in to effect, and to explain away those aberrant 12 years to statist economic policies in developing countries. By the mid-90s action towards the Millennium poverty goals would also have been in effect, might that not also have had a significant effect on the reduction in poverty?

          For reference, I actually am on the fence at the moment as to whether global inequality is rising. Agreement on whether it is rising or not concerns me less than gaining agreement that inequality needs to be reduced. Two people could argue philosphically on whether inequality is ‘bad’ in absolute terms for ages and get no where. I argue that it is bad for humans because it is an obstacle to a sustainable global system (as I’ve explainedi in my blog) and without a sustainable system we’re all stuffed anyway.

          Something to consider is that we have a global economy that can only continue to run if it is in a state of constant growth. $1.25 may have been the poverty line back in 1990. However, the global economy has grown enormously since 1990 and with it the cost of living is also rising globally, so should we really still be using the 1990 poverty line to gain an accurate picture of whether we are reducing poverty?

          Totally agree that overall welfare across the world has risen enormously and is at an all-time high in terms of our material wealth. Our ability to meet our basic needs (shelter, food, safety) has increased through history. However, this has coincided with a period of time in which we have been dependent on fossil fuels to power us, and in which we are consuming resources at an unsustainable rate. We can’t all continue to have more material wealth, because simply it is finite. We are already bumping in to limits. So should that finite material wealth not be shared around more equally?

        • Jeremy April 17, 2013 at 4:19 pm #

          I don’t a priori believe that inequality is bad. We’re all born with unequal talents and looks and opportunities after all. But I do believe that we have a responsibility to do what we can to make sure that people who are disadvantaged are not left too far behind. Perhaps that makes me an idealist, and if it does, I’m fine with that.

          Our current economic system is primed to deliver more to those who already have more than enough before it delivers tiny improvements to those who don’t have anything. I genuinely fail to see how that is a system that is functioning.

          Let me repeat my fundamental problem with your point of view. Because you don’t have a problem with inequality, you don’t bother to investigate whether the gap between rich and poor is legitimate or exploitative. If it turns out that inequality is worse than it should be because the rich are abusing their power, you’d never notice because you’ve written off the issue as unimportant.

          That’s the problem here. I’m not advocating some global redistribution project. I’m joining Change the Rules in suggesting that there are big injustices that are holding back poor countries.

          Incidentally, have you got a source for global inequality is falling? As I understand it, it skyrocketed under the era of neoliberalism and then started slowly falling overall towards the late nineties. The huge populations of China and India have a distorting effect however, and if you remove them from the equation, inequality is still rising. That’s what I remember reading, but I don’t remember where. I’m happy to be corrected – I’d be pleased to hear that inequality is falling more generally.

          • DevonChap April 17, 2013 at 7:31 pm #

            Well, Sub Saharan Africa is growing at 5.5% pa while the developed world is barely so I’d strongly expect that global inequality falling even leaving aside China and India.

            Neo-liberal economics only really took a truly global hold after the end of the Cold War. Before that most countries in Africa, not forgetting Eastern Europe and parts of Latin America, were following polices that were in no way neo-liberal. That lag is important.

            The rise in inequality is almost entirely down to the top 1%. Remove them from the equation and in country inequality hasn’t moved much. Most of the postulated ill effects from inequality seem to be from us falling behind our peers. Since the 1% are hardly anyone’s neighbours that removes much of the issue. If a super rich elite is the cost of our current progress, and attacking them might slow or reverse our progress, then they are price worth paying.

  5. DevonChap April 17, 2013 at 1:48 pm #

    I’ve had a quick look on their website, Clearly one of the rules they want to change is the need for evidence. No cited sources or nothing. Just asserted ‘ facts’ as well as asserted solutions.

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  1. Video: Global Wealth Inequality – What you never knew you never knew | Czerulf's Thoughts - May 9, 2013

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