The Neoliberal narrative from the US is: We need economic growth to fight poverty and raise living standards. We need investors investing to create that economic growth. Anything that stifles that investing — like seriously higher taxes on wealthy people — limits growth. However, the new World Social Report 2020 from the UN Secretariat Department of Economic and Social Affairs — Inequality in a Rapidly Changing World — smashes all these rich people-friendly economic myths and misdirections.
“Highly unequal societies grow more slowly than those with low income inequalities and are less successful in sustaining economic growth,” the report details. “They also are less effective at reducing poverty.”And the inequalities in highly unequal societies, the report continues, “lead to a concentration of political influence among those who are already better off and therefore tend to create or preserve unequal opportunities.”
The new UN paper backs these observations up with up-to-date research from social scientists working all across the world. Somewhat more surprisingly, the paper relates the story this research tells in an accessible —sometimes even compelling — narrative of its own.
The paper, for instance, walks us through how maldistributions of income and wealth encourage disinvestments in the public goods that undergird healthy and sustainable growth. In highly unequal societies, the report explains, “the rich may opt out of publicly funded education and health and choose private equivalents of better quality.” These same rich then become less likely to support adequate funding for public services, “making it even harder for lower-income households – who depend more on these public services – to access good-quality education and health care, further squandering potential for growth.” Even worse, the affluent engage in “opportunity hoarding.”
2nd article: IMF researchers in 2015 revealed “an inverse relationship” between gains for the rich and economic growth. The higher the income share of the affluent in a society, they showed, the lower the growth rate, a finding based on an analysis of the economic experience of 159 nations between 1980 and 2012. “We find,” the researchers summed up, “that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth — that is, when the rich get richer, benefits do not trickle down.”
By Sam Pizzigati, Inequality.com, Jan 31, 2020, The United Nations may be fading, but this just-released report deserves a bright spotlight.
Irrelevance can sometimes be liberating, and, at the United Nations in New York, folks have been feeling fairly irrelevant for quite some time now. Decades ago, debates on the UN General Assembly floor would make headlines the world over. These days the UN typically slips into the daily news cycle only when world leaders annually gather in New York for delivering their predictably self-serving orations. Global deliberations of any real significance now typically take place elsewhere, at elite meet-ups like the G-7 and the Davos World Economic Forum.
Meanwhile, despite the world’s disinterest, UN commissions and staffers are still working away, generating largely unnoticed reports that set out goals and ideas for moving the world forward. But this irrelevance, in a quirky sort of way, can turn out to be something of a plus: If the powers-that-be above you could care less about what you’re doing, they’ll most likely ignore you — and let you do what you want.
At the UN Department of Economic and Social Affairs, analysts seem to be taking full advantage of that sort of freedom. They’ve just produced a remarkably egalitarian new white paper that directly undercuts the rationalizations for inequality that cheer the current leaders of the UN’s most powerful nation states. These leaders — Trump in the United States, Johnson in the UK, Macron in France, Putin in Russia, and Xi Jinping in China — lead the only five permanent members of the UN Security Council. These five heads of state have veto power over any move the UN might want to make. They also rule over nations where the rich have become steadily — and, in some cases, phenomenally — richer over recent decades.
That reality doesn’t particularly upset any of the five. Indeed, their policies are speeding the ongoing enrichment at their economic summits, and the basic narratives they spin are justifying that enrichment. To wit: We need economic growth to fight poverty and raise living standards. We need investors investing to create that economic growth. Anything that stifles that investing — like seriously higher taxes on wealthy people — limits growth. The new World Social Report 2020 from the UN Secretariat Department of Economic and Social Affairs — Inequality in a Rapidly Changing World — smashes all these rich people-friendly economic myths and misdirections.
“Highly unequal societies grow more slowly than those with low income inequalities and are less successful in sustaining economic growth,” the report details.
“They also are less effective at reducing poverty.”And the inequalities in highly unequal societies, the report continues, “lead to a concentration of political influence among those who are already better off and therefore tend to create or preserve unequal opportunities.”
The new UN paper backs these observations up with up-to-date research from social scientists working all across the world. Somewhat more surprisingly, the paper relates the story this research tells in an accessible —sometimes even compelling — narrative of its own.
The paper, for instance, walks us through how maldistributions of income and wealth encourage disinvestments in the public goods that undergird healthy and sustainable growth.
In highly unequal societies, the report explains, “the rich may opt out of publicly funded education and health and choose private equivalents of better quality.” These same rich then become less likely to support adequate funding for public services, “making it even harder for lower-income households – who depend more on these public services – to access good-quality education and health care, further squandering potential for growth.”
