The rich keep getting richer and the poor keep getting poorer. Despite significant geographical differences, over the past few decades inequality has increased the world over.
Inequality across the world has increased everywhere over the past few decades. And it represents not only a driver of poverty and social conflict, but also an element that is in some way constitutive of the contemporary economic system: globalised capitalism.
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This is the message that emerges from the World Inequality Report 2018, which was presented in Paris in mid-December. It is a document that addresses the phenomenon at a global level for the first time: the text, which runs to 300 pages, is the result of work carried out by approximately one hundred researchers from around the world drawing on a vast database made publicly available and therefore accessible to anyone wishing to explore the analysis in greater depth. The aim: to capture a snapshot of the current situation, understand what evolution has brought us to it, and outline a number of scenarios for the future.
It was 1936 when English economist John Maynard Keynes published his General Theory of Employment, Interest and Money. In it, he explained that capitalism had not only failed to ensure sufficiently low rates of unemployment, but had also produced "an arbitrary and inequitable distribution of wealth." Eighty years on, that observation is truer and more relevant than ever: "At the global level, between 1980 and 2016, the wealthiest 1 per cent of the world's population pocketed twice as much economic growth as the poorest 50 per cent," explained economist Lucas Chancel, the report's lead coordinator.
"Economic inequality – the researchers explain in the text – is a complex, multidimensional phenomenon that is to some degree also inevitable. However, we are convinced that its worsening is not being met with effective responses. And this could lead to political, economic and social catastrophes." Particularly in those nations where the gap between rich and poor is most pronounced.
The World Inequality Report shows how the lack of equity in the distribution of wealth varies significantly from region to region. In 2016, the share of national income captured by the wealthiest 10 per cent stood at 37 per cent in Europe, 41 per cent in China, 46 per cent in Russia, 47 per cent in North America, and around 55 per cent in sub-Saharan Africa, Brazil and India. Reaching its peak in the countries of the Middle East, at 61 per cent.
Particularly worrying are the data relating to the development of African economies (which lend support to the hypotheses put forward in another work, by Branko Milanovic, entitled Global inequality: a new approach for the age of globalization, in which the existence of unstoppable waves of inequality is theorised). The lack of equity recorded in the distribution of wealth generated in numerous countries on the continent could indeed create an explosive mix if combined with the strong demographic growth projected for the same area. Africa today is home to 17 per cent of the world's population, but that share is expected to reach 26 per cent by 2050.
In Italy, between 1993 and 2013 the poorest 90 per cent of the population saw their share of wealth fall from 60 to 45 per cent. While the wealthiest 10 per cent reached the remaining 55 per cent.
But beyond these international differences, the trend of recent decades points to a widespread increase in inequality: it has grown, from 1980 to 2016, above all in the United States, China, India and Russia. But also in Europe, albeit to a lesser extent. In the Old Continent, in particular, the share of wealth held by the richest 1 per cent of the population increased over the reference period from 10 to 12 per cent. Whereas in the United States it rose from 22 per cent in 1980 to 39 per cent in 2014. "This is explained in particular," the report reads, "by the considerable disparities in the US in terms of education." But also by the introduction of "an increasingly less progressive tax system," a cornerstone of free-market economic theories.
In China and Russia alike, the share of wealth held by the richest hundredth of the population has risen from 15 to 30 per cent and from 22 to 43 per cent respectively. In this regard, the international study also delivers, in a sense, some good news: the gap between Europe and the rest of the world indicates that institutions, if they so choose, have tools at their disposal that are capable of limiting inequality. Levying taxes with the most progressive rates possible, introducing transfers in favour of the less well-off, imposing a minimum wage or offering greater public services are, for example, effective ways of countering capitalism's structural tendency to widen the gap between rich and poor. As is introducing a financial transactions tax.
It is no coincidence that the report underlines how a parallel phenomenon has played a fundamental role in the increase in inequality: one that has seen, over the decades, the share of wealth in public hands (and therefore owned collectively) steadily diminish relative to private wealth. "If in 1970 net private wealth stood at between 200 and 350 per cent of national income in wealthy countries, today it is between 400 and 700 per cent," the study explains. And the financial crisis of 2008 "has not reversed the trend."
In China and Russia in particular, public ownership has fallen over recent decades from 60–70 per cent to 20–30 per cent. "One can conclude that the capacity of states to regulate the economy, redistribute incomes and curb inequality has been constrained over time. The only exception to this general decline concerns countries that possess significant sovereign wealth funds, such as Norway."
Finally, the report provides some projections for the coming decades: "If the trend continues unchanged, by 2050 the wealthiest 0.1 per cent will control the same amount of wealth as the entire middle class in China, the United States and the European Union." Things will be even worse if the world converges on the adoption of the North American free-market approach. Whereas the widening of the gap will be less pronounced if, on the contrary, the European-inspired model were to be chosen.
All of this with evident repercussions above all in terms of poverty: today the average annual income of an adult belonging to the poorest 50 per cent of the world's population is in fact equal to €3,100. This will rise, by 2050, to €9,100 following the European doctrine and to just €4,500 by adopting the American one.