Introduction
Economic growth, largely linked to the globalization of trade, has led to a sharp increase in overall income worldwide. However, this income growth has been accompanied by an increase in internal inequalities : between rich and poor individuals, and external inequalities : between rich and poor countries.
Moreover, it is widely accepted that focusing almost exclusively on economic growth, without looking aton how the mass of income is distributed between the different categories, to know how the income cake is shared,has created significant income and wealth disparities in many parts of the world.
I- Wealth distribution in the world
Wealth distribution is the way income and wealth are held by individuals in a society.
Analyzing the distribution of wealth on a global scale allows us to distinguish four economic zones, the unequal distribution of which varies considerably from one zone to another. The four zones are as follows :
1- Developed countries
They represent 13% of the world’s population and share 55% of global wealth. The standard of living is high with pockets of poverty.
2- Emerging countries
They experience a high growth rate. They have low labor costs and significant state intervention in the economy. They experience particularly marked internal inequalities between urban and rural populations.
3- Middle-income countries
They are characterized by economic vulnerability and sensitivity to financial crises. The standard of living of the population is very heterogeneous with strong internal inequalities.
4- Least developed countries
This group brings together the 50 poorest countries on the planet. They are poorly industrialized, with a predominance of subsistence agriculture.
II- The causes of unequal wealth distribution in the world
The global economic situation is marked by the concentration of wealth in the hands of a minority, where 1% of the world’s population holds 50% of the wealth, and almost half of the world’s population lives on less than $5.50 a day.
It should be noted that this reality is not inevitable but the result of political choices, the underlying causes of which are :
- Stagnant wages;
- The decline in the share of labor income;
- The gradual decline of the welfare state in developed countries ;
- Insufficient social protection in developing countries;
- Changes in taxation with the granting of massive tax breaks to the richest individuals and companies;
- Deregulation of financial markets;
- Rapid technological developments and automation.
So, governments are at the root of the inequality crisis and it is their duty to act urgently to end it.
III- The consequences of the unequal wealth distribution in the world
Indeed, according to Thomas Piketty, when 1% of the population monopolizes half of the world’s wealth, it has lasting consequences for the economy and society. This situation is not natural, but rather the result of political and economic choices; in this context, the fight against inequality is a democratic issue.
Moreover, despite the fact that the planet is producing more and more wealth, this wealth is concentrated in the hands of a handful of extremely privileged people. This unequal wealth distribution is a problem because it traps millions of people in poverty and precariousness.
An unequal society is a sick society, suffering from disorders and dysfunctions, which are manifested by high levels of :
- Imprisonment rate;
- Infant mortality;
- Malnutrition;
- Mental illnesses;
- Drug use;
- Number of homicides;
- Violence and conflicts;
- Vulnerability and insecurity.
In fact, inequality can impact life expectancy and access to basic services, such as healthcare, education, water supply and sanitation.
Moreover, when inequalities are high, economic and social mobility and human development are hampered and economic growth is weakened and trust in institutions and public authorities is eroded.
In general, inequality harms all individuals. It hinders the fight against poverty and widens social divides, because an inequitable wealth distribution can tear the social fabric apart.
This is why, in recent years, several countries have experienced social and economic upheaval and protests to denounce the hoarding of wealth and power, and the resulting poverty.
IV- Factors explaining wealth gaps
National wealth is the sum of added values constituting the Gross Domestic Product (GDP)to which must be added the wealth produced by administrations represented by non-market GDP. These added values are produced in companies when they transform goods and services for their production.
In fact, the sharing of wealth produced is a source of conflict between employees who receive a portion of the added value for their work in the form of wages and companies that receive profits as compensation for invested capital. The State, which also receives a portion of the added value in the form of taxes, duties, and social security contributions, must arbitrate this sharing.
Thus, during the thirty glorious years, it was rather the employees who were the winners, but today because of unemployment, wages are lower and profits tend to be concentrated in the hands of those who hold the capital, which poses problems of purchasing power, a situation also exacerbated by the position of the State which intervenes less and less to correct the imbalances in the sharing of added value because its instruments of intervention are limited.
Moreover, profits are distributed not only according to the merit and work of individuals, but also according to the privileges previously conferred on them by their socioeconomic status, their wealth, their heritage, but also their gender and their ethnicity.
V- Assessing differences in wealth levels
To get a real picture of the state of economic inequality, it is not enough to look at the income side, which includes (salaries, interest, dividends, property income).
We must also and above all examine the wealth distribution, including inheritances, movable and immovable assets and means of production, to the extent that this distribution of wealth is more decisive since it is highly unequal and amplifies the inequalities observed at the income level.
There are several indicators to measure the level of wealth distribution in a country.
Tools have been developed to assess and compare the level of wealth and its distribution within the population or between states. The main tools are :
- Gross domestic product (GDP);
- Gross domestic product per capita (GDP/H);
- The Gini index,
The famous Gini coefficient in inequality literature is the most widely used statistical index to account for the distribution of a variable within a population. It thus makes it possible to quantify the level of inequality in the distribution of wealth within a population.
The Gini coefficient is a number ranging from 0 to 1 :
- Value 0: means perfect equality, that is to say that everyone has the same share of wealth;
- Value 1: represents perfect inequality where only one person has all the wealth.
VI- Measures to reduce disparity in the wealth distribution
In its quest to establish the foundations of social justice, the public authorities adopt the policy of redistribution of wealth which corresponds to a set of economic transfer operations between the different economic actors of the country, which contribute to the sharing of wealth, in order to reduce inequalities, to fight against poverty, to impose solidarity and with the ultimate objective of strengthening social cohesion which is the solid basis of social peace.
In fact, to carry out its redistribution policy, the State often adopts two types of measures, fiscal and social, which are complementary :
1- Tax measure
In order to combat the phenomenon of systematic growth in inequalities, the State must reorient the tax system to reduce intragenerational and intergenerational inequalities in income and wealth.
Moreover, the state has, on the one hand, a strategic tool in tax, which can contribute to the redistribution of wealth if used properly. In this context, tax is a major lever for reducing inequality, through the application of a fairer tax system with a progressive rate that taxes very high incomes more.
On the other hand, the public authorities must take all necessary measures to combat all forms of tax evasion.
Efforts made in this direction will enable the State to acquire the resources to finance subsidies and social benefits for the poor and the most deprived.
2- Social measure
This measure corresponds to the implementation of adequate social protection systems to ensure basic needs for the entire population, whether for :
- Access to health care;
- Access to education;
- Social assistance through the assurance of a minimum income for all;
- Establishing a minimum hourly rate for salaries;
- Unemployment insurance;
- Payment of an old age security pension (for people aged 65 and over).
Conclusion
Inequality has a corrosive effect, rotting societies from within and posing a serious threat to social cohesion. To achieve this, policymakers must change the economic model, as the solution lies in a model that ensures the basic needs (health, education, food, social protection) of the entire population, in order to build human-centered economies that benefit everyone, not just a privileged few.
There is a clear need to move towards inclusive, equitable and sustainable growth, given that more than two-thirds of the world’s population face growing income and wealth inequality, wich seriously compromises the prospects for sustainable development.
1 thought on “Wealth Distribution : causes and solutions”