Global Inequality: Causes, Effects & Solutions
Global inequality (also sometimes referred to as international inequality) can be defined as the unequal distribution of material resources and income across countries.
Apart from economic figures, global inequality may also refer to access to medical care and also to education.
According to the global wealth report of Global Suisse, half of the worldwide wealth is owned by the richest 1% of people.
This also implies huge international inequality which has many adverse consequences.
How did Global Inequality develop over time?
Although there had been plenty of efforts to increase the wealth of poor countries in order to reduce global inequality over the past decades, the results are quite poor.
You can see this by looking at the global inequality facts provided below.
Important Global Inequality Facts
- In 2018, the richest 26 people owned as much wealth as the 3.8 billion poorest people
- Half of humanity lived of less than 5.50 USD per day in 2018
- Global wealth worldwide amounts to 361 trillion USD in 2019
- There are 47 million millionaires worldwide in 2019
- The average wealth per capita amounts to 70,849 USD in 2019
- It is estimated that total global wealth increases to 459 trillion USD until 2024
- 56% of the worldwide population owns wealth less than 10,000 USD in 2019
- Less than 11% of the global population owns more than 100,000 USD in wealth in 2019
- The 10% richest people own 84% of overall global wealth in 2019
- The richest 1% of people owned around 45% of overall global wealth in 2019
Data Source: Credit Suisse Global Wealth Report 2019
Causes for Global Inequality
- Political goals
- Exploitation of poor countries
- Tax avoidance
- Lack of education
- Lack of innovation
- Gender inequality
- Insecurity regarding property rights
- Low investment incentives for firms
- Low living quality
- Regional factors
- Conflicts
- Famine
- Consumption behavior
- Natural disasters
Political goals
Although often proclaimed by politics, global inequality favors some countries and gives them an edge over poor countries in terms of technological progress and therefore gives those countries a competitive advantage.
Thus, it is often quite favorable for rich countries to keep other countries poor in order to sustain their advantage and their power.
Therefore, political goals play a big role in the development and maintenance of global inequality.
Exploitation of poor countries
Poor countries often get exploited by rich countries in several ways.
Since poor countries often depend on the demand of rich countries, they are heavily reliant and become dependent.
Thus, rich countries can often dictate the terms on which the countries interact and make business. Moreover, rich countries also tend to shift their problems to foreign countries.
An example of this is the transportation of waste from Western countries to poor countries in Africa in order to get rid of the waste problem.
Additionally, firms often exploit poor countries in terms of working conditions and low wages.
Therefore, people and poor countries as a whole are often exploited by rich countries or multi-national firms which leads to a significant level of inequality.
Tax avoidance
Big firms often try to avoid taxes whenever possible.
They are also quite successful in doing so, since they are able to hire the best tax consultants and are also quite flexible in terms of shifting their money in order to avoid taxes.
Although beneficial for firms, tax avoidance contributes to the global inequality issue since taxes are usually collected to finance public infrastructure and to improve the living conditions for locals.
If firms do not pay their taxes, large amounts of money are missing and global inequality tends to increase.
Lack of education
Education is key to escape poverty and to build wealth. However, especially in poor countries, people often do not have access to education and therefore suffer from a lack of education.
Moreover, children often have to work in order to earn money for their families and do not have time to attend school.
In addition, in many developing countries, education levels are quite low in general, which makes it even harder for people to escape poverty.
Since uneducated people often have no chance to escape poverty and to move in order to find a better future, those people are likely to stay in their home countries.
Hence, a lack of education increases international inequality.
Lack of innovation
Innovation and technological progress are crucial in order to fight global inequality.
However, in many poor countries, there is just a low level of innovation since governments do not offer incentives or even prohibit actions that would increase innovation levels.
Moreover, in some cultures, innovation is considered to be dodgy since people fear their old values are eroded through technological progress.
In addition, innovation is often slowed down since many poor countries suffer from a severe level of corruption and firms are not willing to open branches in those regions.
Gender inequality
In many countries, men and women are not treated as equally valuable and women often have only pretty confined rights.
This gender inequality also contributes to global inequality since women are often not able to get proper education and therefore stay trapped in poverty.
Insecurity regarding property rights
In order to make poor countries attractive to investors, their property rights have to be assured. Imagine you are considering to invest in a country.
Would you invest if you have to fear expropriation in the near future? I don’t think so.
Moreover, especially in big companies, shareholders and the management will always refrain from engaging in those kinds of investments since they consider it to be too risky.
In order to make these countries more attractive to invest in and therefore to increase wealth levels, governments have to ensure stable investment conditions.
Low investment incentives for firms
Governments also have to make investing in their countries more profitable.
For instance, this could mean giving subsidies or tax advantages to firms if they are willing to open branches in their countries.
This could also include providing appropriate infrastructure and living conditions to attract smart people from all over the world.
By doing so, the overall income level in these countries will likely increase and global inequality will decrease.
Low living quality
Many poor countries also have quite low living standards.
This includes hygienic standards, quality of hospitals, public transportation and other infrastructure for daily life.
