Essay on widening rich poor disparity

The global economy has grown sevenfold since 1950. Meanwhile, the disparity in per capita gross domestic product between the 20 richest and 20 poorest nations more than doubled since 1960. Of all high-income nations, the United States has the most unequal distribution of income, with over 30 per cent of income in the hands of the richest 10 per cent and only 1.8 per cent going to the poorest 10 per cent.

In India, the introduction of more and more luxury cars every month that are being bought too, raise the question, "Is the rich-poor divide widening?" Conventional wisdom is being turned upside down. Petroleum prices, ruling at new highs, would have, in recent times, created a scare. Transportation costs rise and with them prices of all goods. Both these have happened worldwide and in India.

Yet there is no looking back. The rising value of the Indian rupee has affected exports, especially of garments and information technology related business process outsourcing. The Manila-based Asian Development Bank (ADB) says the "rich are getting richer faster than the poor are getting richer" in Asia, creating a "social crisis", which could foster disorder and impede growth.

The ADB has warned that Asia's economic growth and social order is being threatened by a lack of equality that has seen hundreds of millions of people left in poverty. Despite the sharp growth enjoyed by the region in the past 30 years there is a widening gap between rich and poor. According to ADB estimates there are still about 620 million people in the region living on less than a dollar a day and 700 million without access to drinkable water.

There are 107 million children aged under-5 who is underweight and 100 million children not enrolled in primary school. This could very well result in a huge population of physically and mentally deficient people in Asia. Additionally, the large youth population could become a demographic curse, if Asian countries did not find jobs for them.

The gap between rich and poor has widened over the last 20 years in nearly all the countries, even as trade and technological advances have spurred rapid growth in their economies. In a 20-year study of its

number countries, the OECD has found inequality had increased in 27 of its 30 members as top earners' incomes soared while others' stagnated. The United States has the highest inequality and poverty rates in the OECD after Mexico and Turkey, and the gap has increased rapidly since 2000.

Wealthy households are not only widening the gap with the poor, hut in countries such as the US, Canada and Germany they are also leaving middle-income earners further behind. Greater income inequality stifles upward mobility between generations, making it harder for talented and hardworking people to get the rewards they deserve. It polarizes societies, it divides regions within countries, and it carves up the world between rich and poor.

Governments need to address the "divisive" issue of growing inequality by doing more to educate the whole work force and not just the elite while helping people get jobs and increasing incomes for working families, rather than relying on social benefits.

Those nations and economies that were relatively rich at the start of the twentieth century have by and large seen their material wealth and prosperity explode. Those nations and economies that were relatively poor have grown richer, but for the most part slowly. And the relative gulf between rich and poor economies has grown steadily. Today this relative gulf is larger than at any time in humanity's previous experience or at least larger than at any time since there were some tribes that had discovered how to use fire and other tribes that had not.

The world in which we live today is the most unequal, in terms of the divergence in the life prospects of children born into different economies. On the one hand, most of the world has already made the transition to sustained economic growth, and most people live in economies that, while far poorer than the leading-edge post-industrial nations of the world's economic core, have successfully climbed onto the escalator of economic growth and thus the escalator to modernity. The economic transformation of most of the world is less than a century behind the economic transformation of the leading-edge economies— only an eye blink behind, from a millennial perspective.

On the other hand, one and a half billion people live in economies that have not made the transition to intensive economic growth, and have not climbed onto the escalator to modernity. It is very hard to argue that the median inhabitant of Africa is any better off in material terms than his or her counterpart of a generation ago.

Three factors appear to be most important in accounting for how a country has done in relative terms in its productivity growth over the past century. First is the productivity gap vis-a-vis the world's best practice. The further a country is behind the world's industrial leaders, the more scope there is for successful technology transfer. Poor countries that successfully industrialize can grow very fast indeed.

Second is the rate of investment. High private sector investment has two benefits. It means that the average worker has a better and more productive work environment—more structures investment means better work spaces, and more equipment investment means more machines to amplify productivity.

Third is whether market forces or bureaucratic commands govern resource allocation. While market forces exert pressure to allocate resources to their most productive uses, bureaucratic commands exert pressure to allocate resources following other logics. A country like the Soviet Union or like Zambia can have a very large technology gap and a high measured rate of investment. But if investment is allocated and industries grow not by the profitability of its use but by the political power of its users, it will not do nearly as much good for productivity and economic growth.

When taken as a group, poor countries have not closed any of the gaps relative to the world's industrial leaders over the post-World War II period. Poor countries have relatively low shares of investment in national product: capital goods are relatively expensive, meaning that even a hefty savings effort translates into little increase in the capital stock; savings rates are relatively low; and taxes are siphoned off to maintain the incomes of politically powerful groups rather than to support public investment projects.

Poor countries could grow rapidly if their governments take a long- run view of their people's interest and follow appropriate policies. There is a role for government intervention to advance industrial development. The governments need to step in because private investors do not face the right incentives to develop and invest early and heavily in modern machinery and equipment.