Author: Joseph E. Stiglitz
We have become used to thinking of extreme inequality as an unfortunate but unavoidable feature of modern economies, as well as a necessary trade-off for economic performance. It is neither.
Inequality is the direct consequence of political choices—about taxation, labor markets, public investment, and the rules governing our economies. Over recent decades many of these choices have reduced the power of labor vis-à-vis capital, allowed corporations and the super-rich to exploit tax loopholes, and hollow out public investment.
As Chair of the G20 Extraordinary Committee of Independent Experts on Global Inequality, commissioned by the South African Presidency of the G20, I have spent the past year alongside leading economists and experts examining the state of world inequality. Our findings reveal a crisis that is both large in scale and dangerous in trajectory.
That is why our committee is formally proposing the creation of an International Panel on Inequality, a global body modeled in part on the Intergovernmental Panel on Climate Change. The Panel would produce periodic, scientifically rigorous assessments of the magnitudes and changes in inequality, the drivers and consequences, and the successes and failures in addressing it around the world. Such knowledge would be invaluable to policymakers, governments and multilateral agencies concerned with reducing inequality.
Some statistics shed light on what has been happening. Of all the wealth created since 2000, 41% has gone to the top 1%. The poorest half of humanity got just 1%. So, at one extreme individual fortunes are measured in hundreds of billions while at the other extreme, 2.3 billion people (one in four), regularly skip meals.
There is strong evidence in some countries of an evisceration of the middle class, which means that more and more people who work hard every day can’t afford to buy medication or heat their homes. Citizens are rightly frustrated that an economic system that generates so much wealth leaves so many struggling just to get by.
Inequality does not merely impair economic performance; it is also a profound and direct threat to democracy. A billionaire can buy a superyacht or a private jet, but the more consequential purchase is the power to disproportionately influence decisions and shape political agendas. Across the world, corporations and wealthy elites wield outsized influence, shaping laws, regulations and monetary and fiscal policies in ways that favor them.
Equally important is how wealth inequality translates into control of the channels through which we understand our world. Six ultra-wealthy people control nine of the world’s ten largest social media platforms, while half of the global media landscape is owned by billionaires. The 21st-century town square is now owned not by the public but by a handful of men. This undermines our societies and corrodes our politics.
Yet extreme inequality is not a given. It is the result of deliberate policy choices made by governments. And because these extremes in inequality are created by policy, they can be dismantled by policy.
The first step is to track the inequality crisis with scientific rigor, and the IPI would do just that.
The reason this is crucial is that despite impressive work by researchers around the world we still lack a shared consensus on how inequality―both within and between countries―is evolving, what is driving it, and what the consequences are. We also lack a shared consensus on how inequality plays out across race, class and gender, and which policies help to reduce it.
This matters because different policies can have very different distributional consequences. A tax reform can reduce inequality in one area while increasing it in another. A trade agreement can create aggregate gains while decreasing the real incomes of workers. Advances in technology can boost productivity while undermining environmental sustainability.
Governments need to know these consequences before they make decisions, not decades after.
This is where countries like Timor-Leste matter.
Timor-Leste has a proud history of maintaining relatively low income inequality compared with many of its neighbors and peers, but it is not immune to the forces driving inequality. Today, the richest 10% capture 41% of pre-tax income, while the bottom 40% receive just 11%.
During the past year, our Committee has been working closely with the governments of Brazil, South Africa, Spain and Norway to construct a concrete roadmap for an IPI, an initiative now drawing strong support from governments, international bodies and the UN Secretary-General. The four founding governments will convene world leaders at the UN General Assembly later this month, to discuss the proposal for an IPI. President José Manuel Ramos-Horta has a pivotal opportunity to help lead the global fight against extreme inequality by championing the rapid establishment of an IPI.
We look forward to his support and that of Timor-Leste.
