Inequality — why is it rising, and what can be done.
Inequality has been rising steadily, but is at unprecedented levels today.
When Mark Antony faced a famine caused by drought and low-level flooding of the Nile, it wasn’t him who starved to death. It was his people. He still had access to nearly all luxuries — except the people’s approval — while the common person starved.
Such has been the case since forever. The ruling elite and the upper-class have always enjoyed a much higher level of privilege. However, inequality wasn’t always concerning. According to Historian Yuval Harari, most ancient societies were still more egalitarian than any modern society. However, since the industrial revolution, the gap between the rich and the poor has widen dramatically.
Consider this. In 1820, the ratio between the income of the top and bottom 20% of the world’s population was 3:1. By 1991, it was 86:1. Today, the richest eight people control more wealth than the poorest half combined. This trend isn’t going to end there, as World Inequality Report 2018 warns.
Disparities even exist within the same city. Take the example of Lahore. I grew up in a relatively underdeveloped area in old Lahore, where the quality of life was low and people didn’t have much facilities. Trash could be seen on every street. Even basic facilities like water and electricity were unavailable at times.
Now compare that to privileged areas of Lahore like Defense and Bahria Town, where there are international schools, healthcare is massively better, and international fast-food chains like Subway, McDonald’s, and KFC are in every corner.
The main strategy of governments around the world in tackling poverty and inequality has been to increase global GDP growth so the yields would gradually trickle down and improve the poor people’s lives. However, evidence suggests that the “trickle down effect” is not working and is instead resulting in more and more wealth concentrating in the hands of a few. Since 1990, while global GDP per capita has grown by 45%, the number of people living on less than $5 a day has increased by 370 million. This strategy is not benefiting the poor at all, but despite that, we haven’t changed it.
This ‘trickle down’ economics usually involves giving tax breaks to big corporations. The idea is that it will end up creating more jobs as corporations will have more money to spend and will improve the lives of poor people. For example, the Trump administration’s $1.5 trillion tax cuts were supposed to add $1.8 trillion in revenue. Instead, a POLITICO analysis found that “even if [it is] successful, all the valuable economic growth will go to pay for the tax cuts — and not reduce the deficit.” 83% of the benefits of the tax cuts will go to the top 1% over a ten-year period.
This didn’t just start with the Trump administration in the United States. From 1989 to 2018 the top 1 percent increased its total net worth by $21 trillion. The bottom 50 percent saw its net worth decrease by $900 billion over the same period. The rich can afford premium healthcare plans, while 45 percent of U.S. adults aged 19 to 64 are underinsured. The deregulation policies haven’t helped the working class at all, and it is a clear indication that the ultra-capitalist economical model is failing.
Evidently, the trickle down effect is a myth. It contributes to the already sky-high levels of inequality. A report by Oxfam concluded that “aggressive wage restraint, tax dodging and the squeezing of producers by companies” are worsening inequality, adding that “businesses were too focused on delivering ever-higher returns to wealthy owners and top executives” resulting in their workers’ needs being ignored.
Additionally, the New York Times reported in October 2019 that “for the first time on record, the 400 wealthiest Americans last year paid a lower total tax rate — spanning federal, state and local taxes — than any other income group.” This isn’t helping at all because, as we’ve seen before, such tax subsidies for the rich result in increased inequality. Despite all the evidence suggesting that tax breaks to the richest don’t pay off, the US government continues to go in the wrong way. Massive systematic changes need to take place if we’re serious about tackling the soaring inequality.
Experts have called for multiple policy reforms and the most agreed upon is a progressive tax reform, which will make the rich pay a significantly higher tax rate than the poor, as was the case in 1950s in the US. This measure could help redistribute income and wealth from the upper class to the lower class. But this is by no means the only reform that’s needed. French economist Thomas Piketty, a world expert on inequality, has called for a global wealth tax, while the Organisation for Economic Cooperation and Development (OECD) has suggested using higher inheritance taxes to reverse the extreme concentration of wealth. There have also been calls for a Universal Basic Income (UBI) that could help prevent poverty.
Though there’s no clear consensus on the measures needed to fight inequality, it is clear that the current system has failed to do so. There needs to be given much more attention to this problem than is being currently, because it requires urgent attention. If we do not take any measures against this issue, the top 0.1% alone would own more wealth than the global middle class by 2050. I don’t think anyone — regardless of where they fall on the political spectrum — would want that to happen.
