Global Economic Inequality: An Analysis

The COVID-19 pandemic has exacerbated existing economic inequalities, highlighting and intensifying disparities in wealth distribution, income, and access to resources. This article examines key metrics of economic inequality, its impact on global stability, and the various socio-economic dynamics at play.

Key Metrics of Economic Inequality

1. Wealth Distribution: The wealthiest 1% of the global population have accumulated two-thirds of the $42 trillion of wealth created since 2020. This means that the average billionaire has gained roughly $1.7 million for every $1 of new wealth earned by a person in the bottom 90%. The collective wealth of the world’s super-rich has been increasing by $2.7 billion per day.
2. Income Inequality: The global Gini coefficient, a measure of income inequality, saw a decrease from 1990 to 2020 but increased again in 2020 due to the pandemic. The poorest 50% of the global population share just 8% of global income, while the richest 10% receive over half.
3. Regional Disparities: Wealth inequalities are higher and rising faster than income inequalities worldwide. North America and Europe account for 57% of household wealth with only 17% of the world’s adult population, while Africa accounts for 1% of wealth but 13% of the adult population.

Impact of Economic Inequality

Economic inequality has far-reaching consequences:

1. Political and Social Polarization: Concentrated wealth and power have corrupted and polarized politics and media, eroding democracies and widening racial and gender gaps. The elite often manipulate policies to maximize their control, minimizing costs, and relocating risks, while stifling accountability and dissent.
2. Global Stability: Rising inequality contributes to discontent, political polarization, and populist nationalism. The current inequality levels are nearing those observed during the early 20th century’s Gilded Age. This trend is evident in both advanced economies like the US and emerging ones like China and India.
3. Economic Disruptions: The World Bank warns that the goal to end extreme poverty by 2030 is unlikely to be met, exacerbated by COVID-19. Global warming and related natural disasters are increasing, further stressing low-income countries already struggling with sovereign debt crises.
4. Tax Evasion and Fiscal Policies: Billionaires like Jeff Bezos, Elon Musk, and Warren Buffet pay minimal taxes compared to their wealth, with tax rates as low as 1-4%. In contrast, the poorest pay a significantly higher proportion of their income. Progressive taxation policies, like those in the US during 1944-1981 with top federal income tax averaging 81%, are crucial for reducing inequality.

Effects on Global Stability

1. Conflict and Migration: Economic inequalities contribute to conflicts and forced migrations. Low-income countries, particularly in Africa and Asia, face heightened vulnerability to these issues due to limited resources and socio-economic instability.
2. Climate Change Impact: The poorest 50% of the population, contributing only 12% to global carbon emissions, are most affected by climate change. In contrast, the richest 10% are responsible for nearly 48% of emissions. Climate change exacerbates poverty, affecting food systems and livelihoods, especially in low-income countries.
3. Global Hunger: The UN reported that global hunger numbers rose to 828 million in 2021. The economic disruptions caused by the pandemic have pushed around 50 million people into poverty, especially in low-income countries lacking adequate stimulus packages.

Drivers of Rising Inequality

1. Technological Changes: Technological advancements are reshaping markets and the nature of work, increasing wage inequality. Automation and artificial intelligence prioritize high-level skills, marginalizing low-to-middle skill workers and widening income gaps.
2. Globalization and Institutional Changes: While globalization has expanded export opportunities for emerging economies, technological changes and economic deregulation have increased inequality. The erosion of labour market institutions and declining progressive taxation have weakened the redistributive role of the state.
3. Public Policy: Effective public policy is essential to curb rising inequality. Policies focusing on education, retraining, fair distribution of economic returns, and support during transitions are crucial. However, many countries have failed to adapt inclusively to these economic changes.

Conclusion

The COVID-19 pandemic has starkly revealed and intensified global economic inequalities. Addressing these disparities requires comprehensive strategies, including progressive taxation, robust public policies, and international cooperation. Reducing inequality is not only a moral imperative but also essential for global stability and sustainable development.