Inequality and Its Discontents

Income inequality in many countries, both developed and developing, has been on the rise since the 1980s after moderating for a good part of the twentieth century, especially after World War II. Wealth concentration has also become more skewed. Underlying these trends are falling labour shares of national income. While rising economic inequality threatens the legitimacy of the status quo, some rationalize this as necessary to raise the investment and growth rates, or for middle-class growth. Policy has mattered. Growing inequality has been exacerbated by stronger property rights and favourable policies. For example, privatization has seen the massive transfer of public wealth to private hands. Trade and financial liberalization and globalization as well as neoliberal economic policies have also contributed to these trends. Tax and public expenditure reforms have worsened redistribution by fiscal policies. Meanwhile, huge increases in executive remuneration together with modest if not negative real wage growth have worsened ‘wage inequality’. Unconventional monetary policies and fiscal austerity after the 2008–2009 global financial crisis have aggravated trends.