Felistus Mbole a member of our Emerging Fellows program investigates the causes of inequality in her fifth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
Global inequality has been on the increase for decades. There are fewer people living in poverty today yet global society is probably more economically unequal than at any other time in history. This trend poses obvious threats such as lack of social cohesion and sub-optimal economic performance. What is driving this inequality? What does this mean for the future?
There has been a continual shift from agriculture to other sources of livelihoods, accompanied by urbanisation. The economic opportunities created by this shift require more skilled labour than agriculture. This has made it harder for the less formally educated to engage economically. If they manage to find employment in industry, the disparity between their pay and that of the more skilled is stark. The trend is likely to worsen as urbanisation increases.
The constant today is the rapidly accelerating change in technology. Currently, skill-based technology is a key driver of income and economic growth. Sadly, the poor who have less skill are not benefitting as much from this technologically driven economic growth. The inequality gap thus continues to widen. The situation is likely to be sustained into the future unless remedial action is taken. The introduction of simpler forms of technology such as use of mobile telephony presents hope.
Closely accompanying this technological change is globalisation. Technology has enabled economic integration at a speed which was unimaginable a couple of decades ago. In pursuit of greater efficiency and effectiveness, organisations can open business offices in faraway countries for both production and distribution of goods and services. Offshoring of production to low-income countries creates employment opportunities, improving incomes and decreasing income disparities across states. This could, however, generate income disparities in the target country as the more skilled get a premium on their labour. A reduction in trade barriers and emergence of regional trade agreements has also played a role in expanding globalisation. Globalisation and technology are self-enforcing. Firms and individuals who have the resources to take advantage of globalisation and technology benefit most from it. This further compounds the inequality gap.
Another driver of inequality is government policy. Countries that have reported decreased inequalities have implemented policies that promote redistribution of income through social protection transfers and progressive taxation. A significant share of national revenues in such states is spent on public services such as education and healthcare, and infrastructure. Sectors which support the livelihoods of the majority such as agriculture in agrarian economies are sufficiently funded. Such policies empower most of the citizens rather than benefiting a small minority. Although an effective driver of equality, government policy is highly subject to political will. Public corruption on the other hand acts as a tax on the poor.
What does this mean for inequality? Not much can be done to slow down globalisation or the rapid change of technology. These trends are not negative in themselves. They present opportunities for realising a more equitable and sustainable society. Technology such as digital infrastructure can be used to effectively deliver public goods such as health and education at scale. In addition, progressive taxation and a clamp on public corruption could create a more equal society.
© Felistus Mbole 2019