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SECTION 1 2 3 EXTREME INEQUALITY BUSTING THE INEQUALITY MYTHS Those who say that extreme inequality is not a problem, or that it is the natural order of things, often base their arguments on a number of myths. MYTH 1 Extreme inequality is as old as humanity, has always been with us, and always will be. The significant variations in levels of inequality over time and between different countries demonstrates that levels of inequality are dependent on a number of external factors, such as government policies, rather than simply being the natural order of things. The 20 th century provides numerous examples of how inequality can be significantly reduced and how it can radically increase within the span of just one generation. In 1925, income inequality in Sweden was comparable with contemporary Turkey. But, thanks to the creation of the Swedish welfare state, which, among other things, included provisions for universal free access to healthcare and universal public pensions, by 1958 inequality in Sweden had reduced by almost half and continued to decrease for the next 20 years. 303 The experience of Russia mirrors that of Sweden. At the end of the 1980s, levels of inequality in Russia were comparable with its Scandinavian neighbours. However, since the beginning of the transition to a market economy in 1991, inequality has almost doubled. 304 In more recent years, countries in Latin America have significantly reduced inequality. Between 2002 and 2011, income inequality dropped in 14 of the 17 countries where there is comparable data. 305 During this period, approximately 50 million people moved into the emerging middle class, meaning that, for the first time ever, more people in the region belong to the middle class than are living in poverty. 306 This is the result of years of pressure from people’s movements that have campaigned for more progressive social and economic policies. The governments that the people have elected have chosen progressive policies, including increased spending on public health and education, a widening of pension entitlements, social protection, progressive taxation and increases in employment opportunities and the minimum wage. Latin America’s experience shows that policy interventions can have a significant impact on income inequality. There is also a strong body of evidence which shows that extreme inequality has been rising in every other region of the world over the past three decades, which is why the negative consequences must be taken seriously, now more than ever. 307 64
SECTION 1 2 3 EXTREME INEQUALITY MYTH 2 Rich people are wealthier because they deserve it and work harder than others. This myth assumes that everyone starts from a level playing field and that anyone can become wealthy if they work hard enough. The reality is that, in many countries, a person’s future wealth and income is largely determined by the income of their parents. A third of the world’s richest individuals amassed their wealth not through hard work, but through inheritance. 308 This myth is also flawed in its assumption that the highest financial reward is given for the hardest amount of work. Some of the lowest paid jobs are those that require people to work the hardest, while some of the highest paid jobs are those that require people to work the least. Many of the richest collect large profits from the rent they generate on stocks, real estate and other assets. When this is taken into account, it becomes clear that those who are paid less work just as hard (or even harder) as those at the top of the wage ladder. 309 Women spend more time on unpaid domestic and caring responsibilities than their highly paid counterparts, and are more likely than men to have multiple jobs. 310 MYTH 3 Inequality is necessary to reward those who do well. Incentivizing innovation and entrepreneurship through financial reward will always lead to some levels of inequality, and this can be a good thing. However, extreme inequality and extremes of potential reward are not necessary to provide this incentive. It would be absurd to believe that a company CEO who earns 200 times more than the average worker in the company is 200 times more productive or creates 200 times more value for society. The success of alternative business models such as cooperatives, which have greater income equality at their core, also disproves this myth. 65
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Even it up TIME TO END EXTREME INEQ
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JEFFREY SACHS Director of the Earth
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ACKNOWLEDGEMENTS The paper was writ
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SECTION 1 2 3 NOTES NOTES 1. Based
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The widening gap between rich and p
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