Inequality: Trends, Harms and New Agendas
IDS Evidence Report 144
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The notion that inequality matters has spread and gained currency over the last years. After decades of neglect, inequality is finally ‘in from the cold’ (Atkinson 1997), and firmly at the centre of research and policy agendas.
This renewed interest in inequality is a response to increases in income and wealth inequality observed in a significant number of industrialised and developing countries (Atkinson and Piketty 2007, 2010; Milanovic 2002, 2011; OECD 2008, 2011a, 2011b; Oxfam 2014; Piketty 2013; UNDP 2013). That trend is not universal. The most significant exceptions seem to be in Latin America. This has traditionally been a region of high inequality. Yet in recent years, income inequality has diminished in several countries in the region, including Brazil (Cornia 2014; Lopez-Calva and Lustig 2010; Lustig, Lopez-Calva and Ortiz-Juarez 2012).
Elsewhere, the evidence – which is often patchy and of limited reliability – points to an overall growth in income and wealth inequalities within nations since the late 1970s, with no sign of curtailment. The statistics are now well-known among academics, policy actors and the general public alike. In the US, the top 1 per cent owns around 20 per cent of total national income (15 per cent in the UK) and over 30 per cent of the country’s wealth (just under 30 per cent in the UK) (Piketty 2013). About 9 per cent of the world population receives one-half of global income, while the bottom half of the world population receives 7 per cent of global income (Milanovic 2005, 2011).
Why should we care about this rise in income and wealth inequality? Building on recent research on inequality across the social sciences, we argue in this paper that income and wealth inequality matters because it causes inefficiency and harmful effects, hindering the collective and political capacity of societies, markets and states to deal with a myriad of issues around the provision of public goods and justice.
The paper focuses on within-country inequalities. We discuss in particular how the consequences of inequality are shaped by specific mechanisms that operate at the national, community and individual levels. These mechanisms intersect in complex ways and tend to be persistent and difficult to shift. Altering them requires moving the focus of research to better understanding the consequences of inequality. It also requires rethinking how political institutions, markets and civil society can operate together – in developed and low-income countries alike – to curb the devastating effects of rising inequality.