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Sunday, May 2, 2021

Wealth inequality [feedly]

Wealth inequality

I have written before about the fact that, both in advanced and so-called 'emerging economies', wealth is significantly more unequally distributed than income.  Moreover, the pro-capitalist World Economic Forum has reported that: "This problem has improved little in recent years, with wealth inequality rising in 49 economies."

The usual index used for measuring inequality in an economy is the gini index. A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of one (or 100%) expresses maximal inequality among values (e.g., for a large number of people where only one person has all the income or consumption and all others have none, the Gini coefficient will be nearly one).

For the US, the current gini index for income is 37.8 (pretty high by international levels), but the gini index for wealth distribution is 85.9! Or take supposedly egalitarian Scandinavia. The gini index for income in Norway is just 24.9 but the wealth gini is 80.5!  It's the same story in the other Nordic countries.  The Nordic countries may have lower than the global average inequality of income but they have higher than average inequality of wealth.

Another way of measuring inequality is to consider the share of wealth or income that the top 10% or top 1% etc have. And we can break personal wealth down into two main categories: property wealth and financial wealth. A larger section of the population has property wealth, although this is very unequally distributed. But financial wealth (stocks and shares, bonds, pension funds, cash etc) is the province of a tiny number of people and so is even more unequally distributed. The latest figure for the US for financial wealth inequality is truly staggering on this measure. The richest 1% of US households now own 53% of all equities and mutual funds held by American households. The richest 10% own 87%! Half of America's households have little of no financial assets at all – indeed they ar in debt. And that inequality has been rising in the last 30 years.

And as the WEF says, after the huge rise in the prices of property and financial assets over the last 20 years, fuelled by cheap credit and reduced taxation, this concentration of personal wealth has increased sharply – something that Thomas Piketty in his book, Capital in the 21st century, highlighted several years ago.

The latest data for Italy, one of the top G7 economies, confirms this increased inequality of wealth. In a new study of Italian inheritance tax records, researchers found that the wealth share of the top 1% (half a million individuals) increased from 16% in 1995 to 22% in 2016, and the share accruing to the top 0.01% (the richest 5,000 adults) almost tripled from 1.8% to 5%.  In contrast, the poorest 50% saw an 80% drop in their average net wealth over the same period. The data also revealed the growing role of inheritance and life-time gifts as a share of national income, as well as their increasing concentration at the top. The huge wealth of a few individuals is getting larger because it can be passed onto relatives with little or no taxation.

But the concentration of personal wealth in the advanced capitalist economies is nothing compared to what is happening in the poorer nations of the world. A new study compared the inequality of wealth in South Africa against similar 'emerging economies' and also historically since the end of apartheid. Extreme wealth inequalities in South Africa have got worse, not better, since the end of the apartheid regime. Today, the top 10% own about 85% of total wealth and the top 0.1% own close to one-third. South Africa continues to hold the dubious honour of having the worst wealth inequality among the major economies of the world. The South African top 1% share has fluctuated between 50% and 55% since 1993, while it has remained below 45% in Russia and the US and below 30% in China, France, and the UK. 

Top 1% wealth shares

But as I have argued before, real wealth concentration id about the ownership of productive capital, the means of production and finance. It's big capital (finance and business) that controls the investment, employment and financial decisions of the world.  A dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the global network according to the Swiss Institute of Technology. A total of 737 companies control 80% of it all.

This is the inequality that matters for the functioning of capitalism – the concentrated power of capital. And because inequality of wealth stems from the concentration of the means of production and finance in the hands of a few; and because that ownership structure remains untouched, any increased taxes on wealth will fall short of irreversibly changing the distribution of wealth and income in modern societies.

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COVID-19: The Moms’ Emergency [feedly]

COVID-19: The Moms' Emergency

By Kristalina GeorgievaStefania FabrizioDiego B. P. Gomes, and Marina M. Tavares

A year ago, the world changed. While the pandemic's effect on workers has varied worldwide, the new reality has left many mothers scrambling. With schools and daycares closed, many were forced to leave their jobs or cut the hours they worked. New IMF estimates confirm the outsized impact on working mothers, and on the economy as a whole. In short, within the world of work, women with young children have been among the biggest casualties of the economic lockdowns.

Mothers of young children have been disproportionately affected by the lockdown.

Three countries—the United States, the United Kingdom, and Spain—illustrate the varied impact of the pandemic on workers. These three countries were among the most heavily hit by the virus globally, but it is the United States that saw the most job losses. In comparison, UK workers experienced the largest cut in working hours, while in Spain, workers faced a mix of both job losses and reduced hours.

