Is This the Dissolution of Social Welfare?
Global wealth distribution trends and inequality are directly linked throughout history to the social welfare of populations in all countries, cities and neighbourhoods of the world. As a Company, in recent days we have felt the need to express our thoughts and concerns along with some facts and opinions from the bibliography, as to how the situation is unfolding in the post-pandemic 21st century era with this article. The evidence demonstrates that, what used to be taking place in developing economies 20 to 30 years ago, is now a new reality in countries of the European Union and the western world.
To this effect, Oxfam International presents some very interesting figures and statistics (Oxfam International, 2023):
- “The richest 1% have gained nearly twice as much wealth as the rest of the world put together over the past two years.”
- “Billionaire fortunes are increasing by $2.7 billion a day even as at least 7 billion workers now live in countries where inflation is outpacing wages.”
- “During the pandemic and cost-of-living crisis years since 2020, $26 trillion (63 percent) of all new wealth was captured by the richest 1 percent, while $16 trillion (37 percent) went to the rest of the world put together.”
- “Billionaire wealth surged in 2022 with rapidly rising food and energy profits. The report shows that 95 food and energy corporations have more than doubled their profits in 2022. They made $306 billion in windfall profits and paid out $257 billion (84 percent) of that to rich shareholders.”
- “Over 820 million people —roughly one in ten people on Earth— are going hungry” in 2023.
- “The World Bank says we are likely seeing the biggest increase in global inequality and poverty since WW2.”
- “Entire countries are facing bankruptcy, with the poorest countries now spending 4 times more repaying debts to rich creditors than on healthcare.”
- “Elon Musk, one of the world’s richest men, paid a “true tax rate” of about 3 percent between 2014 and 2018. Aber Christine, a flour vendor in Uganda, makes $80 a month and pays a tax rate of 40 percent.” – of course, it must be mentioned that in absolute terms, Mr. Musk’s contribution is significant.
Should Seasons “Fear the Reaper”?
As the world is undergoing a crisis similar to none previously experienced, both economically as well as socially, it is inevitable that critical consequences such as the ones outlined above will escalate at ever-high paces, with multiplier effects rapidly magnifying. It is evident that living in this most globalised, technologically advanced era of humankind, any minor or major effect on international economies holds the chance of passing on systemic effects at unprecedented levels, which few could ever have imagined. This places national welfare systems as well as the global social welfare status at a constant risk. A modern status quo which, by the looks of it, leads one to believe that the people of this world need to eventually accept it as their new norm.
The International Monetary Fund (Stanley, 2022) has recently stated that “Global inequalities are in bad shape and mostly do not appear to be getting better.” But why is this the case, and why is the trend likely to continue in the near (and not so near) future? Below we outline three critical elements accountable for the escalation of financial inequality in the modern world.
Source of table:
World Inequality Report 2022 by the World Inequality Lab
The Role of Technology:
Daron Acemoglu, one of the most popular and influential modern economists, has at some point made a claim that there is a new visible threat to equality and social welfare in the face of “excessive automation” (Lohr, 2022). Huge amounts of private investments, approved and encouraged by like-minded public policy approaches in various countries, are targeting the development of new machines and software programs towards automating processes. Consequently, over the last 40 years more than 50% of the effect of the wage gap occurring between American workers has been attributed to these processes.
On one hand, it is inevitable that such technologies will continue to flourish in a modern era built around the philosophy and the continuous desire for timely generation of accurate information. Nevertheless, what Mr. Acemoglu claims to be an essential requirement (unfortunately not adopted by all private and public organisations) is the utilisation of continuous training programs for all workers in all relevant fields, which would help these people keep up to date with new advancements and remain flexible in their professional environments. In the meantime, according to Dr Acemoglu and other economists, the need for a more “human-friendly” approach to technological evolution is another thoughtful investment which policymakers should be considering, essentially encouraging the use of technology, where possible, in assisting professionals in their tasks rather than working against them. As long as this form of sustainability is not given a major role in the current technological revolution underway, the consequences may continue to exacerbate.
