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January 27, 2015

What are governments doing on inequality? Great new cross-country data (and some important conclusions) from Nora Lustig

January 27, 2015

When will we reach Peak Inequality?

January 27, 2015
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Post Davos, Max Lawson, Oxfam’s Head of Global Policy and Campaigns, is still trying to get his head around the inequality statsmax lawson

Last year it was 85 people; this year it’s down to just 80 individuals who have the same wealth as the bottom 3.5 billion people. By next year the top 1% will own more wealth than the rest of us put together.

This of course makes you wonder when it will end. When will we reach peak inequality? Just how bad is it going to get? Not hard to imagine the Guardian front page in January 2020: ‘Oxfam Reveals: One man now owns the same as half the world’. Perhaps with a sub story about how Davos has had to downsize as wealth is now so concentrated that 2,500 delegates was starting to look a bit petit bourgeois.

Inequality is already at ludicrous levels. By some measures worse than it has ever been in the United States. Worse than in the time of the robber barons, or Gatsby.  Many other nations are headed in the same direction.  I think partly there is a cultural and perceptual time-lag, as we struggle to catch up with the economic facts. Many impacts are only just starting to be felt, as Piketty points out, such as the return to prominence of inherited wealth.  What is clear is that unless something changes fast, for our children, Downton Abbey will be a current affairs soap opera, and families will wistfully watch carefully crafted period dramas about meritocratic government schools in the 1970’s where clever poor kids were still able to go to university paid for by taxes on the rich.

Ah those were the days - it's 80 now

Ah those were the days – it’s 80 now

I didn’t realise this, but apparently one of the benefits of a Rolex is it doesn’t need batteries; the motion of your wrist keeps the watch going.  This presents a problem however when you own more than one.  So those clever Swiss boffins have invented a Rolex ‘Rocker’ for you to safely store your Monday Rolex whilst sporting your Tuesday one.   I can think of no better symbol for the insanity of today’s world.  Hundreds of millions of people will go to bed hungry tonight; not just in countries in Africa, or in Asia, but in Spain, the UK and the United States. Meanwhile Rolex is doing a roaring trade in rockers.

There at least seems to be a consensus emerging now that this insanely skewed distribution of wealth is harming us all and jeopardising our collective future.  It is threatening our economic progress, corrupting our governance, corroding our societies and constructing a dystopian and scary future.  Unless we reach peak inequality soon, we are in deep trouble.

In this there are huge parallels with climate change and the desperate need to reach peak carbon too.  We need to rapidly start building more equal and sustainable societies for our children.  Instead we seem to be accelerating in the opposite direction, burning more carbon and becoming more unequal than ever before.  As soon as my sons are old enough. I have no doubt they will berate me and my generation for not doing more to stop them inheriting a broken, burning world.

Naomi Klein believes the connecting causal factor is market fundamentalism, driven by the same small, organised right wing global elite that is causing both the inequality and climate crises.  Duncan is far more optimistic, and thinks we have passed ‘peak neo-liberal’.  I am not sure what I think, but it does seem to me that the policies implemented during the period of capitalism when the most progress was made in tackling inequality, policies such as public provision of services, public ownership and subsidy of industry, progressive taxation of rich individuals and corporations, strong trade unions and labour rights, full employment, universal welfare states, strong limits to intellectual property – are still pretty much frozen out of current debates.  There have been some glimmers of hope recently with the IMF saying that ‘at times redistributive policies can in fact not be harmful to growth’- but the fact that this limited and admission made a headline in the Financial Times itself shows how much further we have to go to return to common sense.

Last time we had peak inequality, it took a Russian Revolution, a great depression and two world wars before governments introduced progressive Even it Uppolicies and delivered decades of falling inequality and shared prosperity. This time around, we must pray that sense prevails less painfully.

What is exciting is that some countries are already bucking the trend – most recently Indonesia, where the new popular progressive president Jokowi is introducing universal health coverage and the largest social protection scheme in the world, paid for in part by cutting regressive subsidies on fuel.   Many countries in Latin America are also making strong strides in tackling inequality.  Stories like that fill me with hope.

The lesson is consistently clear: progressive, anti-inequality policies are implemented to appeal to the majority.   They happen when the balance of people power outweighs plutocracy.  So whilst debates in the dining rooms of Davos are all very well, the precise date of peak inequality will be decided on the streets and voting booths of Athens, Jakarta, London and Mexico City.

3 comments

  1. Have a look at what is happening in India. In 2013 the government passed the Companies Act that made it mandatory for large companies (over R5crore) net profit, to allocate 2% of average net profits to CSR activities. Many large companies have established their own CSR bodies to achieve this and keep it ‘in house’ as it were. Others are looking to civil organisations/NGOs to process the funds. No doubt there will be loopholes and ways of minimising the effects but it seems to be a step in the right direction. Why not something such as this in the UK? Alongside this, of course, are the problems currently being faced by NGOs in India.

  2. Something worth understanding: the difference between the notion of inequality used, for example, by Wilkinson & Pickett’s in The Spirit Level and the notion of wealth concentration captured in the Oxfam statistic mentioned in this post.

  3. I think the current statistics is posing a challenge on the theoretical idea of “Kuznets Curve”. May be the “peak” will never be attained and if someone tries to prove that mathematically, there will be a global unrest among nations, societies and communities before attaining that situation.

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