Economy / Finance, English

The Social Impact of Economic Inequality

Oct 1 2019

By Blerim Mustafa*

GENEVA, Sep  2019 (IPS) – Increasing economic inequality is a defining challenge of our time. In recent years, it has triggered analysis and reflection by many scholars, politicians and others on its causes and consequences on economic growth and efficiency, politics and democracy, human rights, individual behaviors, access to health, social cohesion and environmental degradation. The perception that the top 1% of income earners are gaining at the expense of the other 99% has resulted in widespread public debates in many countries on the social and political repercussions of inequality.

Inequalities in income and wealth are often blamed for the deepening anxieties of the middle class in many developed economies. Market power among business elites and multinational companies – in pursuit of higher profits – are one of the key drivers to inequality as access to resources remain in the hands of powerful business groups, and not in the hands of the people and their elected representatives. Serious doubts are therefore raised on the claims that globalization, technological developments and the “invisible hand” of capitalism and economic liberalism have liberated humans from disease, poverty and inequality.

It has long been assumed that GDP growth would address income inequality and lift people out of poverty. But economic growth can often be disproportionate and unequal, adversely affecting marginalized and disadvantaged groups in society. If economic growth does not lead to an equitable spread of its benefits, most citizens specifically the collar workers, the hard-working middle class and rural dwellers will not enjoy commensurate improvements of their living standards. In many countries, this has contributed to the rise of a crisis of legitimacy of governments and a crisis of democracy that has facilitated the surge of populism as well as the return of exclusionary forms of nationalism.

However, with the global financial and economic crisis that swept the world in 2007-2008, inequality has risen in all world regions. 1 In response to the adverse impact of the crisis, governments worldwide introduced fiscal austerity programs to reduce public at the expense of ballooning levels of sovereign debt that strangle economic growth. As highlighted in the latest report of the UN’s “World Social Situation” 2, popular dissent is increasing while trust in governments is plummeting “as people believe they are bearing the brunt of crises for which they have no responsibility and feel increasingly disenfranchised.” It is estimated that national governments have spent an astonishing USD 117 trillion to save the financial system and to bail out banks that were on the brink of bankruptcy but precious little to support the youth. No surprise that people took to the streets in Ireland, Spain, Portugal, Italy, France, Greece and Cyprus to protest against draconian austerity measures imposed by governments to cover up for the failures of the banks and the financial system.

In this regard, it is foreseen that the adverse impact of austerity measures could further impact socio-economic living conditions in Europe; Oxfam estimates that an additional 15-25 million people in Europe could live in poverty by 2025Professor Stiglitz has likewise suggested that “austerity has only crippled Europe’s growth, with improvements in fiscal positions that are always disappointing. Worse, it is contributing to inequality that will make economic weakness longer-lived, and needlessly contributes to the suffering of the jobless and the poor for many years.”

It is evident that economic inequality has had adverse economic, social and political impacts for social stability and cohesion, political participation, poverty reduction, as well as the enjoyment of human rights. In addition, economic inequalities impede the enjoyment of social, cultural and economic rights, thus contributing to persistent socio-economic disadvantages among social groups. As states are in need of fiscal stability to secure the provision of welfare benefits and redistributive fiscal policies to maintain social security, the dwindling of public resources impedes their ability to deliver basic public services. For instance, in the case of Greece, more than two million people – equivalent to 20% of the population – did not have access to adequate health insurance as underlined by former UN Independent Expert on the Promotion of a Democratic and Equitable International Order Professor Alfred de Zayas. Tackling global income and wealth inequality therefore requires important shifts in addressing its root causes.

 In the outcome document of the 2012 Rio+20 UN Conference on Sustainable Development entitled “The Future We Want,” decision-makers committed themselves to achieve sustainable development by promoting “sustained, inclusive and equitable economic growth”, creating greater opportunities for all social segments of society so as to reduce inequalities. Social inclusion was likewise a key outcome. In this connection, it was emphasized that “sustainable development must be inclusive and people-centred and recognized that broad public participation was essential to promoting sustainable development goals.” Appropriate measures to address the rise of economic inequality could include resource mobilization for social investment, distribution of income and wealth through targeted social transfers, progressive income taxation as well as the extension of social protection and decent work standards.

Governments are therefore required to address income and wealth inequality, and to prevent its further deterioration. They must build on a human rights and a people-centered approach that enables states to ensure the full enjoyment of human rights on a non-discriminatory and equal basis – among its citizens – in line with the provisions set forth in the 2030 UN Sustainable Development Agenda.

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1 “Across the OECD, since 1985 the Gini has increased in 17 of 22 countries (…),” according to Professor Stiglitz (see page 5 of his book entitled “The price of inequality: How today’s divided society endangers our future.”)
2 United Nations Department of Social and Economic Affairs, “Inequality matters: Report on the World Social Situation.“ Pages 22-23. New York, 2013. Accessed 14 January 2019. PDF.

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*Blerim Mustafa, Project and communications officer, the Geneva Centre for Human Rights Advancement and Global Dialogue. Postgraduate researcher (Ph.D. candidate) at the Department of Politics and International Relations, University of Leicester (UK).

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