These low living standards are a big problem since they may discourage international professionals to move to those countries since these professionals likely strive for higher living standards.
In turn, this leads poor countries to stay poor since they will not be able to keep up with the latest technological progress and therefore will not be able to gain competitive advantages for their industries.
Regional factors
Some factors are predetermined and cannot be changed.
For example, this includes climatic conditions. In countries with high air temperature and high humidity levels, physical work is much more exhausting than in countries with moderate climatic conditions.
Therefore, people who are living in countries with extreme climatic conditions will likely not be able to accomplish the same amounts of work compared to people living in comfort climate zones.
Consequently, countries who suffer from extreme climatic conditions are also likely to produce less and in turn have a higher probability to stay poor.
Conflicts
Wars also contribute to global inequality.
Large amounts of money and resources are wasted in conflicts all over the world every single year.
Imagine those resources had been used for the development of infrastructure purposes instead!
By engaging in conflicts, governments waste large amounts of resources and also threaten the lives of many people.
Famine
Famine can be regarded as a cause as well as an effect of global inequality.
Famine can cause international inequality since people who suffer from food scarcity have less physical and mental power to accomplish their goals and therefore are more likely to stay poor.
Moreover, famine also increases the probability of conflicts since people are more frustrated which in turn also leads to an increase in inequality.
Consumption behavior
Consumption levels are rising all over the world.
Especially in our Western world, we consume large amounts of material goods.
Moreover, people in countries which had been poor in past decades now aspire to similar lifestyles.
This leads to many serious problems since in order to meet the demand for material goods, excessive amounts of resources have to be extracted out of the ground.
Many poor countries are exploited by rich countries and companies in the sense that resources and land for resource extraction are bought at quite low prices which in turn makes rich countries and companies even richer while poor countries stay poor, eventually leading to even more global inequality.
Natural disasters
Apart from human-made global inequality, there are also natural factors that contribute to differences in wealth across countries.
Regions that are hit by natural disasters are much more likely to suffer from low financial standards than countries who are lucky to be spared by those adverse natural events since the affected countries have to frequently rebuild their infrastructure which takes large amounts of money and resources.
Data Source: Credit Suisse Global Wealth Report 2019
Effects of Global Inequality
- Health effects
- Social tensions
- Increased probability for conflicts
- Frustration
- Drug use
- Poverty
- Starvation
- Lack of access to education
- Bad working conditions
- Radical movements
- Migration
Health effects
Global inequality causes severe health effects for many people worldwide.
Since low levels of income and wealth also often imply insufficient access to healthcare, many people may suffer from severe health conditions or even death since they will not be able to get the appropriate treatment.
Moreover, in many developing countries, there sometimes are quite good private hospitals, but most of the locals are simply not able to afford this kind of treatment and will therefore be on low-quality public hospitals or even on treatment at home without consultation of a doctor.
Hence, there may be severe health effects caused by global inequality in poor developing countries.
Social tensions
Financial inequality often contributes to social tensions since people are often greedy and also jealous.
Especially when the own living conditions are quite bad, it is hard to grant somebody a better lifestyle.
Imagine you cannot afford to send your kids to school and supply them with sufficient food when at the same moment your neighbor can do all this.
How would you feel about that?
Increased probability for conflicts
Global inequality can also lead to severe conflicts in poor regions.
People may fight over resources and other material things.
This is especially true when it comes to basic needs like food and water supply.
The poorer people are, the more incentive they have to engage in conflicts since they have not much to lose and have to fight in order to survive.
Moreover, poverty can also lead to populism and the resulting adverse effects.
Frustration
Inequality often also leads to frustration for the people who suffer from the adverse effects of poverty.
Many people will simply lose their will to improve their lives since they do not believe that they ever get out of poverty.
This frustration may lead to conflicts and may also impact the social behavior of people in an adverse manner.
Drug use
Inequality and financial shortage may also lead to the use of certain substances.
People will often try to escape reality for a while by doing drugs or engage in the consumption of other harmful substances.
In fact, there is a strong correlation between drug use and the poverty level of people.
Many people may simply be tired of their daily life and their adverse financial conditions and do not have too much to lose.
Therefore, doing drugs may become quite appealing to these groups of people.
Poverty
Global inequality also implies economic inequality, poverty and global hunger for large numbers of people worldwide.
While a small fraction of the world population owns the majority of our material wealth, the majority of people own almost nothing.
Poverty leads to all kinds of adverse effects for the people who have to deal with this issue.
Starvation
Starvation can be the consequence of international inequality for many people in poor developing countries.
Especially in regions where farming is not possible due to climatic conditions or water shortages, people may not be able to produce enough food to feed all family members.
Lack of access to education
People may also not be able to attend school and get proper education due to inequality around the world.
Children often have to work in order to supply financial support for their families instead of attending school.
A lack of education will in turn trap people in poverty since education is often the only way out of the dilemma.
Bad working conditions
Global inequality often also leads to bad working conditions for people living in poor developing countries.
Since there is often a high level of unemployment, people rely on the work provided by companies.
They simply have no choice since they need money to feed their families.