Even worse, the affluent engage in “opportunity hoarding.”
“Through their economic and political influence,” the UN report relates, “the wealthy can preserve access to important opportunities for their children, while effectively preventing less-advantaged groups from competing for them.”
Why don’t modest-income people rise up everywhere against this inequity?
“Middle- and lower-income groups who feel the system is unfairly benefiting the rich can become politically discouraged,” the UN paper points out. “Evidence from Europe and the United States also suggests that people who live in highly unequal societies can become less sensitive to the unequal distribution of incomes and exert less pressure for redistribution.”
And that only brings more inequality — and more mistrust between people and groups. This “lack of trust destabilizes political systems” and “threatens prosperity through its effect on the climate for investment and economic growth.”
Research suggests as well, the UN paper adds, that distributions of income and wealth that fall along ethnic or religious lines “can be particularly harmful to social cohesion.” The ultimate result can too often be “violent conflict.”
What changes can we expect in the years ahead? The UN World Social Report 2020 asks us to see the world’s four most fundamental “megatrends” — ever more sophisticated technology, urbanization, migration, and climate change — through an “equality lens.”
“Without decisive action to manage megatrends in a strategic and coordinated way, the world will see inequalities widen,” the UN paper warns. “Conversely, addressing inequalities now will allow us to seize opportunities presented by these transformative changes for the world as a whole and protect disadvantaged groups from falling further behind.”
How best to seize these opportunities? The UN paper talks up progressive policies that the United States, the UK, France, China, and Russia — under current leadership — would never let the UN Security Council consider. Higher income taxes on the rich and new wealth taxes on their fortunes. An end to austerity budgets. Universal access to quality health and education. Stronger protections for unions and workers.
The most pressing policy of all: A “just, equality-enhancing transition towards green economies” that integrates “climate action with macroeconomic, labor, and social policies aimed at job creation, skills development, and adequate support for those who will be harmed.” In other words, a Green New Deal.
The new UN World Social Report 2020 combines its progressive policy playbook with an institutional self-awareness that seldom surfaces in the papers that come out of conflict-adverse international bodies. According to global polling data, the report notes, only 40 percent of respondents worldwide have confidence in the United Nations. Since the start of the 21st century, the share of those with no confidence in the UN has jumped from 41 to 49 percent.
Those who benefit so royally from our global inequality welcome this lack of confidence in the world’s most visible international body. The less the regard for the United Nations, the less the likelihood for the cooperation among nations that, as the new UN report puts it, “remains essential for ensuring equitable and inclusive development – not least because the consequences of rising inequality and unsustainable growth do not respect national borders.”
In a better world, the new UN World Social Report 2020 would get widespread coverage and help rebuild confidence in the prospects for international cooperation. In our world, we don’t get that. But we do get a report that offers egalitarian activists a valuable compendium of insights and ideas that our overlords would rather not see spreading. We’ll take it.
Sam Pizzigati co-edits Inequality.org. His recent books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970.
What do we want from people in authority? Not much. We want them to not just say the right thing. We want them to do the right thing. That goes especially for people in authority we can’t vote in or out, those people who run the giant institutions that can hold so much sway over our lives.
Kristalina Georgieva has run one of these mighty institutions — the International Monetary Fund — since this past fall. Earlier this week, Georgieva said all the right things about the staggering economic inequality that continues to plague us. She delivered a clear and reasoned call for higher taxes on the world’s rich.
“At the top of the income distribution,” Georgieva noted, “our research shows that marginal tax rates can be raised without sacrificing economic growth.”
The new IMF chief coupled this call for a big tax bite on high incomes with a pitch for big spending hikes on health, education, and other programs that can help build better “social cohesion.”
Georgieva’s words made headlines the world over. People listen when the IMF speaks. The 75-year-old institution ranks as one of the world’s most influential economic entities, functioning, the Guardian explains, “as the global lender of last resort, bailing out countries in financial difficulty and issuing policy advice alongside its interventions.”
People listen particularly closely when the IMF seems to be changing that advice. From the early 1980s into the 21st century, the advice the IMF proffered essentially ignored inequality. IMF officials advised developing nations to woo the rich, not tax them, and keep social spending modest.
The advice IMF managing director Georgieva delivered this week would have shocked those IMF officials. They preached that nations only develop economically when they give “free markets” free rein, when they privatize and deregulate, when they offer investors a “labor flexibility” that keeps workers off picket lines and thankful for any job that may come their way. THE IMF AND ARGENTINA: A long history of popular resistance
Follow our rich people-friendly advice, IMF officials regularly assured struggling nations, and you’ll live to see bright, sun-shiny days. Over the course of decades, struggling nations accepted that advice — they had no choice if they wanted an IMF loan package — but that promised bright future never materialized. Instead, the nations that accepted the IMF’s austerity counsel watched living standards droop for the great mass of their populations while new waves of wealth cascaded into the pockets of their most fortunate.
