From UPSC perspective, the following things are important :
Prelims level : Not much
Mains level : Paper 3- Rising inequality and its implications
In the aftermath of Covid-19 pandemic, evaluating the state of inequality serves as an eye-opener on the income/wealth divides prevailing across regions.
Income and wealth inequality in the world
- The top 10% of the global population share 52% of the total income, while the bottom half survives with a mere 8.5% of it.
- This leaves the 40% in the middle with 40% of the income.
- This distribution shows the tendency of a rising middle class with lower disparity in income, but it also shows that the status of the poor is worsening day by day.
- Inequality of wealth: In terms of wealth, the top 10% of the global population own 76% of the total wealth, while the bottom 50% share a mere 2%.
- Some additional features of this exposition of inequality also relate to imbalance of women’s share in income as well as the ecological inequities indicated by the differential carbon emission levels.
Factors responsible for rising inequality
 Absence of effective measures of redistribution
- Inequality varies across regions. It is moderate in Europe and sharp in Africa.
- The top 10% have an income share of 36% in Europe vis-à-vis the top 10% with a share of 58% of the total income in West Asia and North Africa.
- Measures for redistribution: This disparity shows that worsening inequalities are avoidable with appropriate measures in place.
 The absence of measures discouraging undue accumulation
- Kuznet’s curve not follower everywhere: While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory, the prevailing pattern across countries does not follow the same.
- Average income level is poor predictor of inequality: The average income levels seem to be poor predictors of the levels of inequality, with high-income countries such as the U.S. having higher levels of inequality as against countries such as Sweden, which have moderate levels of inequality.
- Similar contradictions are also seen when we contrast middle-income nations such as Brazil, India and China as against Malaysia and Uruguay.
- Hence, emerging inequalities are not necessarily an outcome of rising levels of income in the post-liberalisation era, but a depiction of poor redistributive policies towards discouragement of accumulation by governments with due sensitivity towards inequalities.
How inequality hurts government finances
- This prevailing pattern of wealth concentration and differential levels of income around the world has also resulted in rich nations having poor governments.
- Such a situation has two underpinnings: one, governments have a limited capacity to act on inequality aversion measures and two, private interests overshadow the distributional fairness of wealth.
- Focus also needs to be placed on reducing disparities in capability domains like education and differential endowments (tangible and intangible) that have the potential to sustain inequalities.
Consider the question “How rising income and wealth inequality could harm us in various ways? What are the factors responsible for the rising inequality? Suggest the way forward.”
The rising levels of income and wealth need to be addresses by policy measures and reducing disparity in capacity domains.