These differences were particularly pronounced in the first months of the crisis, and are partly due to differences in government policies. The United States favored supporting unemployed workers through higher unemployment benefits, and over longer periods, whereas the United Kingdom and Spain opted to use retention schemes to preserve ties between workers and employers.

Mothers hit the hardest

Workers' experiences not only differ across countries but also across gender. As shown in IMF research, in the United States, women were affected more than men, in the United Kingdom it was the other way around, while in Spain men and women shared similar levels of pain.

Despite these differences, all three countries shared one thing in common: mothers of young children have been disproportionately affected by the lockdown and resulting containment measures. School closures and the start of remote learning heaped extra care responsibilities on parents, and particularly on mothers.

As a result, many women—who were largely shouldering the weight of childcare and housework even before the pandemic—left their jobs or cut the number of hours they worked.

Women with younger children have suffered larger job losses and/or drop in hours worked than other women and men in all three countries. In the United States, for example, being a mother of at least one child under 12 years old reduced the likelihood of being employed by 3 percentage points compared to a man in a similar family situation between April and December 2020.

Greater gender and income inequalities

Our study analyzes in close detail the labor market in the United States and finds that the burden on mothers with young children accounts for 45 percent of the increase in the total employment gender gap. This burden has also caused an economic loss estimated at almost 0.4 percent of output between April and November 2020.

The pandemic may end up aggravating not only gender but also income inequality. As we look deeper, mothers with less than a college degree and mothers of color lost or quit their jobs in larger numbers during the early stages of the pandemic, and they are coming back to work at a much slower pace than other groups of workers.

Support for mothers

Given the disproportionate impact of lockdowns and containment measures on mothers—especially those with young children, targeted measures are needed to ease their return to work.

  1. Financial support: Supporting mothers who have lost their jobs, and struggle to survive and provide for their families is crucial. This can be done through measures such as tax credits for low-income households with children, extension of unemployment benefits, and childcare assistance.
  1. Childcare and schools: Governments should also incorporate considerations for school reopening when formulating vaccination priority lists. The availability of childcare is crucial to enable mothers to participate in the labor market. Governments should prioritize the reopening of schools and childcare centers and reduce the likelihood of further school closures. This requires investing in infrastructure and procedures to ensure a safe and sustainable reopening of schools.
  1. Reallocation policies: Mothers, and women in general, are more likely to occupy jobs that require face-to-face interaction. COVID-19 has disproportionately destroyed such jobs, and some of them won't return. Therefore, governments should support workers in finding other jobs while minimizing their loss of human capital, through hiring subsidies and training programs, including tech training.
  1. Access to finance: Increasing access to financial services could greatly help women to start/maintain their businesses. For this, tapping the potential of financial technology to achieve greater financial inclusion is essential, particularly in developing countries. Equal access to digital infrastructure, such as access to mobile and internet coverage—as well as greater financial and digital literacy—can be a game changer for women.

Mothers have played a crucial role during this pandemic, taking care of children, and absorbing many of the costs associated with the containment measures introduced to stop the spread of the virus. The recommendations outlined above are all the more imperative as the global economy still grapples with the recovery from the pandemic. In order to fully recover, the world economy needs to fully reintegrate women into the workforce.

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Achieving the Sustainable Development Goals Will Require Extraordinary Effort by All [feedly]

I think the IMF blog should be a daily reading requirement. It doesn't matter if one agrees with IMF policy. The Data incoming is staggering, truly. The world , folks, cannot be escaped.  The former far away is next door.

Achieving the Sustainable Development Goals Will Require Extraordinary Effort by All

by Abdelhak SenhadjiDora BenedekEdward Gemayel, and Alexander Tieman

The pandemic's impact on the world's poor has been especially harsh. COVID-19 may have pushed about 100 million people into extreme poverty in 2020 alone, while the UN warns that in some regions poverty could rise to levels not seen in 30 years. The current crisis has derailed progress toward basic development goals, as low-income developing countries must now balance urgent spending to protect lives and livelihoods with longer-term investments in health, education, physical infrastructure, and other essential needs.

In a new study, we propose a framework for developing countries to evaluate policy choices that can raise long-term growth, mobilize more revenue, and attract private investments to help achieve the Sustainable Development Goals. Even with ambitious domestic reforms, most low-income developing countries will not be able to raise the necessary resources to finance these goals. They need decisive and extraordinary support from the international community—including private and official donors and international financial institutions.