At the IMF, researchers noticed all this, too. About a decade ago, they began producing a series of reports and analyses that detailed the dangers of ignoring growing divides between the wealthy and everyone else. Back in 2011, for instance, two IMF economists marshalled evidence that directly challenged the conventional wisdom on inequality as an unavoidable consequence of economic progress.
“Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution?” the economists asked. “Are social justice and social product at war with one another? In a word, no.”
In 2014, an IMF policy paper concluded that the recommendations the IMF drops on struggling nations ought to take inequality into account and work to blunt inequality’s “adverse effects.”
IMF researchers the next year revealed “an inverse relationship” between gains for the rich and economic growth. The higher the income share of the affluent in a society, they showed, the lower the growth rate, a finding based on an analysis of the economic experience of 159 nations between 1980 and 2012. “We find,” the researchers summed up, “that increasing the income share of the poor and the middle class actually increases growth while a rising income share of the top 20 percent results in lower growth — that is, when the rich get richer, benefits do not trickle down.” WORLD BANK RANKINGS: How they reward anti-worker governments
In 2017, a 130-page IMF research guidance “warned that excessive inequality could “polarize politics” and made the case for “significantly higher marginal tax rates on top income earners.” The average top income tax rate on the developed world’s wealthy, IMF fiscal affairs director Vitor Gaspar pointed out, had since 1981 dropped from 62 to 35 percent.
Earlier that same year, IMF research had explored why inequality poses such a threat to economic health. In nations with wide income gaps, an IMF working paper related, levels of trust fall precipitously, with far-reaching consequences. People who trust one another, the paper noted, turn out to be “more likely to collaborate in trade, innovation, and entrepreneurship.”
This week’s pronouncements on inequality from IMF managing director Georgieva rest, in other words, on years of IMF research on the economic and social toxicity of concentrated income and wealth. So can we now expect to see, under her leadership, a new “woke” IMF that firmly rejects the austerity policies the IMF began so zealously pushing four decades ago? Can we expect this new IMF to take the global lead in the charge against economic policies that keep inequality so devilishly entrenched?
Unfortunately, no. We’ve seen this movie before, and it didn’t end happily.
Georgieva’s predecessor — Christine Lagarde, currently the president of the European Central Bank — actually spent a good chunk of her stint as IMF’s managing director making the same critique of inequality we’re hearing now from Georgieva.
In 2014, Lagarde warned that “rising income inequality” is casting a “dark shadow” across the global economy. “Seven out of 10 people in the world today live in countries where inequality has increased in the last three decades,” she added. “And yet we know that excessive inequality stops growth, inhibits inclusion, and undermines social capital.”
An accurate and thoughtful appraisal. But at the IMF operational level, despite these noble sentiments, precious little changed during Lagarde’s tenure at the IMF summit. IMF officials continued to push struggling nations to adopt keep-rich-people-smiling policies — and egalitarian watchdogs worldwide took notice.
The IMF “now concedes,” Oxfam analysts noted in 2017, that countries don’t need to accept greater inequality to grow economically. Yet the IMF’s “policy advice fails to match its research and rhetoric.”
Oxfam documented that failure with a close assessment of 15 IMF policy initiatives around the world. Those assessments showed an IMF not “taking its own concerns seriously about the economic threats of inequality.”
“We see the IMF recommend policies that will knowingly increase inequality,” the Oxfam analysis explained. “They then offer measures to compensate the losers of such policies — often the most vulnerable. If the IMF is serious about the macro-economic concerns inequality provokes, then they should begin with policies that attack inequality rather than mitigating harm caused by their advice.”
“It is time for the IMF to cast its influence well beyond words into policies and programs,” Oxfam concluded. “A far more radical overhaul is needed in the way it does business.”
A year later, another egalitarian global watchdog, the Jubilee South Asia Pacific Movement on Debt and Development, found no sign of that overhaul.
International financial institutions like the IMF, the Jubilee group charged in 2018, are still pressing nations to privatize public services, cut social spending, and limit taxes on the financially fortunate. The “more unorthodox” recommendations that IMF research reports have put forth — increasing public investments, enacting taxes on wealth and financial transactions — “do not seem,” the Jubilee activists noted, “to have made a dent” on actual IMF policy.
