Fortune of the few, forget the rest
AS the country battles with layers of snow in the biting cold, its economy brings some positive news. The latest employment statistics of the US Labour Department show that the unemployment rate in the USA has declined to 5.5%, lowest since mid-2008. Total number of jobs created in February 2015 was 295,000, higher than previous months. Though the growth numbers are not so promising and declined to 2.2% in the fourth quarter from 5% in the third quarter of 2014, job growth has given some boost to the optimism that the economy could probably gain momentum towards recovering from the recession. But again, there is low unemployment rate also because many have stopped their job search out of frustration and are not counted in the labour force.
The other worry is that wages are not catching up with the pace of employment growth and continue to remain dismally low. Wages rose by only 0.1% in February and by 2% this year compared to last year. One of the reasons for such low wages is that labour supply is higher than the market demand and unemployed people are ready to go back to work even at a lower pay. Thus, a meaningful gain through employment increase is yet to be realised. It is expected that as the economy begins to thrive further and the job market becomes more vibrant and stabilised, wages will be pushed upward. This however, will not solve yet another feature of the growth pattern of the economy. This is the economic inequality, a problem the country is grappling with for decades. As the country progressed, its income and wealth have concentrated in fewer hands. Recent studies show that income of the top 1% has doubled during the last five decades while that of the 90% staggered. More revealing is that the richest 0.1% have a wealth equivalent to the poorest 99%; only 160,700 families belong to this top 0.1% who own net assets above $20 million.
Inequality is also a global challenge. The average standard of living of people across the world is rising at a faster pace at present than ever before; so is the difference in living standards among people within each country, resulting in a wider gap between the rich and the poor. The OECD observes 'from the mid-1980s to the late 2000s, inequality increased in 15 out of 19 countries for which long-run data are available.' The Oxfam report on inequality published on the eve of the World Economic Forum this year in Davos came up with some depressing numbers. It says that in 2014 the fortune of only 85 billionaires in the world was equal to the total wealth of the bottom half of the population. The report goes on to caution that if the current trend continues, by next year, the combined wealth of the richest 1% will be more than that of the rest 99% of the world population.
There have been criticisms of the data set and the methodology of the Oxfam study. But the concern over increasing concentration of resources is witnessed and valid. Global leaders in Davos recognised inequality as the most defining challenge of the era. During 1990-2010, the rate of extreme poverty in developing countries had come down from 43% to 21%, a remarkable cut by 1 percentage every year. However, the effort towards reducing inequality has been neither adequate nor successful. The currently negotiated Sustainable Development Goals of the United Nations set a target to eradicate extreme poverty for all people everywhere, currently measured as people living on less than $1.25 a day by 2030 (SDG no. 1.1).
However, the problem does not end there. Poverty is not a function of growth alone. While higher growth plays a major role in poverty reduction, equal growth gives a further boost to the effort. Inequality may be an outcome of growth, but views such as attempt to reduce inequality may reduce the vibrancy of the economy have no theoretical and empirical footings. There is no trade off between the effort towards having growth and reducing inequality. Such realisation has prompted global policymakers to set another target to "progressively achieve and sustain income growth of the bottom 40% of the population at a rate higher than the national average by 2030" (SDG no 10.1). An ambitious and noble target indeed!
Taking the attention to my own country Bangladesh, one does not find a difference with the global trend of inequality. Official statistics show the Gini coefficient, a measure of income inequality, has been increasing steadily even though growth has been impressive and poverty has declined. Thus the Gini has increased from an average of 0.38 in the 1980s to 0.44 in the 1990s and to 0.46 in the 2000s. The most recent Household Expenditure and Income Survey (2010) shows an insignificant decline of the Gini coefficient in the recent past, from 0.467 in 2005 to 0.458 in 2010. And the richest 5% households possess 24.61% while the poorest 5% have only 0.78% of total income.
French economist Thomas Piketty, in his widely discussed book Capital in the Twenty First Century discusses inequalities of income from labour and from capital that persisted both in the developed and developing world with historical data. He elaborates how wealth accumulation at the top of the income ladder increases inequality and argues that the magnitude of wealth inequality is much higher than income inequality.
We do not have estimates of wealth inequality for Bangladesh, but it is not difficult to understand the magnitude of wealth amongst a small group of people that has been earned at a much faster rate than the poverty reduction effort. These are accumulated not through inheritance or merit, but through blessings and patronage of the state. Piketty's warning that division between the rich and the poor will be determined by inheritance of wealth in the twenty first century, seemingly will take a bit more time here. Meanwhile, in its current context of politico-economic reality of Bangladesh, primitive accumulation as illustrated by Karl Marx will continue to draw the line between opulence and deprivation.
The writer is Research Director at CPD, currently a Visiting Scholar at the Earth Institute, Columbia University, New York.