From UPSC perspective, the following things are important :
Prelims level : World Inequality Report
Mains level : Rising Inequalities
Op-ed of the day is the most important editorial of the day. This will cover a key issue that came in the news and for which students must pay attention. This will also take care of certain key issues students have to cover in respective GS papers.
According to the work of the World Inequality Lab, in the nearly 90 years between the Great Depression of 1929 and the year 2017, inequality in the US and UK first collapsed enormously and then exploded, ending up roughly where it started.
Extent of Inequalities
- In 1928, at the end of the Roaring Twenties, 22% of the US national income went to the richest 1%.
- Something very similar happened in the UK. The share of the top 1% fell steadily from 1920 to about 1979 and then went up, almost reaching the 1920 levels by 2017.
- India has followed an even more extreme trajectory than the US since Independence. In the 1950s, the share of the top 1% in income was between 12% and 14%. That number dropped to 6% in the early 1980s and then began to climb, reaching 23% in 2017.
Not the same across all countries
- The share of the top 1% in France, Germany, Switzerland, Sweden, the Netherlands, and Denmark was not too different from that in the US or UK in 1920. After 1920, inequality went down very sharply in all of these countries.
What’s causing these differences
- One view is that inequality is the cost we pay for fast growth.
- Countries track themselves in terms of GDP per capita despite radically different experiences with respect to inequality.
- Across the world, the correlation between inequality and growth at the country level is negative. More unequal countries grow less fast. There is also no evidence that an increase in inequality is followed by increased growth.
- There is very little support for the theory that we need to incentivize the rich so that the country grows.
- The sharp turnaround in inequality in the US and UK around 1980 coincides with Ronald Reagan in the US and Margaret Thatcher in the UK. They were true believers in the doctrine of incentives and pushed through a policy that combines large tax cuts for the rich with massive deregulation, and hostility towards the rights of workers.
- This did not happen in the rest of Western Europe, and it may be one important reason why they never saw the same explosion of inequality.
- Tax cuts and other giveaways to the rich do little to change their behavior.
Need for government regulation
- It is clear that the regulations that we had in India before 1991 or China before 1979 can be debilitating.
- Governments do need to get out of the way of private businesses.
- But there is a lot that can be done with a simple set of instruments
- sensibly high taxes on high incomes and high wealth
- vigilance against resource grabs (land, mines, water) by the rich
- progressive carbon taxes
- effective defense of workers’ rights by making job losses less painful
- Income inequality is an enormous and complex challenge.
- The level of inequality today is the highest it has been in the last 100 years and has increased steadily over the last several decades.
- The promise of equitable and inclusive economic growth has remained elusive.
- Solving inequalities is not a matter of economics and policy alone, but also that of attitudes, empathy, and activism, both at the individual and societal level.
This is not a problem that can be solved in three or five years. We must brace for this long quest with the consistent purpose for decades to come.
World Inequality Report by the World Inequality Lab at the Paris School of Economics provides estimates of global income and wealth inequality based on the most recent findings complied by the World Wealth and Income Database.