In effect, the Jubilee South Asia Pacific critique added, international financial institutions like the IMF have become “the emperor insisting he is wearing new clothes.” They give us “pronouncements of change and reform” while they “pursue the same neoliberal path that brought us to where we are now – in an inequality trap that stretches across generations, past and present.”
The European Network on Debt and Development would follow up the Jubilee South Asia Pacific with a study that compared the conditions on IMF loans to 26 countries in 2016 and 2017 to loans the IMF had approved in 2011 to 2013. In 23 of the 26 loans, the study found, IMF loan programs were continuing to “oblige borrowers to implement austerity.”
“The IMF has changed its rhetoric on inequality and social inclusiveness, but its operations continue to impose the same harmful policies of the past,” the International Trade Union Confederation’s Lara Merling summed up last year in Lagarde’s final months as the IMF’s top exec. “If the IMF is truly concerned about growth that benefits ‘the many,’ it needs to stop promoting policies that have time and time again hurt working people.”
Will Lagarde’s successor, Kristalina Georgieva, now deliver the break from the IMF past that Lagarde could not? The early signs don’t seem promising.
This past Tuesday, on the same day Georgieva pledged the IMF to “tackling inequality,” the Washington, D.C.-based Center for Economic and Policy Research updated its analysis of the IMF’s latest loan deal with Ecuador. That austerity agreement, notes CEPR senior research fellow Andrés Arauz, is leaving Ecuador with “lower per capita GDP, higher unemployment, and increased macroeconomic instability,” outcomes “all tragically unnecessary.”
“Ecuador had no need for this ‘belt-tightening,’” adds Arauz. “The IMF program is actively undoing a whole series of reforms and policies that contributed to generating economic growth, lowering unemployment, and reducing inequality and poverty.”
Why has so little changed at the IMF? Australian analysts Christopher Sheil and Frank Stilwell have speculated on the persistent gap between what the IMF has been professing in public and doing in private.
On the one hand, Sheil and Stilwell note, the uplifting IMF rhetoric about fighting inequality could be a somewhat cynical attempt to “to distance the institution” from its decades-long history of exacerbating economic inequalities. The rhetoric “offsets” criticism of that history, without forcing the institution to actually change anything. Other IMF critics have dubbed this approach “organized hypocrisy.”
On the other hand, the IMF’s professed commitment to fighting inequality could be completely genuine. The failure to implement that commitment could simply reflect the “internal struggle and institutional inertia” that invariably frustrate attempts at change in large organizations.
Or the ongoing gap between what the IMF says and does could reflect the reality that the IMF answers ultimately to the nations with the world’s largest economies. And if these powerful nations have leaderships that play nice with rich people — we’re looking at you, the USA, UK, China, Russia, and France — global economic institutions will continue to pay no more than lip service to the economic importance of greater equality. Researchers at the IMF can’t change those leaderships. That burden rests on us.
Sam Pizzigati co-edits Inequality.org. His recent books include The Case for a Maximum Wage and The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. Follow him at @Too_Much_Online.
World Bank Rankings Promote Deregulation at the Expense of Working People
The highly controversial annual Doing Business report gives governments high marks if they slash taxes and worker protections.
RESEARCH & COMMENTARY, NOVEMBER 01, 2019, by Leo Baunach
Through its annual Doing Business rankings, the World Bank promotes blindly deregulatory measures, including a race to the bottom on taxes and fewer protections for workers. In the recently released 2020 edition, countries get high marks if they demonstrate a commitment to slashing regulations rather than policies that support sustainable development, poverty elimination, and inequality reduction. Both the World Bank and the International Monetary Fund have used the report’s indicators to pressure countries to reduce regulations, sometimes through loan conditions.
Doing Business has long been dogged by controversy. In 2018, World Bank chief economist Paul Romer sharply criticized the report, noting that methodological changes — not reforms — had led to dramatic swings in Chile’s ranking. Romer speculated that staff could have manipulated the rankings for political purposes, an overreach that distracted from his valid criticisms of the methodology. As the Center for Global Development pointed out, Doing Business does not require political manipulation because “the index starts from an extreme ideological premise.” The creation of Doing Business in the early 2000s drew inspiration from the right-wing Heritage Foundation’s Index of Economic Freedom.
For decades, Chile pursued the neoliberal policies championed by Doing Business and the World Bank. Under dictator Augusto Pinochet, Chile privatized its pension system. The Bank held up Chile as a model and promoted pension privatization across the world, an experiment that ended in failure. In Chile, the pension system is in crisis, wages are low, jobs are insecure, and public services including water are privatized. In recent weeks a mass movement has risen up to demand a new model that benefits everyone.
