Reducing inequality through fiscal and social means Introduction Much is given to some, and little is given to others. Injustice has parcelled out the world, nor is there equal division of aught save of sorrow (Oscar Wilde) The relevance of income inequality at the local, regional and global scale barely needs to be stressed. The immense increase of income inequality on a global level is one of the most significant and worrying features of the development of the world economy. The levels and trends in income inequality usually reflect on people s and societies well-being. Thus when in 2015 the United Nations set the 17 Sustainable Development Goals, as the main guidelines and principles for the UN until 2030, world leaders found it indispensable to include Goal 10, which is to reduce inequality within and among countries. There are several reasons why this point has been involved. Even though the most vulnerable nations the least developed countries, the landlocked developing countries and the small island developing states continue to make inroads into poverty reduction, inequality still persists and large disparities remain in access to health and education services, labour market and other assets. In the past 25 years the extent of economic inequality in developing countries increased by 11 percent and neither are developed countries immune to this significant issue. This is not only a problem because of how it affects individuals, but it is also hindering the healthy growth of economy and social development. Ensuring the equality of opportunity, in theory and in practice as well, should make a difference in growth, because it is about giving people the chance to make the most of their human capital. Thus this is one of the most urgent troubles humanity is facing currently. However, finding solutions could also facilitate to achieve other goals, such as reducing poverty, hunger or promoting economic growth.
What is economic inequality? Determined by economists, there are three ways to describe economic inequality within societies: income, wealth and consumption differences. A great question to ask though is: which one of these is the most accurate? Obviously all three have their advantages and must be used. Income is usually cited since it is easily measured, due to the accessible comprehensive data. Consumption inequality may reflect on social and economic welfare much more accurately, since the well-being and life standards of individuals and households is usually determined by the goods and services consumed, however at the same time it is less often used due to the relative hardness of measuring. Nonetheless research suggests, that there is a strong connection between income and consumption as the second one is usually following the first one s trends and although there hasn t been clear evidence to that, studies suggest that in the past 30 years the two have risen simultaneously. Wealth inequality is also a key element, as wealth s uniqueness is that it is inheritable. Thus the fact that which family a person is born into becomes relevant too. So in order to have possibly fair opportunities at birth, wealth inequality must be kept on a relatively low level. Inequality can be caused by several things. The roots of the problem could lie in plutocracy, regressive taxation, jobs requiring more and more skill, but no development in education, exploitation of workers and countries or even gender and ethnic inequality. But globalization is also among the problems, since with the worldwide trade evolving, poor countries cheap labour force lowers the wages of the lower skilled workers in wealthy countries. So as we can see it is an extremely complex question with even more complicated answers. Historical retrospection To understand topic thoroughly it is important to see its origins and the past of it. It is probably present since the Neolithic period, which basically means 9-8000 B.C. This is around the era when the first cities were born. This meant greater division of labour and necessarily the formation of a leading layer within society, with more respect and wealth. Recently the Organisation for Economic Co-operation and Development (OECD) and the University of Utrecht produced a comprehensive account of life conditions in the past 200 years in 25 selected countries and all of the world regions. As expected the study proves that most general conditions had changed for the better. The years spent in education have increased, whereas the number of illiterate people has been reduced. Construction workers wages has also grown. However, there is a quite persistent data, inequality. According to the research, the global Gini rose from 49 in 1820 to 66 in 2000. This rise mostly comes from what is called between-country inequality, the gap between rich and poor nations. This gap has widened sharply. In 1820 the world s richest country Britain was about five times richer than the average poor nation. Now America is about 25 times wealthier than the average poor country. The Gini coefficient for between-country inequality stood at only 16 in 1820. It soared to 55 by 1950, and has been stable since then.
