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Growing inequality is disastrous but not inevitable

311014 PUDI report - Regular reports on the growing Poverty, Unemployment, Debt and Inequality of the neo-capitalist world

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Highlights:

Many feel that some economic inequality is acceptable as long as those who study and work hard are able to succeed and become richer. This idea is deeply entrenched in popular narratives and reinforced through dozens of Hollywood films, whose rags-to-riches stories continue to feed the myth of the American Dream around the world.

Experimental research has shown just how important fairness is to most individuals, contrary to the prevailing assumption that people have an inherent tendency to pursue self-interest.*

Many believe that inequality is somehow inevitable, or is a necessary consequence of globalization and technological progress. But the experiences of different countries throughout history have shown that, in fact, deliberate political and economic choices can lead to greater inequality. There are two powerful economic and political drivers of inequality, which go a long way to explaining the extremes seen today: market fundamentalism and the capture of power by economic elites.**

... as economist Thomas Piketty demonstrated in Capital in the Twenty-First Century, without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise. Despite this, in recent years economic thinking has been dominated by a ‘market fundamentalist’ approach, that insists that sustained economic growth only comes from reducing government interventions and leaving markets to their own devices. However, this undermines the regulation and taxation that are needed to keep inequality in check.

In the 1980s and 1990s, debt crises saw countries in Latin America, Africa, Asia and the former Eastern bloc subjected to a cold shower of deregulation, rapid reductions in public spending, privatization, financial and trade liberalization, generous tax cuts for corporations and the wealthy, and a ‘race to the bottom’ to weaken labour rights. Inequality rose as a result. By 2000, inequality in Latin America had reached an all-time high, with most countries in the region registering an increase in income inequality over the previous two decades. It is estimated that half of the increase in poverty over this period was due to redistribution of wealth in favour of the richest. In Russia, income inequality almost doubled in the 20 years from 1991, after economic reforms focused on liberalization and deregulation.***

Despite the fact that market fundamentalism played a strong role in causing the recent global economic crisis, it remains the dominant ideological world view and continues to drive inequality. It has been central to the conditions imposed on indebted European countries, forcing them to deregulate, privatize and cut their welfare provision for the poorest, while reducing taxes on the rich. There will be no cure for inequality while countries are forced to swallow this medicine.

Despite the evidence that it increases inequality, rich-country governments and donor agencies, such as the UK, the USA and the World Bank, are pushing for greater private sector involvement in service delivery.

From Ghana to Germany, South Africa to Spain, the gap between rich and poor is rapidly increasing, and economic inequality has reached extreme levels. In South Africa, inequality is greater today than at the end of Apartheid.”

Today, hundreds of millions of people are living without access to clean drinking water and without enough food to feed their families; many are working themselves into the ground just to get by. We can only improve life for the majority if we tackle the extreme concentration of wealth and power in the hands of elites.”

Extreme economic inequality has exploded across the world in the last 30 years, making it one of the biggest economic, social and political challenges of our time. Age-old inequalities on the basis of gender, caste, race and religion – injustices in themselves – are exacerbated by the growing gap between the haves and the have-nots.”

Seven out of 10 people live in countries where the gap between rich and poor is greater than it was 30 years ago. In countries around the world, a wealthy minority are taking an ever-increasing share of their nation’s income.”

Today, there are 16 billionaires in sub-Saharan Africa, alongside the 358 million people living in extreme poverty. Absurd levels of wealth exist alongside desperate poverty around the world.”

If India stops inequality from rising, it could end extreme poverty for 90 million people by 2019. If it goes further and reduces inequality by 36 percent, it could virtually eliminate extreme poverty. [...] In a scenario where inequality is reduced, 463 million more people are lifted out of poverty compared with a scenario where inequality increases.”

Bangladesh and Nigeria, for instance, have similar average incomes. Nigeria is only slightly richer, but it is far less equal. The result is that a child born in Nigeria is three times more likely to die before their fifth birthday than a child born in Bangladesh.”