Nonetheless, supply-side ideology may have gained new life at the World Bank. President David Malpass, selected this year by the Trump administration, described how financial deregulation in Kenya enabled an explosion of short-term microloans via mobile phones. “It’s the kind of liberalization process we need to unleash across the developing world,” Malpass said. This deregulation gave Kenya a significant boost in its Doing Business score from the “Getting Credit” indicator, where it ranks 4th globally.
While the Bank hypes mobile lending as a tool for entrepreneurship and development, there is a much darker side. Mobile lenders in Kenya aggressively market high-interest loans that trap people in unaffordable debt. These loans are not fueling business or investment either: only 10 percent of mobile borrowers in Kenya used a loan for that purpose. Most borrowers use loans for consumption, medical needs, and school fees.
Bridge Academies, which received funding from the World Bank’s private sector lending arm, is among the sources of school fees in Kenya. The World Bank Group is under pressure to divest from Bridge, which has been scrutinized for evading regulations on education standards and providing untrained teachers with poor working conditions.
Under Prime Minister Modi, the Indian government’s pursuit of a higher Doing Business ranking has guided policy-making.
In Kenya and around the world, the solution is not predatory finance and private education. People need quality jobs with living wages, a goal that Doing Business undermines. The World Bank suspended the Employing Workers Indicator (originally Hiring and Firing Workers) from the ranking calculations in 2009, after criticism that it degraded labor standards. However, Doing Business continues to gather the data, and the 2020 report devotes a chapter to the subject.
Countries are lauded for “making employment regulation more business-friendly” through flexibility measures including higher caps on overtime hours, reducing extra pay for working at night or on rest days, longer probationary periods before workers become permanent, and expanding the allowability of temporary and fixed-term employment relationships.
Doing Business justifies these flexibility measures in the name of letting workers “choose their jobs and working hours more freely.” Workers do need a genuine measure of control over their time and input in scheduling, especially to balance care responsibilities. This can be achieved through negotiations between employers, trade unions, and governments to balance the needs of everyone.
The ILO Global Commission on the Future of Work highlighted the need to address both insecure under-employment and excessive hours. The Commission recommended “the adoption of appropriate regulatory measures that provide workers with a guaranteed and predictable minimum number of hours” and actions to ensure that on-call work is dignified and “the choice for greater flexibility is a real one.” They suggest additional pay for work that is not guaranteed and compensation for the waiting time of on-call workers.
The changes promoted by Doing Business give employers even more power, allowing them to threaten non-renewal of employment contracts and keep workers insecure with unpredictable scheduling. Doing Business 2020 states that Serbian “authorities could benefit from the experience of Hungary where employers have the freedom to use fixed-term contracts of up to five years for tasks of a permanent nature.” The interest here is only in the “freedom” of business to do whatever it pleases, without considering the effect on working people.
Another justification is that flexibility will improve the ability of women and youth to participate in the workforce. The citation for one such claim is a decade-old study from Simeon Djankov, a central figure in the founding and survival of Doing Business. Evidence from the real world contradicts these claims. In reviewing the effects of labour market flexibility measures in Europe, researchers found “no support for the notion that lowering restrictions on the use of temporary employment relations can help reduce youth unemployment.” GLOBAL INEQUALITY: Get the facts
The discredited Employing Workers Indicator recently made an appearance in a World Bank white paper on social protection. It is no surprise that the indicator is used in a paper that calls for fewer labor regulations and a social protection system built around individual savings, reduced employer contributions, and narrowly targeted social safety nets. A full analysis of the World Bank’s proposals on social protection and labor is available here.
In India, trade unions will hold a nationwide general strike in January 2020 to oppose the policies of Prime Minister Modi, including the reduction of employer contributions to pension funds and social insurance. India has aggressively pursued higher rankings in Doing Business, lobbying the Bank for favourable methodology changes and letting the pursuit of a higher ranking guide policy-making.
“The Government boasts that India’s ranking is going up,” the Indian unions note. However, “All this is being done at the expense of the working people.”
Leo Baunach is the Director of the International Trade Union Confederation and Global Unions Office in Washington, D.C., which advocates for reforming multilateralism and a development model that benefits working people everywhere.
The World Bank’s Fuzzy Math on Inequality and the Future of Work
The Bank’s annual World Development Report distorts data to dismiss concerns about inequality and promote a deregulatory approach to new technologies.
