With the pandemic, poverty is again increasing while the rich get still richer.

Extremes of Wealth and Poverty

Inequality is a major global issue, weakening the social cohesion necessary for stability and security, the subject of Sustainable Development Goal 10. Poverty results from failures of redistribution within the economic system, stagnating wages, chronic unemployment and lack of opportunity, while less attention has been paid to the increasing global wealth going to the already-wealthy as returns on capital, producing a social backlash. A new multilateral specialized agency should be created within the reformed UN system specifically to address growing economic inequality and to promote more equitable distribution of the world’s resources.
Inequality is a major global issue, weakening the social cohesion necessary for stability and security, the subject of Sustainable Development Goal 10. Poverty results from failures of redistribution within the economic system, stagnating wages, chronic unemployment and lack of opportunity, while less attention has been paid to the increasing global wealth going to the already-wealthy as returns on capital, producing a social backlash. A new multilateral specialized agency should be created within the reformed UN system specifically to address growing economic inequality and to promote more equitable distribution of the world’s resources.

The vertical axis shows the total real income growth between 1980 and 2016 for each percentile of the global distribution of income per adult. The bottom 10 percentiles are excluded as their income levels are close to zero. The top 1% is divided into smaller groups (up to the top .001%) to better account for its share in total global growth captured. Based on data from World Inequality Report 2018, available at wir2018.wid.world.

From 1980 to 2016 the world economy has grown enormously, but the benefits have been distributed very unevenly. The bottom ten percent still has essentially no income. The next ten to forty percent has seen more than a hundred percent growth in income, but from a very low base, and mostly in China. The middle classes from fifty to ninety-five percent income groups have grown only fifty percent at best over 36 years, while the top 0.001 percent has seen their income grow by nearly 250 percent. New wealth has gone increasingly to the top.

This reflects a system that rewards capital rather than labour, particularly through an institutional structure of multinational corporations which sometimes go out of their way to reduce their tax liabilities and evade national regulation and in some cases tending naturally to monopoly positions, and chartered to generate maximum profits, excess capital and dividends for their shareholders, wealth which is often located in tax-free havens.

A recent literature review published in Finance & Development indicates that “tax havens collectively cost governments between US$500 to US$600 billion a year in lost corporate tax revenue” and notes that US$200 billion of this is lost to low-income countries, substantially higher than the total of official development assistance and a proportionately much higher share of GDP than in the case of the advanced economies.

Succeeding generations of corporations have captured the wealth creation from primary production including minerals and fossil fuels, manufacturing, industrial agriculture, various forms of intellectual property, and now information technologies and big data. National policies have directed this wealth to the state where corporations are state-owned, with some reasonable distribution in social democracies, and almost entirely to the shareholders in more market-based economies, with more or less concern for social and environmental impacts. These impacts have been most extreme where weak national governance and corruption have left corporations free reign to exploit labour and resources.

In such a globalized economy beyond national control, only global systems of regulation and taxation, comparable to what was necessary at the national level in the 20th century to control monopolies, can bring the wealth creation of the economy back into balance with environmental imperatives to stay within planetary boundaries, and social imperatives to distribute that wealth equitably for the benefit of all of humanity.

Other Organizations to Look at

This book’s trenchant analysis of what ails the running of the globe should be read by policymakers everywhere, and certainly by those many citizens who concern themselves with fostering a better and more functional world. Change comes slowly, but this book is a prodding catalyst.

Robert I. Rotberg, Harvard Kennedy School, author of On Governance

Other Areas of Interest

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