The World Economic Forum released a Global Risk assessment on Dec. 30, 2013, that labeled income inequality as a major risk for youths. Five years after the global financial crisis, the global elite have not only recovered from the crisis, but their wealth has reached unprecedented levels.
Inequality is a serious problem. The 85 richest people in the world have more wealth than the bottom half of the world. The top 400 wealthiest Americans have more than the bottom 150 million Americans. On top of this, 3.25 billion people earn less than $2 a day. As a result of so much poverty, around 30,000 children die daily from malnutrition and preventable diseases.
We students should care about this growing trend, because if nothing changes there will be a major systemic crisis, which will shift any future plans we have.
Global wealth and income inequality have grown exponentially over the past 40 years. The two major causes of the trend are the political shifts toward neoliberalism and technological innovation.
Neoliberalism is a pro-free market movement spearheaded by Ronald Reagan and Margaret Thatcher in the 1970s and 1980s. It seeks markets being free from government intervention instead of the Keynesian status quo, which believed that governments should guide the market.
Under Reagan, the United States began major economic and financial deregulation. One major example was the offshoring of manufacturing jobs, which, today, affects us with the bankruptcy of Detroit. Offshoring broke the backs of American unions and the working class in favor of management and high finance.
After years of gutting the regulatory agencies, a new era of free markets, greed, excess and risk persisted until it rocked the global financial system.
As far as the growing inequality in the third world, it is driven mostly by neo-imperialism. Instead of the standard 19th century colonial empire, the modern empires of the world are multinational corporations, which mostly reside in the United States.
The International Monetary Fund and World Bank launched development programs that directly led to income and wealth inequality. When the IMF makes a loan to a third world country, there are four conditions.
The first condition is for the country to open its markets to predatory multinational corporations. The second, is spending cuts to health care and education. The third condition is devaluating the local currency to make local goods and services cheaper for predatory countries. The fourth condition is to privatize and sell off essential social services such as transportation, communication, etc. to multinational corporations.
As a result of these conditions for loans, many third world countries’ wealth gaps have gotten worse instead of improving.
The other major cause of wealth inequality is the exponential growth of technology. Since the 1970s, computers have been putting people out of work more than employing them. In the United States, millions of labor-based jobs have been lost to automation. Because of this, the productivity of the work done has also exponentially grown, but the only ones reaping the excess value of production are the management and owners of the businesses instead of the workers.
The main problem not on the surface of the crisis is technology eliminating jobs. Jobs and wages are the main sources of demand in the global economy. Therefore, the fewer workers there are, the less the demand.
Inevitably, these two trends of free markets and tech automation will lead to a global jobs crisis and even a global crisis of capitalism itself, because machines will eliminate billions of jobs but cannot create demand to fill in the gap.
We face a major crossroad in history. Either we regulate the free market again, which will prolong the problem for another time, or we decide to have an overhaul of the global capitalist system.
The reality is that the wealth and income gap cannot continue to expand without a major crisis in the future.