Inequality: The quintessential public problem

The World Inequality Report for 2022 was recently published. It is a document coordinated by Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman to show the data that exist regarding inequality in terms of income and wealth, between countries, by regions and within nations. In the introduction, Abhijit Banerjee and Esther Duflo point out that the news is not good, with the exception of Europe, in the rest of the world, the poorest 50% of the population have less than 15% of the income, while the 10% richest owns more than 40% and up to 60% in some regions. The situation is worse in the case of wealth, the poorest 50% only own 2% and the richest 10%, 76% of it.

In reality, the situation worsened between 1995 and 2021, as the richest 1% of the population was able to capture 38% of the global increase in wealth (the proportion of wealth they own went from 7 to 11%), while the poorest 50% were only able to capture 2% of that increase. The latest data reinforce the argument that the trend of increasing inequality that began in the 1980s continues, when mechanisms such as the minimum wage, income taxes, unions, regulations, etc., were weakened or dismantled.

The increase in inequality was greater in countries with more radical market reforms, such as Russia, the United States and India, but less in Europe. The authors show evidence that current inequality is not very different from what it was at the beginning of the 20th century, since in 1910 the average income of the richest 10% was 41 times higher than that of the poorest 50%, while that in 2020 that proportion is similar, 38 times. The report also offers information on the issue of gender inequalities: while in 1990 the share of women’s labor income was 30%, it is currently around 35%, although in regions such as the Middle East and North Africa this proposition it is less than 15% and in sub-Sahara Africa less than 30 percent.

The report points out the debate that exists about the need for new, more progressive taxes on wealth, but that in reality the cases that have materialized are still very few. The authors consider that it is necessary to extend the collection base to all forms of wealth, such as financial assets, not just real estate, with more progressive rates, such as those of the 70’s, and with intensive use of technology to detect and tax transactions. It is necessary to increase the minimum rates that multinationals must pay and eliminate exceptions to them, share part of that collection with developing nations, use trade agreements to avoid evasion between countries, share uniform tax information between nations, eliminate tax havens, as well as additionally taxing billionaires.

In the specific report for Mexico, our country is pointed out, not surprisingly, as one of the most unequal in the world. The authors calculate an average income for Mexican adults of 234,000 pesos, but the poorest 50% only have an average of 42,700 pesos per year (9% of the total), while the richest 10% obtain the average 30 times more, that is say 1 million 335,030 pesos, so it captures 50% of the total income.

An interesting note the authors make is that Mexico did not actually reduce inequality during the 20th century, as it did in Europe and North America, since throughout the last century the richest 10% managed to gain between 55 and 60% of the income, while the poorest 50% have had between 8 and 10% of the income. That is, the institutions of the Mexican welfare state, after the Revolution, did not reduce the country’s inequality.

Regarding gender equity, the percentage of labor income generated by women is 33%, lower than the Latin American average of 35%, since in Brazil it is 38% and in Argentina 37%. However, progress is important, since in 1990 only 24% of labor income was female. With the above, we realize that it is not enough to try to fight poverty through social programs or government actions. The issue of inequality goes beyond that; hence the importance of taking actions that have a substantive impact to neutralize the problem.

Twitter: @vidallerenas

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Guest column

A graduate in Economics from the Instituto Tecnológico Autónomo de México (ITAM), he has a Master’s degree in Public Policy and Management from the University of Essex, United Kingdom and a Ph.D. in Public Administration and Management from the University of York.

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