Two recent reports by renowned international organisations paint a graphic picture of rapidly rising income inequality in the world. The first report titled “Survival of the Richest” has been compiled by Oxfam, while the other is titled World Inequality Report 2022 published by the World Inequality Lab. According to Oxfam, the richest 1 percent grabbed nearly two-thirds of all new wealth worth $42 trillion created since 2020, almost twice as much money as the bottom 99 percent of the world’s population. During the past decade, the richest 1 percent had captured around half of all new wealth.
According to Oxfam, during the pandemic years and later, $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. A billionaire gained roughly $1.7 million for every $1 of new global wealth earned by a person in the bottom 90 percent. Billionaire fortunes have increased by $2.7 billion a day. The number and wealth of billionaires has doubled over the last ten years.
Billionaire wealth surged with rapidly rising food and energy profits in 2022. 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. By contrast, 1.7 billion workers now live in countries where inflation is outpacing wages, and over 820 million people —roughly one in ten people on Earth— are going hungry. According to the World Bank, this is the biggest increase in global inequality and poverty since WW2. Entire countries are facing bankruptcy, with the poorest countries now spending four times more repaying debts to rich creditors than on healthcare.
The other report by the World Inequality Lab is based on painstaking research by more than 100 researchers around the world over the last four years. According to this report, the richest 10% of the global population currently takes 52% of global income, whereas the poorest half of the population earns 8.5% of it. On average, an individual from the top 10% of the global income distribution earns €87,200 (USD122,100) per year, whereas an individual from the poorest half of the global income distribution makes €2,800 (USD3,920) per year.
Global wealth inequalities are even more pronounced than income inequalities. The poorest half of the global population barely owns any wealth at all, possessing just 2% of the total. By contrast, the richest 10% of the global population own 76% of all wealth.
Inequality varies significantly between the most equal region (Europe) and the most unequal (Middle East and North Africa i.e. “MENA”). In Europe, the top 10% income share is around 36%, whereas in “MENA” it reaches 58%. Among high-income countries, some are very unequal (such as the US), while others are relatively equal (e.g. Sweden). The same is true among low- and middle-income countries, with some exhibiting extreme inequality (e.g. Brazil and India), somewhat high levels (e.g. China) and moderate to relatively low levels (e.g. Malaysia, Uruguay).Income and wealth inequalities have risen steadily since the 1980s, following deregulation and liberalization programs undertaken in various countries.
The US, Russia and India have seen spectacular increases in inequality, while European countries and China have experienced relatively smaller rises. Interestingly, global inequalities seem to be about as great today as they were at the peak of Western imperialism in the early 20th century. Indeed, the share of income presently captured by the poorest half of the world’s people is about half what it was in 1820, before the great divergence between Western countries and their colonies.
It is undeniable that addressing the challenges of the 21st century is not feasible without significant redistribution of income and wealth inequalities. The rise of modern welfare states in the 20th century, which was associated with tremendous progress in health, education, and opportunities for all was linked to the rise of steep progressive taxation rates. This played a critical role to ensure the social and political acceptability of increased taxation and socialization of wealth. A similar evolution is needed to address the challenges of the 21st century.
Oxfam has similarly called for a systemic and wide-ranging increase in taxation of the super-rich to reversethe gains made by profiteering. Decades of tax cuts for the richest and corporations have increased inequality, with the poorest people in many countries paying higher tax rates than billionaires. Elon Musk, one of the world’s richest men, paid a “true tax rate” of about 3 percent between 2014 and 2018, while a flour vendor in Uganda, makes $80 a month and pays a tax rate of 40 percent.
Paradoxically, worldwide, only four cents in every tax dollar now come from taxes on wealth. Half of the world’s billionaires live in countries with no inheritance tax for direct descendants. Thus they will pass on a $5 trillion tax-free treasure chest to their heirs, more than the GDP of Africa, which will drive a future generation of aristocratic wasteful elites. Over the last forty years, governments in Africa, Asia, Europe, and the Americas have slashed the income tax rates on the richest. At the same time, they have upped taxes on goods and services, whose burden falls disproportionately on the poorest people.
Experts agree that taxing the super-rich is a precondition to reducing inequality. According to new an analysis by the Fight Inequality Alliance, Institute for Policy Studies, Oxfam and the Patriotic Millionaires, an annual wealth tax of up to 5 percent on the world’s multi-millionaires and billionaires could raise $1.7 trillion a year which can be used to lift 2 billion people out of poverty.