RESEARCH & COMMENTARY, OCTOBER 11, 2018, by Peter Bakvis
The World Bank has just launched its annual World Development Report, which this year is devoted to the “changing nature of work.” Unfortunately, the 150-page flagship publication of the world’s pre-eminent development finance institution is not a serious contribution to the debate over this hot topic.
The overall message of the report is one of technological determinism. Governments should just accept and adjust to the impact of new technologies on workers and the public rather than attempting to control or regulate them. In other words, let private corporations do anything they consider to be in their best interest.
As for those raising concerns about rising economic inequality and how new technologies might accelerate this trend, well, according to the Bank, those people are just deluded.
To back up their case, they claim that in 37 of 41 developing and emerging economies Gini coefficients, a common metric of inequality, either decreased or remained “unchanged” (defined as increasing by no more than one percentage point) between 2007 and 2015. Besides the limited number of countries in their sample, the researchers cherry-picked the years of data, starting with the beginning of the global financial crisis. Such crises frequently begin with some very wealthy groups declaring huge losses.
Objective analyses by the International Monetary Fund, the OECD, and others have shown a long-term increase of income inequality in most countries, both developing and advanced-economy, starting in the 1980s. This is the case in studies using the Gini coefficient and is even more dramatic in those looking at the share of national income going to the top ten percent.
Attempting to show a decline in global inequality, World Bank researchers cherry-pick data, starting with the beginning of the financial crisis. Objective analyses have shown a long-term increase of income inequality in most countries.
Even more absurd is the World Bank report’s touting of data from Russia showing that the top 10 percent of income earners’ share of national income fell from 52 to 46 percent between 2008 and 2015. There’s an easy explanation for this decline which has nothing to do with progress on the inequality front. The price of oil fell by 58 percent in inflation-adjusted dollars between 2008 (a 28-year peak for real oil prices) and 2015, shrinking the fossil fuel-dependent fortunes of Russian oligarchs. But the World Bank researchers felt no need to mention this important context.
Nor did the World Development Report team have any qualms about directly contradicting IMF managing director Christine Lagarde, who noted in an October 1, 2018 speech that “since 1980, the top one percent globally has captured twice as much of the gains from growth as the bottom 50 percent.” An IMF working paper on the impact of new technologies also concluded that without vigorous policy responses, “the labor share [of national income] declines substantially and overall inequality rises.”
The statistical acrobatics on inequality are aimed at bolstering the report team’s pro-deregulation ideology. The report repeatedly asserts that business deregulation will lead to decreased informality, even when data presented in the report contradict this claim.
Figure 0.5, for example, shows a sharp fall in business start-up costs since 2005, and the accompanying text acknowledges that “despite improvements in the business regulatory environment” over the past two decades, the size of the untaxed, unregulated “informal” economy has not declined. Yet the report, proving that ideology trumps factual evidence, repeatedly puts forward the need to reduce regulations in order to cure informality and several other economic ills.
The report fleetingly acknowledges that technology can displace workforces in entire sectors and that good job creation will only come about “if the rules of the game are fair.” But it never mentions the fact that gig work for platform companies is a result of aggressive corporate strategies to ignore, subvert, and eliminate regulations such as employment relationship rules. It also ignores the harmful strategy of many platform companies such as Uber to misclassify employees or transnationals such as Walmart to pay poverty wages, knowing that social assistance will fill the gap and subsidize their operations.
And when it comes to policy recommendations, the World Bank team fails to provide policymakers with tools to create fair rules of the game, such as just transition plans for displaced workforces, policies to ensure that platform workers are fairly compensated, or an approach to trade in services which allows governments to regulate in the public interest. Instead, the report makes technology the protagonist, rather than the choices of companies and governments.
The report pays lip service to the need for progressive income taxes, but devotes far more space to what it defines as “a first line of reform for developing countries [and] a major source of revenue”: the value added tax. There’s no mention, of course, of how the expansion of regressive VATs has contributed to income inequality since this would conflict with their false claim that inequality is decreasing.
The launch of the World Development Report 2019 comes on the heels of the announcement that the report’s initial director, World Bank chief economist Paul Romer, has won a Nobel Prize in economics. Romer was ousted in January of this year after severely criticizing another major annual World Bank report for ideologically driven data manipulation. Now it’s not hard to see why the World Bank wanted someone else at the helm of this project — someone who would push the deregulation line, no matter what the data say.
Peter Bakvis directs the Washington, D.C., office of the International Trade Union Confederation, which represents 207 million members of 331 affiliates in 163 countries and territories.
