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Recent reports by the United Nations and the OECD highlight increasing levels of global inequality and the socio-economic impact on poor communities. Both reports draw attention to the failure of trickle down economic theory. 

Wealth Gap Creating a Social Time Bomb

Rich-Poor Divide Worst Among Rich Countries

Wealth Gap Creating a Social Time Bomb

23rd October 08 - John Vidal, The Guardian

Growing inequality in US cities could lead to widespread social unrest and increased mortality, says a new United Nations report on the urban environment.

In a survey of 120 major cities, New York was found to be the ninth most unequal in the world and Atlanta, New Orleans, Washington, and Miami had similar inequality levels to those of Nairobi, Kenya Abidjan and Ivory Coast. Many were above an internationally recognised acceptable "alert" line used to warn governments.

"High levels of inequality can lead to negative social, economic and political consequences that have a destabilising effect on societies," said the report. "[They] create social and political fractures that can develop into social unrest and insecurity."

According to the annual State of the World's cities report from UN-Habitat, race is one of the most important factors determining levels of inequality in the US and Canada.

"In western New York state nearly 40% of the black, Hispanic and mixed-race households earned less than $15,000 compared with 15% of white households. The life expectancy of African-Americans in the US is about the same as that of people living in China and some states of India, despite the fact that the US is far richer than the other two countries," it said.

Disparities of wealth were measured on the "Gini co-efficient", an internationally recognised measure usually only applied to the wealth of countries. The higher the level, the more wealth is concentrated in the hands of fewer people.

"It is clear that social tension comes from inequality. The trickle down theory [that wealth starts with the rich] has not delivered. Inequality is not good for anybody," said Anna Tibaijuka, head of UN-Habitat, in London yesterday.

The report found that India was becoming more unequal as a direct result of economic liberalisation and globalisation, and that the most unequal cities were in South Africa and Namibia and Latin America. "The cumulative effect of unequal distribution [of wealth] has been a deep and lasting division between rich and poor. Trade liberalisation did not bring about the expected benefits."

The report suggested that Beijing was now the most egalitarian city in the world, just ahead of cities such as Jakarta in Indonesia and Dire Dawa in Ethiopia.

In Europe, which was generally more egalitarian than other continents, Denmark, Finland, the Netherlands and Slovenia were classed as the most equal countries with Greece, the UK and Spain among the least. "Disparities are particularly significant in the cities of eastern Europe, larger Spanish cities and in the north of England," it said.

It documents the seemingly unstoppable move of people away from rural to urban areas. This year it is believed that the number of people living in urban areas exceeded those in the countryside for the first time ever, but the report says there is no sign of the trend slowing.

"The dramatic transition between rural and urban communities is not over. Urbanisation levels will rise dramatically in the next 40 years to reach 70% by 2050," it predicts.

The most dramatic urbanisation has been taking place in China, with many millions of people moving from the countryside to cities. The report says 49 new cities have been built in the past 18 years. The rapid transition to an urban society has brought great wealth but also many negative results.

"China has attained some of the deepest disparities in the world with urban incomes three times those in rural areas. Inequalities are growing, with disproportionate rewards for the most skilled workers ... and serious problems for the unemployed and informal workers."

Urban growth rates are highest in the developing world, which absorbs an average 5 million new urban residents a month and is responsible for 95% of world urban growth. The report predicts that Asian cities will grow the most in the next 40 years and could have 63% of the world urban population by 2050.

Tokyo is expected to remain the world's largest mega city, with 36.4m people by 2025. But Mexico City, New York, and Sao Paulo could give way in the league table to Mumbai, Delhi and Dhaka. Kinshasa and Lagos are the two African cities expected to grow the most, with each adding more than 6 million people by 2025.

Rather than countryside to city movement, which has marked rapid population growth in the last 40 years, the UN expects more people to move from city to city.

Capital cities in particular are attracting much more of countries' investments and are growing fast. Some are becoming home to nearly half a country's population.

But the report also identified what it believes is the emergence of a new urban trend, with many cities now shrinking in size. The populations of 46 countries, including Germany, Italy, Japan and most former soviet states, are expected to be smaller in 2050 than they are now, and in the past 30 years, says the report, more cities in the developed world have shrunk than grown.

It found that 49 cities in the UK, including Liverpool and other old industrial centres in the north of England, and 100 in Russia reduced in size between 1990 and 2000, mainly because of unemployment. In the US 39 cities are smaller now than they were 10 years ago.

The reasons for the decline of cities was mostly economic, but the report says that the environment is now an important factor.

Air quality and pollution from mines, power plants and oil exploration have been responsible for population losses in India, Mexico and Africa, it says. "Cities tend to struggle most with health-threatening environmental issues, such as the lack of safe water, sanitation and waste."

Link to original source  

Rich-Poor Divide Worst Among Rich Countries

22nd October 08 - Jim Lobe, Inter Press Service 

Link to the executive summary (pdf) Growing Unequal? Income Distribution and Poverty in OECD Countries and further resources relating to this report.   

