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From Have Less to Have None?

by Nastassja Hoffet

UNITED NATIONS - Despite two decades of phenomenal world economic growth, income inequalities between the richest and poorest have steadily increased - a trend likely to be accentuated as economies across the globe begin to contract, experts say.

This paradox is particularly acute in developed countries where "the richer households benefited more than the poorer" from strong economic growth, said Naren Prasad of the International Institute for Labor Studies, part of the International Labor Organization (ILO).

A recent ILO report found that the gap between the top and bottom 10 percent of wage earners grew 70 percent in 51 out of the 73 countries for which data are available in the last two decades.

"Although the financial crisis is likely to depress the living standards of many people, including those whose work has very little to do with finance and who are in very difficult sectors of the economy, the greatest impact is going to be felt in the financial system immediately," Sanjay Reddy, an economist at Columbia University, told IPS.

The collapse of those incomes might actually reduce inequalities, but it is not something to be welcomed because it is associated with the erosion of living standards for many other people, he added.

Although a certain level of inequality stimulates economic efficiency, excessive inequalities have grave social impacts, warned Prasad.

The main factors driving this increase are policies of wage moderation - essentially a freeze on increases - in developed countries, and the spread of informal employment, which constitutes up to 70 percent of all jobs in developing countries.

In the United States between 2003 and 2007, "executive managers' pay grew in real terms by a total of 45 percent, compared with a real pay increase of 15 percent in the case of the average executive, and less than 3 percent for the average American worker," said the report.

Prasad pointed out that economic globalisation has not helped workers or reduced inequalities, as advocates of the neoliberal model have long claimed. "The more countries are financially globalised, the more the share of wage has declined," he said.

"This crisis signals a change to speak openly about strengths and weaknesses of the market," Anwar Shaikh, a professor of economics at the New School for Social Research, told IPS, adding that "social institutions of the welfare state have survived this period of worship of the market".

The international community must think more creatively to address the interplay of development and economic and financial stability, including restructuring the powerful International Monetary Fund and World Bank, said Reddy.

"[Addressing] excessive inequality of income must not be sacrificed to the crisis," stressed Shaikh.

Some countries, like France, Spain and Brazil, have already succeeded in reducing their level of income inequality through social transfers and the pension system. In general, governments with "welfare state" policies in place and which spend more on social transfers report less inequality. Taxes are one mechanism that contributed to this achievement, said Prasad.

In Shaikh's view, the current crisis calls for direct state intervention to channel economic resources to people at the bottom. "This is a return of the state as direct actor in the economy instead of being a [behind the scenes] regulator," he said.

While countries such as Sweden and China have embraced this kind of interventionism, others like the United States and Europe are planning massive state-led stimulus packages that do not take this critical issue of inequality into account.

"In the United States, for example, despite some push to consider the claims of those who are harmed more centrally in this package - people who are relatively poor or poorer in danger of losing their homes - very little has been done on that score so far," noted Reddy.

In mid-January, European leaders proposed 66 billion dollars to rescue failing banks and businesses. The U.S. Congress is also debating an 825-billion-dollar plan which includes tax credits for low-income workers and businesses, and 358 billion dollars for investment in public works projects.

Gender inequality is also a crucial issue in tackling the income gap. According to the ILO, although about 80 percent of the countries for which data are available have seen an increase in the ratio of female to male average wages, the change is small and in some cases negligible.

In the majority of countries, women earn an average of 70 to 90 percent of men's wages, and it is not uncommon to find much lower ratios in other parts of the world, particularly in Asia.

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