TOPICS Labor, Global Struggles, Inequality
- Income Inequality
- Wealth Inequality
- Global Inequality
- Inequality and Health
- Racial Economic Inequality
- Gender Economic Inequality
Inequality has been on the rise across the globe for several decades. Some countries have reduced the numbers of people living in extreme poverty. But economic gaps have continued to grow as the very richest amass unprecedented levels of wealth. Among industrial nations, the United States is by far the most top-heavy, with much greater shares of national wealth and income going to the richest 1 percent than any other country.
Global Wealth Inequality
The world’s richest 1 percent, those with more than $1 million, own 45 percent of the world’s wealth. Adults with less than $10,000 in wealth make up 64 percent of the world’s population but hold less than 2 percent of global wealth. The world’s wealthiest individuals, those owning over $100,000 in assets, total less than 10 percent of the global population but own 84 percent of global wealth. Credit Suisse defines “wealth” as the value of a household’s financial assets plus real assets (principally housing), minus their debts.
“Ultra high net worth individuals” — the wealth management industry’s term for people worth more than $30 million — hold an astoundingly disproportionate share of global wealth. These wealth owners hold 11.3 percent of total global wealth, yet represent only a tiny fraction (0.003%) of the world population.
The world’s 10 richest billionaires, according to Forbes, own $745 billion in combined wealth, a sum greater than the total goods and services most nations produce on an annual basis. The globe is home to 2,208 billionaires, according to the 2018 Forbes ranking.
Those with extreme wealth have often accumulated their fortunes on the backs of people around the world who work for poor wages and under dangerous conditions. According to Oxfam, the wealth divide between the global billionaires and the bottom half of humanity is steadily growing. Between 2009 and 2017, the number of billionaires it took to equal the wealth of the world’s poorest 50 percent fell from 380 to 42.
Capgemini and RBC Wealth Management define a “high net worth individual” as someone with at least $1 million in investment assets (not including their primary residence and consumer goods). The vast bulk of the world’s millionaires hold less than $5 million. But the top tier of these wealthy individuals, those with at least $30 million, had the fastest growth rate between 2016 and 2017, rising 25.5 percent to 174,800.
Individuals with between $1 million and $5 million in investment assets make up the larger number of world millionaires. But those with more than $5 million hold a large majority (57 percent) of world millionaire wealth.
Global Income Inequality
Since 1980, the share of national income going to the richest 1 percent has increased rapidly in North America (defined here as the United States and Canada), China, India, and Russia and more moderately in Europe. World Inequality Lab researchers note that this period coincides with the rollback in these countries and regions of various post-World War II policies aimed at narrowing economic divides. By contrast, they point out, countries and regions that did not experience a post-war egalitarian regime, such as the Middle East, sub-Saharan Africa, and Brazil, have had relatively stable, but extremely high levels of inequality.
Rapid economic growth in Asia (particularly China and India) has lifted many people out of extreme poverty. But the global richest 1 percent has reaped a much greater share of the economic gains. Although their share of global income has declined somewhat since the 2008 financial crisis, at more than 20 percent it is still much higher than their 16 percent share in 1980.
U.S. Wealth Concentration Versus Other Countries
The top 1 percent in the United States holds 42.5 percent of national wealth, a far greater share than in other OECD countries. In no other industrial nation does the richest 1 percent own more than 28 percent of their country’s wealth.
The United States dominates the global population of high net worth individuals, with nearly 5.3 million individuals owning at least $1 million in financial assets (not including their primary residence or consumer goods).
China has had the most rapid growth in the share of world millionaires, jumping from 5 percent of the global total to 7 percent between 2017 and 2018. But more than 65 percent of the world’s millionaires continue to reside in Europe or North America, with 41 percent of these millionaires calling the United States home.
The United States is home to more than twice as many adults with at least $50 million in assets as the next five nations with the most super rich combined. China is rising rapidly up the ranks, with the number of individuals in the $50 million club rising from 9,555 to 16,511 between 2017 and 2018.
The United States has more wealth than any other nation. But America’s top-heavy distribution of wealth leaves typical American adults with far less wealth than their counterparts in other industrial nations.
Life Expectancy and Health are Better in More Equal Countries
Economists and health experts have known for years that people who live in poorer societies live shorter lives. But research also points to an additional factor in explaining life expectancy: a society’s level of inequality. People live longer, according to World Health Organization and World Bank data, in nations with lower levels of inequality. The Gini coefficient, a standard global benchmark, is used here to measure inequality. In the United States, average life expectancy is four years shorter than in some of the most equitable countries.
