Global income gap continues to grow

According to a 2017 Oxfam report, the eight richest people in the world own as much wealth as the poorest half of the world. The report blamed aggressive wage restraint, tax dodging and the squeezing of producers by companies as the principal causes for the inequality.

Many in the academic community caution that that income inequality will pose a threat to democracy.

A 2014 study by Princeton Professor, Martin Gilens and Northwestern University Professor Benjamin I. Page found that in the U.S., the developed nation with the highest degree of income inequality, public opinion has almost no effect on government, but the opinion of economic elites does.

“There is somewhat of a conflict between capitalism and democracy,” said Professor of Economics Robert G. Williams. “Particularly, when the inequalities of capitalism are in conflict with the egalitarian element of democracy. Everyone is supposed to be equal in democracy. As inequality becomes increasingly a problem, there is no way that is not going to undermine the democracy.”

Many companies have revenues which exceed the revenues of nation states. Several multinational corporations now maintain revenues which exceed the GDP of states. According to data from the World Bank, Walmart’s revenue reached $482 billion in 2016. Poland’s GDP in 2016 was $470 billion. Exxon Mobil maintains a revenue almost as high as the GDP of Chile.

“In terms of international investment, corporations have the upper hand in any bargaining relationship, whether that’s a developed country or a less developed country.” said Professor of Political Science Ken Gilmore.

Of the top income earners, most are located in the United States and Western Europe.

“There are clear advantages in the trading system, to help wealthier countries,” Williams said. “For the countries that have advantages, they are given even more advantage.”

Less developed countries often create conditions specifically designed to attract investment from multinational corporations. These can include lower corporate tax rates, less stringent labor protections and lax environmental and child labor laws.

“Basically, the companies hold an auction, where countries must bid against one another for their investments,” Gilmore said. “The countries who offer the most “freedom” are the ones who get the investment.”

Wealth inequality may also impact social mobility by allowing wealthy families to pass on wealth to their children. Less wealthy families have less to pass on.

“Wealth inequality is transmitted from generation to generation,” Williams said. “What we are increasingly finding, is that the zipcode you grow up in, largely will influence what your economic prospects are.”

According to Professor of Political Science George Guo, wealth inequality also hinders democracy by creating destabilizing conflict.

“Latin America is so violent, they have free elections supposedly, but it doesn’t actually work out that way, because they don’t have a middle class,” Guo said. “There is always conflict between the rich and poor. In the U.S., 50 percent of the population is middle class and that little bit is shrinking. That’s why, even though we have a lot conflict in the U.S. it does not turn into violence.”

Trade has led to an overall in increase in wealth, but the wealth has not been evenly shared.

“Economic growth is raising people’s standards of living around the world, broadly speaking, but it is doing so for the wealthier countries even faster,” Williams said.