Income and wealth inequality is unjust, and yet the world continues to tolerate rising injustices, the most recent being inequalities in vaccine distribution.
French political economist Thomas Piketty and his colleagues at the World Inequality Lab have just published the World Inequality Report 2022, a real goldmine in data and insights on global inequalities.
First, inequality is primarily a political issue. We can all do something about it, but since politics has been captured by money, the few remain more equal than the many. Between 1995 and 2021, the top 1 percent wealthiest people in the world captured 38 percent of the growth in global wealth, whereas the bottom 50 percent had a pitiful 2 percent share. Similarly, the richest 10 percent of world population takes home 52 percent of global income, whereas the bottom 50 percent earned only 8.5 percent.
The Report showed why these inequities could not be reduced despite increases in average income and wealth per capita. The progressive tax rates where the rich paid more than the poor, introduced in the first half of the 20th century to deal with inequality, were dismantled in the 1980s. The neoliberal free market philosophy preached low taxes and small governments to encourage entrepreneurship, but effectively handed more income and wealth to the elite few.
Piketty’s second historical insight is that Europe and later America got rich on the back of both the Industrial Revolution and colonization. In 1820, between country (inter-country) inequality was only 11 percent of global inequality, meaning that most inequality was domestic (intra-country). But inter-country inequality rose when the West advanced with industrialization and resource extraction from the colonies. That peaked in 1980 when it represented 57 percent of global inequality. Since then, the rise in income of China, India, and other newly independent countries narrowed the gap with the West, but by 2020, domestic inequality again accounted for 68 percent of global inequality. This meant that the developing countries allowed their own inequalities to worsen, even as they were narrowing the gap with the West.
In short, the rich are the same everywhere. They have more and want more.
But there is a twist to this story. One reason why the Rest has caught up with the West is that “nations became richer, but governments have become poor.” In essence, because the Europe, North America, and Japan governments used debt to tackle slow growth since the 1980s, private wealth grew at the expense of public wealth. Privatization policies transferred public wealth such as utilities to the private sector, whereas public sector debt continued to increase. UK and US public wealth which was around 15-30 percent of total wealth before the 1980s declined to net liabilities of -10 percent to -20 percent of total wealth respectively. Contrast this with China and Russia, where public wealth represents around 30 percent of national wealth, down from 70 percent at the end of the 1980s.
The third Report insight is that inequalities and climate change are highly co-related. Between 1850-2020, half (49 percent) of historical carbon emission was accounted for by North America (27 percent) and Europe (22 percent). China accounted for 11 percent, but has become the largest emitter, although per capita emission remains lower. A recent IMF study pointed out that “the richest countries represent only 16 percent of the world population but almost 40 percent of CO2 emissions. The two categories of the poorest countries in the World Bank classification account for nearly 60 percent of the world’s population, but for less than 15 percent of emissions.”
The COP26 debate was all about whether China, India, and other emerging markets that are increasing their carbon emissions should do more on Net Zero pledges. The entanglement between CO2 emission and income and wealth levels suggests that climate warming policies should focus more on making those responsible for carbon emissions pay more for remedial climate action.
The Report has made some excellent suggestions to tackle inequality, such as progressive tax measures and a global asset register, that are bound to be controversial. But to be effective, they need global cooperation. No single country can impose higher tax rates or tougher action without being undercut by another country. The priority should be to work together globally to tackle climate and human inequalities that require domestic action against vested interests that are common across nations.
—Asia News Network
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Andrew Sheng is former chair of the Hong Kong Securities and Futures Commission.
The Philippine Daily Inquirer is a member of the Asia News Network, an alliance of 22 media titles in the region.