Myth 1: The poor are getting richer

 

Inequality doesn’t matter because the poor are getting richer. This is the story the political and economic elite at Davos would like us to believe. But this story is a fantasy. The reality is that while executive pay goes through the roof, there are more people living in extreme poverty in sub-Saharan Africa than ever before.

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Since the 1980s, we’ve been told that inequality doesn’t matter. Mainstream thinking has it that you can fight poverty without tackling inequality. This has been part of an attempt to make poverty eradication easier and more palatable to an increasingly dominant right-wing agenda.  

The beauty of separating poverty and inequality is that you can care about ‘the poor’ while not worrying about the need for any of the radical changes which might upset your lifestyle. You can both be “intensely relaxed about people getting filthy rich”, as Peter Mandelson said, and also care about very poor people getting less poor. 

This embracing of inequality has, unsurprisingly, gone hand-in-hand with soaring levels of it. Today the richest 80 people own almost as much wealth as half the world’s population. The situation continues to get worse. While most ordinary people endure pay freezes and austerity, the world’s richest 300 people became richer by 16 per cent in 2013 . 

Those who are unhappy with inequality are accused of pursuing the ‘politics of envy’, or as Margaret Thatcher once put it, of preferring that the poor were poorer provided the rich were less rich.There are two big problems with this argument.

 

Inequality matters

The first is that inequality does matter. This is not a matter of serious debate. Even the International Monetary Fund (IMF), hardly a progressive voice, has issued a warning that rising inequality is threatening economic growth.  

This is firstly because rich people are far more likely to spend money in ways that do not benefit the majority of people, such as on luxury imported goods or simply stashing it away in an account in the Cayman Islands. The idea that if you get enough tycoons buying yachts, the jobs created by the yacht building industry will be enough to feed everyone else is a fiction. 

Second, inequality warps democracy. It raises the voices and interests of tiny elites above the rest of society. This can lead to perverse results and greater corruption, with laws and policies tailored to the personal interests of tycoons and to the detriment of wider society.

It’s not just the economy that is affected by inequality. Most of the attributes of a decent society – health, education, crime levels, social cohesion – are most present in more equal societies.

“No country has successfully developed beyond middle-income status while retaining a very high level of inequality in income or consumption” – World Bank research paper

Take the USA and Sweden, two countries with similar levels of wealth in GDP per capita terms. The infant mortality rate in the USA is more than double that of Sweden and the murder rate is over three times Sweden’s figure.  

This pattern holds up across the world. The charts below show that, in general, countries with high levels of inequality have higher murder rates and lower life expectancy.  

 

The poor are not getting richer

It’s no wonder that we find that since the big surge in free market, neoliberal economic policies in the 1980s, while the rich have certainly got richer, the poor have, by and large, stayed poor.

Back in 1981, when the free market revolution was just taking off, there were 288 million people in sub-Saharan Africa living on less than $2 a day (205 million were living on under $1.25 a day). By 2008, this figure had almost doubled to 562 million (386 million on under $1.25 a day). Of course the region’s population has also increased over this period, but even proportionally, there has been almost no improvement in poverty rates in sub-Saharan Africa since 1981.

Other continents have done a little better but mostly because of the arbitrary measure chosen: the proportion of people living on under the equivalent of what $1.25 a day would buy you in the USA in 2005. It has been argued that the figure should be closer to $5 a day as anything less than that would not cover the basic cost of food and other essential needs.

Changing this poverty line radically changes the picture. So if you take a poverty line of $1.25, poverty fell 27 per cent between 1981 and 2005. But if you have a more realistic poverty line of $2.50, the number of people in poverty actually rose by 15 per cent over the same period of time.

In fact the vast majority of the fall in global poverty since 1981 has come from China, a country that, despite engaging in its very own state-led  form of capitalism, has not followed World Bank-led free market policies.

 

The injustice of inequality

Inequality isn’t good for getting people out of poverty, which shouldn’t be surprising. Poverty isn’t about having a certain amount of money, but the lack of those resources we all need for a decent life; food and water, housing and energy, healthcare, education and decent employment

Poverty is lack of power. And that lack of power is a direct consequence of others having too much power – ultimately too much control over resources. Wealth comes from exploitation of people and the planet’s resources. 

This is why even well-intentioned plans to make the poor richer are doomed to failure if they ignore the question of power. Helping the poor to buy more products or rent more resources from the rich might provide short-term relief, but in the long-term will reinforce the unequal relationship between the two. Just as nineteenth-century American slave owners who decided to treat their slaves better missed the real injustice that they were perpetrating.

The poor will only get richer by radically reducing inequality, which in turn requires confronting power.