Why is extreme inequality harmful?
Chapter 2
Radically Normal, part 2 of 7 · Series overview · Dieses Kapitel auf Deutsch
In the first post of this series, we imagined ourselves in an oasis, confronted with a decision: Do we share with the newcomers or do we not?
The second post is about just how stark extreme poverty and extreme wealth are today — and why that is a problem at all.
Because it’s true: over the past fifty years, global economic growth has lifted more than a billion people out of poverty. So isn’t growth already the solution? There’s quite a bit to say against that.
First, the bar is set extremely low: the World Bank threshold is around three dollars a day — anyone with four is statistically no longer considered extremely poor, but is very likely still living on the edge.
Second, progress is agonizingly slow — even at pre-pandemic speeds, hunger would remain a problem for generations, and since the pandemic, progress has stalled completely.
Third, growth in Western countries was strongest in the three post-war decades — precisely the period when wealth there was distributed more evenly than almost ever before. It is true that cheap energy prices and the reconstruction after the war played a role — but it is obvious that equality and growth don’t exclude one another.
And the great growth stories of more recent times — China, the East Asian tiger economies, and in part India — owe at least as much to vigorous state intervention as to open markets.
On top of that, the resources of this planet are finite and cannot be reconciled with endless growth.
The successes of growth are therefore no argument for extreme inequality — and growth alone will not end extreme poverty in any case.
I don’t want to question here whether there should be differences in wealth, income, and consumption at all. Of course they can serve as incentives for effort and innovation — I’ll come back to that later. But however one justifies differences in wealth and income, the effects of small differences are simply not comparable to the enormous damage caused by extreme ones. Many of the statistics that follow show this only in part, and through correlations — but the overall picture is nonetheless unmistakable.
First, the facts. The richest 1% of the world’s population earns about 20% of all income and owns nearly 40% of all wealth. The poorer half of humanity gets just 8% of income, and a mere 2% of wealth. The trend: the gap is widening — within most countries and especially at the very top.
A note: even though earlier centuries saw even more extreme wealth and poverty, a concentration of wealth like today’s has not existed since the Second World War. The shift toward inequality has accelerated in particular since the neoliberal reforms of the 1980s under Ronald Reagan in the United States and Margaret Thatcher in Britain.
The consequences of extreme poverty
Extreme poverty demonstrably causes people to die considerably earlier. Internationally, countries with very low per-capita income almost without exception show markedly lower average life expectancy than wealthy states. People in Mozambique, for instance, live on average just under 60 years — more than a quarter less than people in Japan. The difference is even starker within countries: the poorest 1% in the United States live on average more than 10 years less than the richest.
Every day, around 25,000 people worldwide die from the consequences of hunger and malnutrition — more than eight times as many deaths as in the September 11, 2001 terrorist attacks on the World Trade Center in New York. Other health indicators are worse, too: child mortality, obesity, and mental illness are all far more common in such societies.
Countries with high inequality have higher levels of violent crime. Latin America, with a high Gini coefficient, reports an average of around 18 homicides per 100,000 inhabitants each year, while Europe, with a low Gini coefficient, reports a little more than 2.
Speaking of violence: coups, protests, and civil wars also occur more frequently in unequal countries.
The poorer people are, the harder it becomes for them to escape that situation through social mobility. According to the OECD, in highly unequal countries families remain in their position for many generations: “sticky floors” prevent those at the bottom from rising, while “sticky ceilings” keep wealth locked at the top.
On top of this, living at subsistence level consumes cognitive resources and limits people’s capacity for long-term planning. Studies suggest that poverty can lower mental performance by as much as 13 IQ points.
Poverty, then, cements itself in place — much as wealth does, as we are about to see.
The consequences of extreme wealth
The wealthiest 1% of the world’s population is responsible for 16% of global CO₂ emissions — as much as the poorest 66%. A large part of this stems from investments in climate-damaging industries.
Wealthy investors, above all, profit from precarious working conditions within global supply chains. And on a smaller scale, investors like me also profit from exploitation — through ETF savings plans and pension funds. I’m not even talking about blame here — there are simply structural incentives to act this way.
Something that would scarcely be possible without an extreme concentration of wealth is the takeover of media (Silvio Berlusconi and Mediaset, Elon Musk and Twitter, Jeff Bezos and the Washington Post, Holger Friedrich and the Berliner Zeitung) and the direct and indirect influence on politics.
In this way, the extremely rich control both what a society debates and the levers of power through which a democratic change to the situation might be possible. How else can one explain the existence of tax loopholes and havens like Ireland or Luxembourg?
Above all, extreme wealth itself drives the gap ever wider — and not only through control of media and politics. Because the return on capital has for decades been higher on average than economic growth, more and more capital accumulates in the hands of investors. And in order for the money not to sit idle, it gets reinvested.
This creates a bidding war over assets such as stocks, Bitcoin, and the like — but also over real estate. Everyone else is pushed out of these markets by an ever more affluent elite, and can profit less and less from the growth of capital — which could mark the beginning of a downward spiral into poverty even for large parts of the middle class.
Because in the end, of course, this bidding war is not about money, but about the actual resources that money can direct within an economic system: above all housing, land, raw materials, time, and labor.
For all the philanthropy of some billionaires: it is a drop in the ocean, and no substitute for structural fairness.
Conclusion
Today’s world is marked by a gap that keeps widening:
On one side, ever more people in pronounced poverty, with all its consequences, from lack of opportunity to death.
On the other, people who don’t know what to do with their money — and who lay claim to a disproportionate share of resources and power.
If we cannot agree on much else, dear readers, then let us at least hope to agree on this: that this is not all we are capable of as humanity. However one sees it — there is no excuse. Every single one of us bears responsibility — for how things are, and above all, for how they will be.
But which way could that change go? What might the world look like then? Before we get to what I think, we can be sure of one thing: we are not the first to think about how we should deal with inequality in human societies. Far from it.
So in the next post, let us take a look back at the history of thinking about inequality.