The world is moving on the fastest track with the advancement of science and Information Technology (IT). Conglomerate progress and development have taken place in the developed and developing economies. The life-styles and standard of living have changed of both the rich and the poor people of the world. From study reports it is clear that the income inequality between the rich and poor, between the makers and takers are widening rapidly and appears to be uncontrollable. From Asia to Europe to America, the number of 'have-nots' is bypassing the number of the 'haves' and a formidable gap is created between the "rich-takers" and the "poor-makers". As the world entered another year of global uncertainty, government and business leaders met at World Economic Forum (WEF) in Davos. The Global Risk Report of the WEF identified growing inequality for the second year as one of the biggest potential encounters the world is faced with.
It is quibbled that the richest 1.0 per cent, mostly the takers, have everything while the remaining 99 per cent, mostly the makers, have next to nothing. In the US, the share of national income going to the wealthiest 1.0 per cent has doubled since 1980 to 20 per cent. For the top 0.01 per cent, it has quadrupled to levels never seen before. A report published by Oxfam last year found that the UK is rapidly returning to the Dickensian levels of inequality. Rather than reversing the process, the financial crisis has accelerated it. While public spending is being cut, the luxury goods market has registered double-digit growth every year since the crisis. It's a visible sign that the widening gap between the rich and the poor has put the world in endemic problems, creating divisions among in the society.
Inequality of income and wealth is not good for any country. Consolidation of wealth and capital in so few hands is economically inefficient because it depresses demand. It is also socially divisive. The Occupy protests that took place in cities from London to Lagos demonstrated the strength of public outrage at the increasing wealth and power of the richest 1 per cent, compared with the dire straits in which the rest of the 99 per cent find themselves following a crisis not of their making rather made by the "one per cent". The protests are nothing but expressions of discontent, agony and dissatisfaction among the majority of the people. Excessive wealth and inequality pose a moral dilemma and a threat to modern civilisation. Earth provides enough to satisfy every man's need, but not every man's greed.
The leaders of the present world called income inequality a bigger threat to the economies of developed and developing countries alike than the budget deficit, which has been shrinking in some countries. Many leaders justifiably call for an increase in the minimum wage, more investment in education, and a stronger social safety net. The real problem, which is the cause of the accelerated growth of economic inequality is that the system, as presently structured, empowers a narrow group of people to concentrate on ownership of wealth-creating, income-producing capital assets -- the non-human factor of production (primarily productive structures, machines, tools, super-automation, robotics, digital computerised operations etc.). Productive capital is non-human and is the result of technological progress, which never ceases to march forward as it makes jobs scarcer in every sector of the economy.
Conventional economic wisdom says there is only one way to earn a living, and that's to work. If we have a thousand people working in a factory and we increase the design and power of the machinery so that one hundred men can now do what a thousand did before, economic wisdom says, the productivity of the labour has gone up 900 per cent. But the real picture is that the processes have wiped out 90 per cent of the jobs, and even the remaining 10 per cent are probably sitting around pushing buttons. What the economy needs is a legitimate way of capital ownership into the hands of the people who now don't have it.
The Gini coefficient -- a measure of income inequality -- between the early 1990s and late 2000s increased from 30.8 to 33.9 in India; 32.4 to 42.1 in China and in Indonesia from 29.2 to 38.1. However, during the same period the coefficient decreased in countries such as Cambodia, Kyrgyzstan, Malaysia, Nepal, Philippines, Thailand and Uzbekistan. Weaker labour market institutions, inadequate social protection systems, poor-quality education, inadequate access to credit and land and excessive asset concentration are among the factors for widening income gaps.
However, the gravity of the problem of growing income inequality becomes even more serious when we take wealth accumulation into account. About 75 per cent of the global population live under $ 2 a day (at PPP). This indicates that they hardly ever save to bring about any mentionable wealth accumulation compared to the richest 1 per cent who continue to accumulate more over time as they can make a handsome saving. Hence, the actual inequality is much worse-- once existing wealth owned and prospect of future wealth accumulation are taken into account.
While someone in the city can afford to buy and maintain a Mercedes Benz or a Porsche, not far away from his house in the same city, another individual, living in a slum, can manage to pay for little more than his pair of legs. In fact, in Bangladesh there are a number of people who own such large businesses that estimation of their wealth alone is a difficult task! Clearly, when such a large amount of wealth is confined to a very small number of people in such a populous country, it means a huge number of people - most people - lead lives in abject poverty.
Unequal distribution of wealth affects the overall progress of the nation in several ways, and all of these produce negative effects. A low-paid garment factory worker's children have little hope of avoiding the fate of becoming garment factory workers themselves in the future. It is simply because the cost of standard education is well beyond their reach. They can dream of no luxury other than just sustaining their physical existence in an unfriendly and heartless world. Low-paid workers are deprived of just salary because the owners want to pay only what would keep these unfortunate employees physically able to come back for more work tomorrow.
Despite the long-term optimism that exists in many countries, there are widespread concerns about inequality. More than seven-in-ten hold this view in Greece, Spain and Italy - countries that faced significant economic challenges during the last several years. But even in the emerging and developing nations that have enjoyed tremendous growth over the last couple of decades, there is consensus that those at the top are reaping the gains while others are being left behind.
People blame inequality on a variety of counts, but they see their government's economic policies as the top culprit. A global median of 29 per cent say, these policies are the most to blame for the gap between rich and poor.
Containing the widening gap between the makers and the takers has become a much-needed aphorism of the present century. Concerted endeavours of the world leaders, decision makers and the economists to diffuse the economically unpleasant rich and poor gap are the crying needs of the time. The broad challenge of gradually plummeting inequality in the developed and developing countries over the long-term can be framed in the context of a multipronged approach that addresses the following areas:
n Better incentives for more formal employment;
n Targeting social assistance to those in need;
n Spreading the rewards from education; and
n Preparing to finance higher social spending in the future
n Increasing the minimum wages
n Spending fiscal money more on productive sectors and less on unproductive sectors
n Introducing unemployment allowances
n Workers participation in the capital structure of the industries they work.
The writer is a CFO in a Private Group of Industries.
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