The "American Dream" of upward social mobility appears to have emigrated from its birthplace in the United States to northern Europe, according to a major new report by the Organisation for Economic Cooperation and Development (OECD) on the growth of economic equality over the past 20 years.

Of its 30 member states, most of which are also members of the European Union, the United States has the largest gap between its wealthiest and poorest households after Mexico and Turkey, according to the report, "Growing Unequal?", which was released at OECD headquarters in Paris Tuesday.

That gap has grown particularly large in the U.S. since 2000 -- that is, under the administration of President George W. Bush -- according to the report, which found that the gap between the U.S. middle class and the wealthiest 10 percent has also increased.

The growth in the divide has major implications for social mobility, according to OECD Secretary-General Angel Gurria, who said the report's data had demonstrated that the notion that inequality encourages the poor to do better is false.

"Social mobility is low in countries with high inequality like Italy, the UK (United Kingdom), and the United States. And it is much higher in the Nordic countries, where income is distributed more evenly," he told reporters.

"This means that, in most high-inequality countries, dishwashers' sons are more likely to be dishwashers and millionaires' kids can assume that they too will be rich," he said, adding that governments could do much to promote mobility, particularly through progressive tax policies, greater social spending, job creation, and increasing investment in education.

The new report, which found that inequality in most OECD countries -- not just the U.S. -- has grown markedly over the last two decades, comes at a critical moment given the ongoing global financial crisis and its impact on the presidential election here.

The crisis has sparked unprecedented worldwide criticism of the "free-market" economic model that the U.S. and Washington-based international agencies like the World Bank and the International Monetary Fund have vigorously promoted since the administration of President Ronald Reagan.

That model, sometimes called the "Washington Consensus", promised that greater reliance on markets and less government intervention would result in stronger economic growth that would also produce higher incomes for the middle class and the poor.

The current crisis, however, has called that model into question, not just overseas but in the U.S., where Democrats are urging major changes in economic and fiscal policies designed precisely to begin closing the gap between the rich, on the one hand, and the middle class and the poor, on the other.

Those changes -- including increased taxes on the wealthy, greater investments in education, public services and creating jobs, and tackling child poverty, in particular -- are precisely those cited by the OECD report as among the most effective in narrowing the rich-poor gap and reducing the poverty rate.

"This report does fit a certain Democratic narrative in recognising that inequalities are a serious problem and that they're generated in the labour market," said John Schmitt, a senior analyst at the Centre for Economic and Policy Research (CEPR) here. "The OECD recognises that the U.S. performs poorly on social mobility, and I think that surprises a lot of Americans."

The report found that the U.S. is not alone in suffering growing wealth inequalities among the world's richest countries over the past two decades. In three out of four of 24 OECD countries surveyed, inequalities between the richest 10 percent of the population and the poorest 10 percent grew.

France, where government has long taken a particularly aggressive role in the economy, saw the rich-poor gap decline over that period, while, after a steep rise in inequality under former Prime Minister Margaret Thatcher in the 1980s, the wealth gap and poverty rate have declined faster in Britain than in any other country.

The greatest inequality between rich and poor among OECD countries was found in Mexico, where the wealthiest 10 percent of households had more than 25 times greater income than the poorest ten percent. In Turkey, the ratio was 17 to one, while the U.S. was just below that, at 16 to one.

The average for all 30 OECD nations in 2005 was about nine to one, with the smallest gap -- less than five to one -- found in Sweden and Denmark.

After Mexico and Turkey, the U.S. also has the highest poverty rate of the 30 OECD nations, according to the report, which defined poor households as those whose income was less than half of the media income in each of the member-countries.

For all OECD countries, the average poverty rate was just under 10 percent in 2005. In Mexico, the rate was highest at more than 20 percent. Turkey and the U.S. were tied at 17 percent. Lowest poverty rates were found in Denmark, Sweden, the Czech Republic, Austria, and Norway.

In his remarks, Gurria repeatedly underlined the importance of reducing the wealth gap in order both to enhance overall economic performance and reduce social friction, stressing that the implications of current trends were "very serious".

"(G)rowing inequality raises political challenges because it breeds social resentment, it questions the ultimate role of democracy and generates political instability," he said. "It also fuels populist, protectionist and anti-globalisation sentiments...Ignoring increasing inequality is not an option," he added.

Among OECD countries, social mobility as measured by the relative earnings of fathers and sons was highest in the Nordic countries where the rich-poor gap was narrow, and lowest in Italy, Britain and the U.S. -- all countries where the gap was significantly wider.

The report noted that while poverty among the elderly has fallen in OECD countries, poverty among young adults and families with children, particularly single-parent families, has increased over the same period. On average, one child out of every eight living in an OECD country in 2005 was living in poverty. For the U.S., the ratio is closer to one in five.

In a companion article published by the OECD 'Observer', Oxford University economist Anthony Atkinson argued that government will have to take a stronger role in reducing the wealth gap and creating jobs, particularly if the world economy goes into recession.

"If the government can take on the role of lender of last resort [for troubled financial institutions], then we should think about the government taking on the role of employer of last resort," he wrote. "Put bluntly, governments have to step up to the plate, as [U.S. President Franklin] Roosevelt did in the Great Depression."

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