Major setback

In 2000, global leaders set out to end poverty and create a path to prosperity and opportunity for all. These objectives were anchored by the Millennium Development Goals and 15 years later by the Sustainable Development Goals set out for 2030. The latter represent a shared blueprint for peace and prosperity, for people and the planet, now and into the future. They require significant investments in both human and physical capital.

Until recently, development progressed steadily, albeit unevenly, with measurable success in reducing poverty and child mortality. But even before the pandemic, many countries were not on track to meet the Sustainable Development Goals by 2030. COVID-19 hit the development agenda hard, infecting more than 150 million people and killing over three million. It plunged the world into a severe recession, reversing income convergence trends between low-income developing countries and advanced economies.

The IMF has provided emergency financing of $110 billion to 86 countries, including 52 low-income recipients, since the pandemic started. We have committed $280 billion overall, and our planned general SDR allocation of $650 billion will benefit poor countries without adding to their debt burdens. The World Bank and other development partners have also offered support. But this alone is not enough.

In our paper, we develop a novel macroeconomic tool to help assess development financing strategies, including the financing of the Sustainable Development Goals. We focus on investment in social development and physical capital in five areas at the core of sustainable and inclusive growth—health, education, roads, electricity, and water and sanitation. These key development areas are the largest outlays in most government budgets.

We apply our framework to four countries—Cambodia, Nigeria, Pakistan, and Rwanda. These countries will, on average, need additional annual financing of over 14 percent of GDP to meet the Sustainable Development Goals by 2030, some 2½ percentage points per year above the pre-pandemic level. Put differently, without increasing financing, COVID-19 may have delayed progress toward the Sustainable Development Goals by up to five years in the 4 countries.

The setback could be much larger if the pandemic results in permanent economic scarring. Lockdown measures have significantly slowed economic activity, depriving people of income and preventing children from attending school. We estimate that the long-lasting damage to an economy's human capital, and hence growth potential, could increase the development financing needs by an additional 1.7 percentage points of GDP per year.

Meeting the challenge

How can countries hope to make meaningful progress toward the Sustainable Development Goals under these new, more difficult circumstances triggered by the pandemic?

It will not be easy. Countries will have to find the right balance between financing development and safeguarding debt sustainability, between long-term development objectives and pressing immediate needs, and between investing in people and upgrading infrastructure. They will have to continue attending to the matter at hand—managing the pandemic. At the same time, however, they will also need to pursue a highly ambitious reform agenda that prioritizes the following:

  • Fostering growth, which will start a virtuous circle. It enlarges the pie, resulting in additional resources for development, which in turn further spurs growth. Structural reforms that promote growth—including efforts to enhance macroeconomic stability, institutional quality, transparency, governance, and financial inclusion—are thus essential. Our study highlights how Nigeria and Pakistan's strong growth enabled them to make significant strides in reducing extreme poverty prior to 2015. Jumpstarting growth, which has since stalled in these populous countries, will be crucial.
  • Strengthening the capacity to collect taxes is vital to pay for the basic public services that are necessary to achieve key development objectives. Experience shows that increasing the tax-to-GDP ratio by an average of 5 percentage points over the medium term through comprehensive tax policy and administration reforms is an ambitious but achievable objective for many developing countries. Cambodia has done it: in the 20 years leading up to the pandemic, it increased its tax revenue from less than 10 percent of GDP to around 25 percent of GDP.
  • Enhancing the efficiency of spending. About half of the spending on public investment in developing countries is wasted. Improving efficiency through better economic management together with enhanced transparency and governance will allow governments to achieve more with less.
  • Catalyzing private investment. Strengthening the institutional framework through better governance and a more robust regulatory environment will help catalyze additional private investment. Rwanda, for example, was able to increase private investment in the water and energy sectors from virtually nothing in 2005–09 to over 1½ percent of GDP per year in 2015–17.

Pursued in tandem, these reforms could generate up to half the resources needed to make substantial progress toward the Sustainable Development Goals. But even with such ambitious reform programs, we estimate that development objectives would be delayed by a decade or more in three of our four case study countries if they were to go it alone.

This is why it is critical for the international community to step up as well. If development partners gradually increase official development aid from the current 0.3 percent to the UN target of 0.7 percent of Gross National Income, many low-income developing countries may well be in a position to meet their development objectives by 2030 or shortly thereafter. Providing such assistance may be a tall order for policymakers in advanced economies, who are likely more focused right now on domestic challenges. But helping development is a worthy investment with potentially high returns for all. In the words of Joseph Stiglitz, the only true and sustainable prosperity is shared prosperity.


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