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Thursday March 28, 2024

Growing inequality

By Khalid Bhatti
April 05, 2021

Inequality has become the new normal under neoliberal capitalism and has risen to unprecedented levels. This level of inequality is unsustainable in the long run.

Policies like tax cuts for the rich and corporate class, lower wages, privatisation, deregulation and unfair distribution of wealth have created this massive inequality. The capitalist profit system inevitably delivers a much greater reward to the owners and managers of capital than it does to the workers they employ or the customers they fleece.

Left to its own devices, wealth in capitalism rises more to the top. The economic system driven by profits, exploitation and greed encourages concentration of wealth in fewer hands. That is the general tendency in capitalism.

The only exemption was the post-war period from the 1950s to the 1970s, the period of the post-war settlement between capital and labour. Social democratic governments in many European countries greatly increased taxes on companies and the wealthy. The state played a vital role in the redistribution of wealth in society. A larger proportion of national income was allocated for public services and social security. At the same time, trade unions became stronger and more able to fight for a better share of the profits.

In the neoliberal era, all of these reforms have been rolled back. Taxes on Big Business and the rich have been drastically reduced, if they are paid at all. Public services have been cut back, and in many cases privatised. Trade unions have been seriously weakened. The outcome, as intended by the neoliberals, is that the increase in GDP is not being shared out but is going into the hands of the wealthy.

The inescapable result has been the atrociously unequal distribution of wealth between a billionaire class and the rest of us. Never have we seen such outrageous levels of personal opulence. The rich have just got richer and richer while the rest have stood still or grown poorer. For example, in the 2020 annual report by Oxfam, the richest one percent has more than twice as much wealth as 6.9 billion people.

And according to the Credit Suisse Global Wealth Report, 175,000 ultra-wealthy people own 25 percent of the world’s wealth. Meanwhile, almost half of humanity is living on less than $5.50 a day. And nearly a billion barely survive in extreme poverty on less than $1.90 a day. The coronavirus pandemic has only accelerated this inequality. In 2020, the wealth of the planet’s billionaires shot up by 27.5, while another 131 million fell into extreme poverty.

Oxfam's new report 'The Inequality Virus’ published in January 2021, reveals that: "the wealth of the ten richest men has increased by half a trillion dollars since the pandemic began – more than enough to pay for a vaccine for all and prevent anyone on Earth from falling into poverty because of the virus."

These shocking statistics are actually a major underestimate of global inequality. Industrial scale tax evasion by the rich elite and corporations, which now store much of their wealth in tax havens, hides the real level of wealth. This includes the billionaire arms dealers, drug lords and other criminals who naturally never appear in the Forbes Rich List.

This persistent tendency towards rising inequality is creating a number of serious contradictions in the system. The continuous reduction in the purchasing power of working people leads to a fall in overall consumption and economic activity. As every study shows, poor people spend a much bigger percentage of their income while the rich tend to hoard their wealth.

Lower wage costs encourage employers to forgo investment in labour saving machinery. Why lay out money on expensive equipment when one can continue to employ cheap labour to do the job.

Growing inequality has other negative outcomes. It reduces the health and educational level of the workforce and undermines state resources. With the rich and their companies paying less and less in taxes, there is only so much that the shortfall can be made up by extracting more taxes out of working people.

The debts are piling up. Developing countries are forced to take new loans on tough conditions to meet expenditures and pay back the previous loans. The inevitable outcome is that local and national state services have to be further cut back.

Huge wealth and inequality create major barriers to advancement for everyone else in society. Those at the top pass on their wealth and advantage to their children. Birth and connection become the key to one’s future with the vast majority remaining stuck in a furrow of tightening living standards and insecurity.

The old illusion of creating a real meritocracy within capitalism with all of the benefits of efficiency and maximisation of talent that it would offer is fast dissipating in the nightmarish world of neoliberalism.

All these negative aspects of rising inequality are leading to growing polarisation of society and increasing political instability. Rising poverty and worsening lives are encouraging the emergence of demagogues and peddlers of fake news who exploit the accumulating anger and discontent. This is fuelling the growth of extreme right-wing and even fascist movements.

Thus, we see a right-wing anti-globalisation movement with calls for protectionism and trade wars. Actions which run directly counter to the interests of the multinationals and the rich who rely on growing international trade to further increase their profits.

On the other side, extreme inequality opens up the possibility of new radical popular struggles and outbreaks of mass movements. The growing widening gap between the rich and the rest cannot go on forever.

Even among the elite themselves, there is a growing fear of where things are headed. All their gated mansions and separate, insulated lifestyles cannot protect them from the people once they have decided they have had enough. As we have seen in every popular revolution, there comes a point of obscene wealth when the pitchforks start coming for those at the top.

The writer is a freelance journalist.