Staggering Levels of Income Inequality

The 2014 World Economic Forum in Davos is upon us, and one of the expected themes under discussion is income inequality. In advance of the meeting, Oxfam International has put out a report with their estimates of global income inequality. Their findings, if correct (and I have no reason to believe that they are not) are genuinely staggering: The 85 richest people in the world are as wealthy as the poorest half of the world's 7 billion people. 

Global elites are increasingly becoming richer. Yet the vast majority of people around the world have been excluded from this prosperity. For instance, while stocks and corporate profits soar to new heights, wages as a percentage of gross domestic product (GDP) have stagnated. To give an indication of the scale of wealth concentration, the combined wealth of Europe’s 10 richest people exceeds the total cost of stimulus measures implemented across the European Union (EU) between 2008 and 2010 (€217bn compared with €200bn).8 Furthermore, post-recovery austerity policies are hitting poor people hard, while making the rich even richer. Austerity is also having an unprecedented impact on the middle classes.

Rich people are pulling further away from everyone else in terms of wealth in many countries. The World Top Incomes Database covers 26 countries, with information on the share of pre-tax income going to the richest one percent since the 1980s (see Figure 1).9 In all but two countries (Colombia and the Netherlands), the share of income of the richest percentile increased – and in Colombia, it stayed at around 20 percent.10 The richest one percent of people in China, Portugal, and the US have more than doubled their share of national income since 1980, and the situation is getting worse.11 Even in more egalitarian countries such as Sweden and Norway, the share of income going to the richest one percent has increased by more than 50 percent. 

It is likely that the full concentration of wealth is in fact even worse, as a significant amount of wealth among those at the top of the scale is hidden away in tax havens. It is estimated that $18.5 trillion is held unrecorded and offshore. 

I admit that I would have loved to see the list of the world's richest people. We know from the Forbes 400 who the richest Americans are--with Bill Gates leading the list, while the Oxfam report mentions only Carlos Slim of Mexico by name. I only say this because it seems as though these richest people should be called out in terms of how they are giving back to their 7 billion neighbors. To his credit, Bill Gates does address the issue in his letter released today.