However, we must not forget about within country inequality either! The study shows quite interesting things. Generally speaking, in the mid-20 th a so called egalitarian revolution can be noticed from the figures. Its result was a decline in the measures, thus before the 1970s the disparity of gross income had been much more equal but in the beginning of the 80s economic growth slowed and the income gap widened. In the vast majority of the examined countries there has been a sharp increase in income inequality. Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strong (this shift also happened in the post-soviet Union area, but obviously after the change of the regime) This resulted in the fact that inequality levels have returned to the values recorded in 1820. Though we must also note the slight decline in the last line of the chart which is the outcome of the actions already taken. Gini coefficient datas of within-country and between country income inequality Figures today and the effects of inequality Nowadays we can hear a great amount of worrisome information regarding inequality. And unfortunately most of them are likely to be true. The best way to demonstrate is probably through a simple example. 10.66 percent of the world s population lives in Africa and the continent s GDP is roughly 3 percent of the world GDP, whereas the same datas in the United States of America isregarding population- 4.67 percent, but the estimated percentage of world s GDP is almost 22, which is more than seven times greater than Africa s. But we must also note that the percentage of the African and the Central and South American data (8.49 %) combined is still significantly less than in the
numbers estimated in the United States of America. However, even this fact in itself means pretty much nothing, since despite the USA being one of the richest countries in the world, it is still struggling with inequality problems. With its Gini index reaching 40, it is among the most unequal amongst the developed nations. In 2014, the richest 1% of people in the world owned 48% of global wealth, leaving only as much as 52% to be shared between the other 99% of adults on the planet Almost all of that 52% is owned by those included in the richest 20%, leaving just 5.5% for the remaining 80% of people in the world. The biggest problem is that in 2010, the richest 80 people in the world had a net wealth of $1.3tn. By 2014, the 80 people who top the Forbes rich list had a collective wealth of $1.9tn; an increase of $600bn in just 4 years, but the poorest half of the world has suffered a decrease in their total value of wealth at the same time. It is also known that the richest 92 people own approximately as much wealth as the bottom half of the population. 92 people holding the same amount of wealth as about 3 billion people. Another issue is that according to studies and several estimations, circa 70% of developed countries population, by the age of 60, will have experienced at least one year within the top 20 th percentile regarding income. However, in LDCs or landlocked countries this number may be considerably lower, due to the lack of opportunities and the general poverty in the aforementioned nations. Immense inequality has many terrible impacts on societies. Stress and stress related illnesses are very common among the middle class and the poor due to inequality. But crime and violence is also thought to be linked with economic inequality, thus in a country with bigger disparity crime rates are probably higher. And we cannot forget that uneven countries are more likely to be economically instable.
Income inequality within countries, measured in the Gini coefficient Possible solutions Most scientists and economists agree on the fact that inequality in per capita income is part of our society since the early stages of development. This suggests that inequality is unfortunately inevitable. Nevertheless, they also it is important to note that it can be kept on a minimal level, and as it is the interest of countries for ensuring development, it must be kept to that minimum. But how exactly? Empowering youth. It is very important to assure that young people have opportunities by providing not only efficient education, but also food and water, access to health care and the labour market. Obviously it is each country s initial job, but the United Nations can promote good examples. Not reducing the amount of workplaces or creating opportunities. In our computerizing world it is extremely hard to find a job, let alone decent work which suits one s abilities and knowledge. Unemployment is one of the main causes of poverty which naturally leads to income inequality. The best solution would probably be the reform of taxation in nations where the issue is urgent. However, the UN has no authority over countries internal affairs, such as taxation and must respect the sovereignty, which makes this progress impossible on the global scale. Obviously these are very few of the possible solutions, but as a delegate it will be your exercise to find more of them throughout the conference.
Key terms Wealth: A measure of the value of all assets of worth owned by a person, community or country, minus its debts. Essentially wealth is the abundance of resources. Unlike income it can be inherited and is not taxed. Income: The amount of money someone receives in exchange for providing a good or service or through investing capital. For retirees, pension can be perceived as income as well, but people in their active ages usually acquire it through salary and wages. It is the subject of taxation in most countries. Consumption: In this sense it is the use of goods or services by individuals/households. Gini coefficient/index: measures the extent to which the distribution of income or sometimes consumption among individuals or households within an economy deviates from a perfectly equal distribution. 0 represents perfect equality while 1 stands for perfect inequality. GDP: Gross domestic product, a measure of economic activity in a country. It is calculated by adding the total value of a country's annual output of goods and services. GDP = private consumption + investment + public spending + the change in inventories + (exports - imports). Plutocracy: A Greek phrase, which means that a society is being controlled by the minority of the wealthiest citizens. It is a form of oligarchy. Useful links: https://sustainabledevelopment.un.org/sdg10 https://en.wikipedia.org/wiki/economic_inequality https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/ib-wealth-having-allwanting-more-190115-en.pdf http://www.un.org/sustainabledevelopment/inequality/ http://www.economist.com/blogs/freeexchange/2014/07/measuring-inequality Should you have any questions, do not hesitate to contact us at ecofin@bimun.hu and also please send a position paper of about 300-500 words to the same address by 25 th March.