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SECTION 1 2 3 EXTREME INEQUALITY MYTH 4 The politics of inequality is little more than the politics of envy. High levels of inequality have negative consequences for everyone in society: the haves as well as the have-nots. As demonstrated in this report, societies with higher levels of economic inequality have overall higher crime rates, lower life expectancy, higher levels of infant mortality, worse health and lower levels of trust. 311 Extreme inequality also concentrates power in the hands of a few, posing a threat to democracy, 312 and hinders economic growth and poverty reduction. It is not envy, but a preoccupation with the well-being of the whole of society that drives those who campaign against inequality. MYTH 5 There is a trade-off between growth and reducing inequality, especially through redistribution. It has long been a central tenet of economics that there is an unavoidable trade-off between strong growth and enacting measures to reduce inequality, especially through taxing and redistributing from the rich to the poor. However, recently there have been a growing number of studies showing that the opposite appears to be the case. In fact, high and growing inequality is actually bad for growth – meaning lower growth rates and less sustained growth. A recent high-profile, multi-decade, cross-country analysis by IMF economists showed that lower inequality is associated with faster and more durable growth, and that redistribution does not have a negative impact on growth, except in extreme cases. 313 By mitigating inequality, redistribution is actually good for growth. MYTH 6 Rising inequality is the inevitable and unfortunate impact of technological progress and globalization, so there is little that can be done about it. This myth is based on the idea that a combination of globalization and technological progress inevitably leads to increased inequality. However, it is based on a set of assumptions that do not tell the whole story. Namely that globalization and new technologies reward the highly educated and drive up wages for the most skilled who are in demand in a global market; that this same technological progress means many low-skilled jobs are now done by 66
SECTION 1 2 3 EXTREME INEQUALITY machines; and that technology and an increasingly globalized market have also enabled companies to shift a lot of low-skilled work to developing countries, further eroding the wages of lower-skilled workers in developed countries. The myth is that all of this drives a relentless and unavoidable increase in inequality. However, if this myth were true there would be little difference in the development of job markets in individual countries. In fact, while Germany has, to a large extent, resisted the mass export of jobs and the explosion in wealth and high salaries at the top, countries like the USA and UK have seen highlevels of erosion among mid-level jobs and huge concentrations of wealth. Similarly, Brazil has managed to benefit from globalization while reducing economic inequality, whereas other countries, such as India, have seen big increases in inequality. So, while technological change, education and globalization are important factors in the inequality story, the main explanation lies elsewhere, in deliberate policy choices, such as reducing the minimum wage, lowering taxation for the wealthy and suppressing unions. These are, in turn, based on economic policy and political ideology, not on inevitable and supposedly elemental economic forces. MYTH 7 Extreme economic inequality is not the problem, extreme poverty is the problem. There is no need to focus on inequality and the growth in wealth for a few at the top, as long as poverty is being reduced for those at the bottom. This is a widely held view, that the focus of development should be confined to lifting up those at the bottom, and that any focus on the growing wealth at the top is a distraction. Extreme economic inequality not only slows the pace of poverty reduction, it can reverse it. 314 It is not possible to end poverty without focusing first on extreme economic inequality and the redistribution of wealth from those at the top to those at the bottom. On a planet with increasingly scarce resources, it is also not sustainable to have so much wealth in the hands of so few. 315 For the good of the whole world we must focus our efforts on the scourge of extreme economic inequality. 67
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JEFFREY SACHS Director of the Earth
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ACKNOWLEDGEMENTS The paper was writ
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The widening gap between rich and p
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