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Inequality is Growing not Decreasing

The overall picture is stark: the ratio of the difference between the top 10 per cent and the bottom 10 per cent in OECD countries has increased from seven times (1980) to nine and a half times (2010), and within the richest group there has been further concentration. The top 1 per cent in 1980 accounted for less than 10 per cent of the total pre-tax income in all OECD countries (except one). By 2010, the top 1 per cent accounted for more than 10 per cent of all pre-tax income in nine OECD countries (with the figure for the US exceeding 20 per cent). Slippage was apparent in the lowest income countries, and this leads to higher levels of inequality which, in turn, reduces levels of economic growth and social mobility. This is the core of the case made by the OECD (2011 and 2015), not that income (and wealth) inequality is bad in itself, but the implications need to be seen in terms of their wider economic and social impacts, and the potential impact on society as a whole.

The difference between income and wealth has already been defined (see Chapter 1, note 1, p. 19), and it can be seen that wealth is even more polarized than income (Piketty, 2014). There are also substantial differences between market income (income before tax and transfers) and disposable income (or net income). It is generally agreed that income inequality should be reduced by tax and transfers, but increasingly it is also becoming clear that the rich are able to avoid paying tax in some legally approved way or another, or at least to reduce their potential tax liabilities, or to delay payment (for example, through their use of tax havens). This is also true for many multinational companies which are able ‘legally’ to minimize their tax liabilities on operations in those countries that have higher levels of corporation taxes and other taxes on profits. In both cases there are strong moral implications resulting from the wealthy (individuals and companies) not paying their ‘fair’ share of taxes, and as a consequence the poor end up paying higher taxes or have lower levels of provision of needed public services. Fairness and ethics do not feature prominently in any of the debates, and while broader based societal values are seen as being laudable, and they are talked about at the global meetings, such as in Davos, they are not issues on which positive action has been taken.

Income (and wealth) inequality are closely linked to the broader concept of poverty, where other basic needs are included, such as health, education, infrastructure, and non-violence. Nevertheless, the absolute poverty threshold level is now seen by the OECD (2015, p. 27) as being an income level of less than $1.90 per day (2015 PPPs – purchasing power parity exchange rates). Relative poverty is a measure based on the median income level, where the poverty line is defined by the OECD (2015, p. 27) as 50 per cent of the median income level, and the poverty gap is the mean income of those living below the poverty line. A third measure has been taken from the UNDP’s Multidimensional Poverty Index (MPI) that forms part of their wider Human Development Index (HDI) (UNDP, 2015) (see Chapter 6).

Between 1990 and 2015, absolute poverty in developing countries fell by more than two-thirds, and the numbers living in extreme poverty fell by over 1 billion to 836 million (measured as having an income under $1.25 per day in 2005 PPPs). The figures for relative poverty are harder to assemble, but over the period from the mid-1980s to 2014 the level in OECD countries has risen from 9 per cent to over 11 per cent (Keeley, 2015). The MPI is a weighted average of ten indicators, 1 and an individual is seen as being in multidimensional poverty if he/she is deprived in three or more of these indicators. It is estimated that 1.5 billion people living in 101 countries are living in multidimensional poverty and this in total amounts to about 29 per cent the total population of those countries (5.2 billion).

As might be expected, there has been considerable debate over the best means to address inequality globally. Paul Collier (2008) suggested that there are four core instruments available to alleviate the poverty of the ‘bottom billion’: aid, security, laws and charters, and trade. He concluded that it is only the first of these that has been used, and not very effectively. Where efforts have been made, there is little real coordination and cooperation between the governments and agencies involved. It is the issues of corruption, political instability, and resource management that are central to why some developing countries have failed, and any real change must come from within, together with help from outside. This is essentially a political approach that is tempered by realism and the need for stronger institutional structures. It differs from the market-based solutions that have been favoured by aid agencies and epitomized in the discredited notions of trickle down effects (Stiglitz, 2013, p. 8).
Unplanned urbanization in Dharavi (Mumbai) results in many people living in very high density informal settlements with little access to basic facilities such as water and electricity. There are few cars, but lots of people and three-wheeled auto rickshaws

Between the more political and economic perspectives is the middle ground covered by Abhijit Banerjee and Esther Duflo (2011), where effort is directed at the poor themselves in trying to get them to make decisions on their own situation and what matters to them. This thinking switches the telescope around and looks from the bottom upwards rather than the top downwards. Their argument is that the poor themselves are best able to articulate their problems, priorities and solutions, and that the specific context and thinking is crucial to finding effective solutions. There is also a secondary theme that suggests that a small change can lead to much wider and more profound outcomes.

It is difficult to see how real change can be achieved through such an approach, as the scale of poverty is so large, and the structural and societal problems need to be addressed at the same time, if not first (Collier, 2008). It is also worth noting that most authors seem to be incredibly optimistic about the potential for finding solutions to global poverty, but even though the numbers in absolute poverty may be reducing, the problem is still growing as the global population expands, and as the poverty gap increases both within and between nations.