A summer of inequality
A summer of inequality
As Europeans and Americans return from their sweltering summer holidays, here’s a roundup of what’s been happening in the world of inequality.
Global wealth declined in 2022 thanks to currency depreciation and weak share prices.
Latest wealth data. UBS (formerly Credit Suisse), published its annual flagship report on global wealth. As we highlighted in our last bulletin, the report shows that global wealth fell by 2.4% or US$11.3 trillion in 2022 compared to 2021. Put in another way, the fall is twice as much as the entire wealth of the African continent.
What’s behind the decline? (1) National currency depreciation against the US dollar - holding the 2021 exchange rates constant, global wealth actually rose by 3.4% in 2022 (2) Plunging share prices, over 90% of the fall in global wealth occurred in Europe and North America as share prices crashed.
Wealth at the top falling. The wealthiest 1% - who hold 44.5% of global wealth - saw the biggest fall in their wealth. However, even accounting for inflation, the wealthiest 1% are still richer than in 2019.
The poor stay poor. The poorest also saw their wealth decline and are yet to see it return to 2019 levels.
Not the full picture. The UBS report might not capture the fuller extent of wealth distribution in 2022 as housing (which accounts for a significant share of the wealth of the bottom 90%, especially the middle class) prices started to fall in the second half of 2022.
Staring into the crystal ball. UBS predicts global wealth will rise by about 38% in the next five years. Who will primarily benefit from this growth should be everyone’s business.
Economists and world leaders write to the UN and World Bank urging them to fight inequality.
Getting inequality back on the table. A group of prominent economists and other world leaders fighting against extreme inequality signed an open letter urging the United Nations Secretary-General and the World Bank President to do more to fight inequality. The letter specifically called for better measurements of income and wealth inequality.
Better measures. Fighting extreme inequality starts with measuring inequality correctly, so one of our August bulletins was on how to measure inequality.
What’s wrong with current UN/World Bank measures? Shared prosperity, the official measure of the SDG10 on income inequality, measures the income growth of the bottom 40% compared to that of the whole population. This metric, while suitable for measuring the income growth of the poorest, has major flows, as explained in this blog.
Palma and Gini? The Palma ratio is the ratio of income or wealth of the top 10% vs. the bottom 40%. It is sensitive to the top and bottom, easy to grasp, is decomposable at national, regional or global levels, and the data is widely available. But like all the measures of inequality, it has its shortcomings, too. But by combining it with the Gini (which is more sensitive to the middle of the distribution), it will be a giant leap towards tackling inequality.
New analysis from Oxfam on windfall profits
Bumper profits for big business. The last two years have been highly profitable for the world's biggest corporations. Oxfam's analysis shows that 722 of the world's biggest corporations captured over US$2 trillion in windfall profits in 2021-22, with their total profit jumping by 89%. This comes as the cost of living has thrown many households into crisis.
Energising the bottom line. During 2021-22, when many families faced sky-high energy prices, 45 energy companies made combined windfall profits of nearly half a trillion dollars (US$474 billion).
Food for thought. Similarly, 60 food and beverage companies and retailers made a combined US$84 billion in windfall profit. Food prices increased by 14% in 2022.
Clawing back windfall profits. A windfall tax on the 722 mega-corporation at a tax rate of 90% could generate up to US$941 billion, enough to cover climate financing costs in low and lower-middle-income countries and close universal healthcare and social protection gaps in these countries.