Thus, firms can easily exploit these people and treat them quite poorly.
Radical movements
Inequality often leads to jealousy and frustration which in turn can lead people to engage in radical movements and actions.
People who suffer from poor living conditions are usually easier to recruit than people who enjoy their life since those people have nothing to lose.
Therefore, promises made by radical organizations may seem quite convincing for those people.
Migration
Global inequality can also lead to migration.
Many people may have to leave their home country due to extreme poverty and may try to move to rich Western countries in order to have a better future.
Data Source: Credit Suisse Global Wealth Report 2019
Solutions for Global Inequality
- Better access to education
- Financial subsidies
- Create incentives for firms to locate to poor areas
- Increase incentives for innovation
- Worldwide support
- Global wealth tax
- Improve workers’ rights
- Establish minimum wages
- Increase national stability levels
- Improve trade policies
- Change consumption behavior
- Convince others
Better access to education
In order to fight global inequality, governments in poor countries have to ensure access to education.
This could mean supporting poor families with financial aid. It could also mean spending more money on teachers and research facilities.
By doing so, people get a better education and a better understanding of how to build businesses which in turn will likely increase their living standards and may also increase the overall wealth of the respective country.
Financial subsidies
Poor countries rely on financial subsidies from rich countries in order to progress and fight the adverse causes related to poverty and inequality.
Therefore, it is crucial to set up and enlarge global funding programs for poor countries.
Create incentives for firms to locate to poor areas
In order to make it more attractive for firms to open branches in poor areas, governments and municipalities should increase the financial incentive for firms to do so.
This could come in tax advantages for those regions or also from other kinds of financial support.
The jobs that are created will help to fight global inequality since the average income of people in those countries will likely increase.
Increase incentives for innovation
Innovation is crucial in order to progress as a country and increase the average income of people.
Governments have to make sure that firms have sufficient incentive for innovation.
This could come through the protection of property rights or also through financial subsidies.
Worldwide support
Countries all over the world should work together in order to share their newest research findings on all kinds of topics so that poor countries are able to profit from those findings.
Therefore, poor countries may be able to catch up to developed countries and global inequality may be lowered due to global support.
Global wealth tax
A global wealth tax could be another measure to fight inequality.
This could come in the form that people who have large amounts of financial wealth will be charged a certain percentage amount.
This money could in turn be used for the improvement of infrastructure and other facilities in poor developing countries and thus may lower global inequality.
However, a global wealth tax strategy is likely quite hard to execute since all countries all over the world would have to agree to this tax in order to prevent loopholes.
Improve workers’ rights
Governments should also improve the rights of workers. In many poor countries, working conditions are quite bad and workers get exploited by companies.
In order to lower the inequality in working conditions across countries, local authorities should set stricter rules for firms to treat their employees better.
Establish minimum wages
Minimum wages are another measure to fight global inequality.
In many regions, especially in countries where there is a high unemployment rate, people rely on their jobs and companies exploit these people by paying quite low wages.
Establishing minimum wages would increase the average income of people and would therefore contribute to a reduction in international inequality.
Increase national stability levels
In order to attract renowned firms and therefore create higher levels of income, it is crucial for countries to have stable economic conditions and peace.
Only then will companies consider investing and building branches in these countries.
Improve trade policies
Some poor countries refrain from trade with other countries for different reasons.
However, international trade can be quite beneficial for the local economy if trading conditions are set up in a fair manner.
Hence, it is crucial for countries to open up to trade with other countries in order to improve their wealth and to decrease global inequality.
Change consumption behavior
Everyone of us can make a difference in our daily life to reduce global inequality.
You can make your contribution by buying things that are produced under fair conditions.
There are several labels that ensure fair working conditions that you should pay attention to.
Moreover, refrain from buying stuff from companies that are known for exploiting workers in poor countries.
Don’t blame industries for exploiting their employees, blame yourself for buying those items! Industries only meet the demand of people.
If no one is buying stuff from companies that is produced under adverse working conditions, those companies will change their minds and improve their working conditions since they would go out of business otherwise.
Convince others
Changing your consumption behavior in a manner that contributes to a reduction in global inequality is a first step.
However, you should also try to convince other people about the importance of fighting global inequality whenever possible.
Show them how easy it is to make a contribution in their daily life.
By doing so, you can multiply your positive impact and contribute to improved living standards for many people worldwide.
Conclusion
Global inequality is a big problem that has many severe adverse effects on poor countries and the people living in those regions.
Global inequality can be either caused by human actions or also by natural circumstances.
In order to fight international inequality, it is crucial that countries all over the world work together and share their newest research findings with each other.
Moreover, rich countries are in charge to provide financial subsidies for poor countries in order to enable poor countries to progress.
You can also contribute to a reduction in inequality in your daily life by changing your consumption behavior.
All these actions can lead to a state where global inequality is reduced significantly and people all over the world will benefit from the positive related effects.
Sources
https://en.wikipedia.org/wiki/International_inequality
https://www.credit-suisse.com/about-us/en/reports-research/global-wealth-report.html
https://www.fairtradewinds.net/guide-fair-trade-labels/
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