The Role of Globalisation:
As supported with findings by an International Monetary Fund 2007 research paper, technological progress has admittedly had a greater impact than globalization on inequality within countries during the last 10 to 20 years (IMF Research Department, 2007). Even so, the IMF also states that globalization itself demonstrates two offsetting observations:
- Whereas Trade globalization is associated with a reduction in inequality,
- Financial globalization (foreign direct investment – FDI – in particular) is associated with an increase in inequality.
Having said that, most studies do not present a clear-cut view of how globalisation affects global income inequality and wealth distribution, but rather point out to the conclusion that it certainly does play some role of interference. In terms of financial globalisation, a standard theoretical view is that the attraction of FDI allows countries to consume more than they produce and to carry out higher investment levels than savings. This theoretically boosts economic growth, raises the incomes of the poor and reduces income inequality.
However, there is a potential drawback in that during earlier development stages, only wealthier households can usually access and benefit from financial openness. At higher levels of economic development, more households can access financial markets, which leads to financial openness helping broader parts of the society. In any case, this takes some time, meaning that there exists a considerable time lag in the process. Furthermore, it is also worth noting that the quality/orientation of political institutions may affect the impact (with policies/limits) of increased financial openness on income inequality.
The Role of Capitalism:
A definition by Klusener taken from the University of Manchester, UK blog (Klusener, 2017), describes capitalism as “the political and economic system in which a country’s trade, investment, industry, and production are controlled by private individuals and for-profit corporations rather than by the state.”
The adoption of capitalistic orientations is more of a philosophical approach to life rather than a consequence of actions (these being the technological advancements and extensive globalisation mentioned above). Such tendencies guide economic policy, create room for the exploitation of profits, give value to human potential and talent, and enable the existence of social anomalies by encouraging individuals to thrive at the “expense” of others, inevitably giving rise to financial inequalities. This is not necessarily positive or negative, but a reality which exists in our world.
To the above, Klusener adds a second, symbolic perception of inequality, applied to the western world’s developed nations. That being that most people are competing for the ownership of luxuries rather than necessities, thus financial inequality referring to a measure of social/financial status rather than mere survival needs.
However, as it has been mentioned in the introduction of this article, such claims nowadays seem to have lost ground. To think that developed nations today still offer their people a basic minimum level of financial security translated into financial inclusion and social welfare is, to say the least, a “Midsummer Night’s Dream”. It is no more the case that inequality is an abstract term used at university lectures to describe reality in third world countries. It has knocked the door and entered the lives of people in all parts of the globe, and is showing no intentions of slowing down in the years to follow. The combination of the three elements analysed above is feeding this new reality.
The questions which therefore need to be addressed are if there is any hope left for us to sustain (and possibly redefine) Social Welfare, and if so, how? Or should we simply accept that humanity is being led towards what looks like a one-way road towards introversion and individualism?
In this rapidly changing environment of our time, could this be the right moment for completely unfolding new political philosophies, as well as economic and public policies?
Bibliography:
- IMF Research Department. (2007, April 11). World Economic Outlook, October 2007. Retrieved from IMF: https://www.elibrary.imf.org/display/book/9781589066885/ch004.xml
- Klusener, E. (2017, May 8). Are capitalism and inequality linked? Retrieved from The University of Manchester: https://sites.manchester.ac.uk/global-social-challenges/2017/05/08/are-capitalism-and-inequality-linked/
- Lohr, S. (2022, January). Economists Pin More Blame on Tech for Rising Inequality. Retrieved from The New York Times: https://www.nytimes.com/2022/01/11/technology/income-inequality-technology.html
- Oxfam International. (2023, January 16). Retrieved from https://www.oxfam.org/en/press-releases/richest-1-bag-nearly-twice-much-wealth-rest-world-put-together-over-past-two-years
- Stanley, A. (2022, March). The big picture on wealth, income, ecological, and gender inequality looks bad. Retrieved from IMF: https://www.imf.org/en/Publications/fandd/issues/2022/03/Global-inequalities-Stanley
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