A study published in the Journal of the American College of Cardiology in 2019 found that the higher the level of income inequality, the higher the rate of cardiovascular-related deaths and hospitalizations. Based on surveys from 2009 to 2015, participating countries with the lowest levels of income inequality (Central Europe and Scandinavian countries), had the lowest heart failure rate, at 10.9 per 100 person-years. Countries with intermediate income inequality levels (North America, Australia, and India) had a rate of 11.7 per 100 person-years, while those with the highest level of inequality had the highest rates of heart failure, at 13.7 per 100 person-years.
In 2017, nations with the smallest income gaps between households at the 90th and 10th percentiles as calculated by the OECD had significantly fewer infant deaths, according to WHO data, than other nations. A household at the 90th percentile has more income than 90 percent of households. The United States is at the extreme end among other industrialized countries, with the largest gap between the rich and the rest of the population and by far the worst infant mortality rate, at 5.7 per 1,000 live births, compared to just 1.6 per 1,000 in Iceland.
Extreme inequality appears to affect how people perceive their well-being. In nations where the top 1 percent hold a greater share of national income, people tend to have a lower sense of personal well-being, according to University of Oxford Saïd Business School research. Researchers are also finding links between inequality and mental health. Countries with larger rich-poor gaps have a higher risk of schizophrenia incidences. In general, a 0.2 point increase in a country’s Gini coefficient results in eight additional incidences of schizophrenia per 100,000 people. Researchers believe that higher inequality undercuts social cohesion and capital and increases chronic stress.
Inequality and Health in the United States
The same association between high economic inequality and poor health can be observed within the United States.
Advocates for raising the retirement age for collecting Social Security benefits often base their argument on rising U.S. life expectancy. But a landmark study published in 2016 by the Journal of the American Medical Association found that low-income Americans — those who depend most on Social Security — have not been part of this positive trend. The divergence is most stark among men. In 2014, those in the top 5 percent of household income could expect to celebrate their 88th birthday, an increase of three years since 2001. For those in the bottom 5 percent, life expectancy has essentially flatlined at around 76 years.
The life expectancy divide is widest among the very richest and poorest in U.S. society, according to that same JAMA study. Men in the top 1 percent of the income distribution can now expect to live 15 years longer than those in the bottom 1 percent. For women, the difference is about 10 years — an effect equivalent to that of a lifetime of smoking.
Within the United States, people live longer in the more equal states, as calculated by the Journal of the American Medical Association. In Hawaii, which has relatively equitable income distribution according to Census Bureau Gini coefficients, people can expect to live nearly seven years longer than in highly unequal Mississippi.
In the 1970s, death rates from all cancer types were similar in rich and poor U.S. counties. As inequality has increased across the nation, this has changed. Today, as American Cancer Society data shows, rich counties have significantly lower levels of cancer deaths than poor counties. Lung cancer deaths in low-income counties have actually increased, from 41.2 per 100,000 per year to 47.7, while dropping slightly in the higher-income counties.
The American Psychological Association published a report which shows that U.S. households with annual incomes below $50,000 report higher levels of stress than other families. Average stress levels gradually declined after the 2007-2008 financial crisis, but the stress gap between rich and poor households has been increasing. Blue collar and low-income jobs are often more stressful and physically demanding than white collar jobs. This contributes to a variety of other health problems, such as high blood pressure, back problems, and diabetes. Societal forces, such as discrimination based on race, gender, and sexual orientation, add to the stress level of certain population groups.
On average, according to CDC research, women in the United States have lower rates of obesity as their income rises. Those with household incomes above 350 percent of the federal poverty line have obesity rates of 29.7 percent, compared to 45.2 percent for incomes less than 130 percent of the federal poverty line. In addition to higher stress levels, factors such as food deserts and lack of recreational facilities in poor communities contribute to higher obesity rates among low-income women. Among men, obesity rates are similar across income groups, while male college graduates have a significantly lower rate than those with less education.
U.S. smoking rates vary widely by income group, from 12.1 percent in households earning more than $100,000 per year to 32.2 percent in households earning less than $20,000 per year, as shown in CDC research. In addition to higher stress levels, low-income communities face heavier targeting by tobacco corporations, both through advertising and high concentrations of stores that sell cigarettes.
The lower American workers rank on the national economic ladder, the more likely their jobs will be physically demanding. Such jobs can lead to more stress, both physical and mental — and higher medical bills. Center for Economic and Policy Research data shows that workers in physically demanding jobs such as janitorial, maintenance, and housekeeping positions, also typically retire earlier, before they can claim full Social Security benefits.
The bottom third of U.S. earners tend to retire earlier than other Americans, as calculated by the Brookings Institution, in part because their jobs are often more physically demanding. Because American workers cannot claim full retirement benefits before age 66, this trend exacerbates economic inequality among seniors.