... in Zambia, GDP per capita growth averaged three percent every year between 2004 and 2013, pushing Zambia into the World Bank’s lower-middle income category. Despite this growth, the number of people living below the $1.25 poverty line grew from 65 percent in 2003 to 74 percent in 2010.”

... women make up the vast majority of the lowest-paid workers and those in the most precarious jobs. In Bangladesh, for instance, women account for almost 85 percent of workers in the garment industry. These jobs, while often better for women than subsistence farming, offer minimal job security or physical safety: most of those killed by the collapse of the Rana Plaza garment factory in April 2013 were women.”

Studies show that in more economically unequal societies, fewer women complete higher education, fewer women are represented in the legislature, and the pay gap between women and men is wider.”

In Australia, Aboriginal and Torres Strait Islander Peoples are disproportionately affected by poverty, unemployment, chronic illness and disability; they are more likely to die young and to spend time in prison.”

... the poorest people have the odds stacked against them in terms of education and life expectancy. The latest national Demographic and Health Surveys demonstrate how poverty interacts with economic and other inequalities to create ‘traps of disadvantage’ that push the poorest and most marginalized people to the bottom – and keep them there.”

Many feel that some economic inequality is acceptable as long as those who study and work hard are able to succeed and become richer. This idea is deeply entrenched in popular narratives and reinforced through dozens of Hollywood films, whose rags-to-riches stories continue to feed the myth of the American Dream around the world. However, in countries with extreme inequality, the reality is that the children of the rich will largely replace their parents in the economic hierarchy, as will the children of those living in poverty – regardless of their potential or how hard they work.”

If you are born poor in a highly unequal country you will most probably die poor, and your children and grandchildren will be poor too. In Pakistan, for instance, a boy born in a rural area to a father from the poorest 20 percent of the population has only a 1.9 percent chance of ever moving to the richest 20 percent. In the USA, nearly half of all children born to low-income parents will become low-income adults.”

Many of the most unequal countries are also affected by conflict or instability. Alongside a host of political factors, Syria’s hidden instability before 2011 was, in part, driven by rising inequality, as falling government subsidies and reduced public sector employment affected some groups more than others.”

Experimental research has shown just how important fairness is to most individuals, contrary to the prevailing assumption that people have an inherent tendency to pursue self-interest. A 2013 survey in six countries (Spain, Brazil, India, South Africa, the UK and the USA) showed that a majority of people believe the gap between the wealthiest people and the rest of society is too large. In the USA, 92 percent of people surveyed indicated a preference for greater economic equality, by choosing an ideal income distribution the same as Sweden’s and rejecting one that represented the reality in the USA.”

Across the world, religion, literature, folklore and philosophy show remarkable confluence in their concern that an extreme gap between rich and poor is inherently unfair and morally wrong. This concern is prevalent across different cultures and societies, suggesting a fundamental human preference for fairness and equality.”

Many believe that inequality is somehow inevitable, or is a necessary consequence of globalization and technological progress. But the experiences of different countries throughout history have shown that, in fact, deliberate political and economic choices can lead to greater inequality. There are two powerful economic and political drivers of inequality, which go a long way to explaining the extremes seen today: market fundamentalism and the capture of power by economic elites.”

... as economist Thomas Piketty demonstrated in Capital in the Twenty-First Century, without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise. Despite this, in recent years economic thinking has been dominated by a ‘market fundamentalist’ approach, that insists that sustained economic growth only comes from reducing government interventions and leaving markets to their own devices. However, this undermines the regulation and taxation that are needed to keep inequality in check.”

