Recently Noted: World Inequality Report 2018 – findings and policies

Inequality in the World – findings

Inequality in wealth and income is not a new phenomenon. Nevertheless, recent decades in the US, and as this new report World Inequality Report 20181 shows, the world has seen a real explosion in inequality.

As shown in the charts below the US is hardly the most extreme in terms of inequality.2

top 10% national income share across the world, 2016Top 10% income shares across the world 1980-2016. Rising inequality almost everywhere but at different speeds.

The US vs. Western Europe 1980 – 2016

In 1980 the bottom 50% of the population in the US received 20% of the national income and 23% in Western Europe. By 2016 the share of the bottom 50% of the US population received declined to 13% while in Western Europe the bottom 50% held on to 22% of the national income. The top 1% in Western Europe increased their share to 12% in 2016. Meanwhile in the US the top 1%increased their share of the national income from 10% in 1980 to 20% in 2016.

A key question is what policies and forces are at play in Western Europe that maintained the bottom 50%’s share?

top 1% vs. bottom 50% national income shares in the US and Western Europe 1980-2016: diverging income inequality trajectories Income for bottom 50% and top 1% in Western Europe - stable shares.

 

Global Stagnation for the Bottom 50% 1980 – 2016

Rise of the global top 1% vs. stagnation of the global bottom 50% 1980-2016

Public Wealth vs. Private Wealth

Economic inequality is largely driven by the unequal ownership of capital, which can be either privately or public owned. We show that since 1980, very large transfers of public to private wealth occurred in nearly all countries, whether rich or emerging. While national wealth has substantially increased, public wealth is now negative or close to zero in rich countries. Arguably this limits the ability of governments to tackle inequality; certainly, it has important implications for wealth inequality among individuals.3

Not noted in the report but important are how this shift in ownership of capital is affecting decision making and control over the global economy. Corporations and private individuals in this top 1% are increasingly making decisions over the direction of the global economy without any effective guidance or oversight from the other 99%. Despite the rhetoric of free market capitalists that the market mechanism will deliver the best allocation of economic activity, their is no reason to believe that the 1% will not continue to pad their pockets.RISE OF PRIVATE CAPITAL AND THE FALL OF PUBLIC CAPITAL IN RICH COUNTRIES 1970-2106Decline of public capital, 1970-2016

Inequality – the future

The future is not inevitable. The report graphs several different scenarios following the tack of existing policies in several countries. The same policies (tax and social) and social structures (vigorous unions and political parties representing more than the elite) that Western Europe has been following that preserved the 20% share of national income by the bottom 50% (see The US vs. Western Europe 1980 – 2016 above) will produce a very different future for global inequality as it would in the US.

Squeezed global middle class, 1980-2050Rising global income inequality is not inevitable in the future

What to Do?? – the Report’s Suggestions

  • Tax progressivity is a proven tool to combat rising income and wealth inequality at the top.
  • A global financial register recording the ownership of financial assets would deal severe blows to tax evasion, money laundering, and rising inequality.
  • More equal access to education and well-paying jobs is key to addressing the stagnating or sluggish income growth rates of the poorest half of the population.
  • Governments need to invest in the future to address current income and wealth inequality levels, and to prevent further increases in them. Public investments are needed in education, health, and environmental protection both to tackle existing inequality and to prevent further increases.

All of this requires renouncing the free market neoliberal policies of starving the public sector and suppressing unions and other organizations that can represent the interests of the bottom 90%.


Also published on Medium.

Footnotes

  1. Alvaredo, Facundo, Lucas Chancel, Thomas Piketty, Emmanuel Saez, and Gabriel Zucman. “World Inequality Report 2018 – Executive Summary.” World Inequality Lab. Accessed December 14, 2017. http://wir2018.wid.world/files/download/wir2018-summary-english.pdf.
  2. All charts and quotes are sourced from the report itself
  3. Those who own capital always receive more income from that wealth than those who earn income from their labor.