In the 1980s and 1990s, debt crises saw countries in Latin America, Africa, Asia and the former Eastern bloc subjected to a cold shower of deregulation, rapid reductions in public spending, privatization, financial and trade liberalization, generous tax cuts for corporations and the wealthy, and a ‘race to the bottom’ to weaken labour rights. Inequality rose as a result. By 2000, inequality in Latin America had reached an all-time high, with most countries in the region registering an increase in income inequality over the previous two decades. It is estimated that half of the increase in poverty over this period was due to redistribution of wealth in favour of the richest. In Russia, income inequality almost doubled in the 20 years from 1991, after economic reforms focused on liberalization and deregulation.”

Despite the fact that market fundamentalism played a strong role in causing the recent global economic crisis, it remains the dominant ideological world view and continues to drive inequality. It has been central to the conditions imposed on indebted European countries, forcing them to deregulate, privatize and cut their welfare provision for the poorest, while reducing taxes on the rich. There will be no cure for inequality while countries are forced to swallow this medicine.”

Elites, in rich and poor countries alike, use their heightened political influence to curry government favours – including tax exemptions, sweetheart contracts, land concessions and subsidies – while blocking policies that strengthen the rights of the many. In Pakistan, the average net-worth of parliamentarians is $900,000, yet few of them pay any taxes. This undermines investment in sectors, such as education, healthcare and small-scale agriculture, which can play a vital role in reducing inequality and poverty.”

The massive lobbying power of rich corporations to bend the rules in their favour has increased the concentration of power and money in the hands of the few. Financial institutions spend more than €120m per year on armies of lobbyists to influence EU policies in their interests.”

Many of the richest people made their fortunes thanks to the exclusive government concessions and privatization that come with market fundamentalism. Privatization in Russia and Ukraine after the fall of communism turned political insiders into billionaires overnight. Carlos Slim made his many billions by securing exclusive rights over Mexico’s telecom sector when it was privatized in the 1990s.”

Market fundamentalism and political capture have worsened economic inequality, and undermined the rules and regulations that give the poorest, the most marginalized and women and girls, a fair chance.”

The domination of special interests and bad policy choices – especially user fees for healthcare and education, and the privatization of public services – can increase inequality. Unfortunately, too many countries are suffering as a result of these ‘low road’ policies.”

Despite the evidence that it increases inequality, rich-country governments and donor agencies, such as the UK, the USA and the World Bank, are pushing for greater private sector involvement in service delivery.”

Full Report:



* ... John Nash believed that, every man is occupied by a distrust feeling against the others and continuously plans strategic moves against them in order to benefit himself. He designed some games based on this philosophy, one of which was called "fuck your buddy", (later published as "so long sucker"), according to which, the only way someone to beat his opponent was to betray him. The game would be proved consistent under a logical basis if every player was behaving the same way. But when some analysts from the strategic analysis company RAND, tried to test it using their secretaries, the later chosen to cooperate instead of betraying each other. However, this was not enough for analysts to conclude that the philosophy of this game was wrong and thought that the secretaries were simply unsuitable people for this experiment.

Another example is that of the famous psychiatrist Ronald David Laing who used the game theory to build a certain model for human behaviour. He concluded that people are inherently selfish and spontaneously planning various strategies during their everyday transactions. All these theories enhanced the beliefs of some economists like F. A. Hayek, whose economic models were totally excluding altruism and were totally dependent on personal interest. Another economist, James M. Buchanan, disputes the concept of "public interest" and supports that organizations should be managed by people whose motive is money. Concepts like "feeling of personal fulfilment" or "sense of duty", are not included in their theories.


** Many still believe in the myth of the free market. They have an ideal situation in mind where everyone will be free from the state suppression and the free market will drive societies and individuals to balance and prosperity. It's just an illusion because in reality the game is more rigged than ever. We are not talking about capitalism, not even neoliberalism. We are talking about the new global, brutal feudalism!


Comments

  1. without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise.....in russia its less than 1% controlling the wealth sucked out of the work of millions

    ReplyDelete
    Replies
    1. ... because Russia just escaped from neoliberalism and Putin didn't manage to control the oligarchs ... yet.

      Delete

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