Rising Inequality

Rising Inequality

Economic Disparities Increasingly Contribute to Security Risks

Story by Dr. Miemie Winn Byrd  |  Photos by Reuters

French economist Thomas Piketty declared in the aftermath of the November 2015 terrorist attacks in Paris that persistent socio-economic inequality has contributed to the rise of the Islamic State of Iraq and Syria (ISIS). His assertion created a storm of controversy, adding to the debate over the outlook for global inequality. In 2014, he brought the subject of inequality into popular consciousness with his best-selling book, Capital in the Twenty-First Century. The book had critics as well as fans, and many on both sides agreed his work created a level of interest in this topic that had not been seen since English economist John Maynard Keynes published The General Theory of Employment, Interest and Money in 1936.

Activists in India protest a government decision to hand out cash instead of subsidized food to poor people while police use a water cannon to disperse the crowd.

Other modern-day economic titans such as Robert Shiller, Paul Krugman, Joseph Stiglitz and Robert Reich have been beating the drum about rising inequality since the global financial crisis of 2007-08, but they have not been able to capture the public’s attention like Piketty. His findings are transforming the debate on wealth and inequality, providing objective data to counter the long-dominant side of the inequality debate, which says that inequality is not a problem for public policy attention, according to Robert Wade, a London School of Economics and Political Science professor. Furthermore, Piketty’s book is setting the agenda for the next generation of thought regarding capitalism.

Why Care About Increasing Disparity?

Discussions of inequality have broadened and intensified since his book became a worldwide best-seller. Even Pope Francis weighed in on the subject during a January 2018 address to his diplomatic corps. “There is a risk that we will see the rise of modern forms of ideological colonization by the stronger and the wealthier to the detriment of the poorer and most vulnerable,” he said.

Rising inequality remains a concern because it creates economic, social and political vulnerabilities within societies, and it shows few signs of abating, according to Piketty.

In the World Inequality Report 2018, Piketty and his colleagues at the World Inequality Lab found that since 1980, income inequality has increased rapidly in North America and Asia, grown moderately in Europe and stabilized at a high level in the Middle East, Sub-Saharan Africa and Brazil. The poorest half of the world’s population has seen its income grow due to high growth in Asia. The top .1 percent, however, still captured as much growth as the bottom half of the world’s adults since 1980.

A recent Organization for Economic Cooperation and Development (OECD) study showed that gross domestic product (GDP) growth has a “negative and statistically significant” correlation with income inequality. Specifically, an average three-point increase in Gini index for OECD countries over the past 20 years correlated to a .35 percent decrease in economic growth per year for the same time, which translates into an 8.5 percent GDP loss for that period. Of the 34 OECD member countries, several are in the Indo-Pacific, including Australia, Japan, South Korea and New Zealand.

Italian statistician Corrado Gini invented the Gini scale in 1912, which runs from zero to one, with a score of one signifying maximal inequality: A single person earns all the income and the rest of the world earns nothing.

The World Bank’s lead economist, Branko Milanovic, warned that “social stability and the social fabric of a society are torn apart if there are very large income differences.” His warning has been empirically supported by the recent finding of British epidemiologists Richard G. Wilkinson and Kate Pickett that as inequality increases, social capital deteriorates. Social capital is defined as the level of social cohesion and trust in a society, with decreased social capital making the society vulnerable to unrest and conflict.

When a condition of disparity, inequality and exclusion is perceived as being the result of persistent injustice, it can invoke a powerful tide of base instinct, studies have revealed. Behavioral and evolutionary biology researchers at Central Washington University found the instinct for fairness is deeply rooted in humans’ genetic code. Therefore, it is especially concerning if inequality is perceived by “have-nots” as a lack of fair access to opportunities and resources.

Pew Research Center’s Global Attitudes Project 2013 survey revealed that more than 70 percent of the respondents perceived their country’s economic system to favor the wealthy. This growing sense of injustice, combined with the evidence and data of rising inequality, should alarm policymakers and security professionals, given its apparent ties to undesired behaviors and instability.

Researchers from Harvard and Columbia universities conducted a study published in 1996 measuring income inequality and socio-political instability in 70 countries from 1960 to 1985. They, too, found that as income inequality increases, socio-political instability escalates. This conclusion supports the earlier findings by political science researcher Ted Gurr of links between relative deprivation, frustration and aggression. Gurr, a distinguished professor emeritus at the University of Maryland, discovered that relative deprivation — not absolute poverty — leads to grievances and frustration. The empirical support behind the “frustration-aggression” theory has shown that all humans are biologically coded to respond aggressively toward a perceived culprit when frustrated.

It is almost predictable that movements such as al-Qaida and ISIS would attempt to tap into this primal need within communities around the globe to exploit the perception of marginalization and inequality. Many separatist movements, insurgencies, armed conflicts, terrorist groups and violent clashes have seized upon such universal instincts to recruit and mobilize followers.

Additional Side Effects

While people generally understand the correlation between socio-economic inequality, social unrest and political instability, most are unaware of the relationship between socio-economic inequality and public health. Harvard University researchers S.V. Subramanian and Ichiro Kawachi in their 2004 meta-analysis of epidemiological studies, which encompassed about 60 million people around the world, found a link between inequality and poor health. In 2009, British epidemiologists Wilkinson and Pickett found evidence suggesting that inequality is associated with rates of obesity, teenage birth, mental illness, drug overdose and mortality.

Common sense suggests the impact of persistent unemployment can lead to stress and depression. Now, the science unequivocally shows the negative effect of stress and depression on mental and physical health. Wilkinson and Pickett also found that high inequality correlates with higher rates of hostility, homicide, racism and imprisonment, while corresponding with lowered levels of trust, social capital, educational performance and social mobility.

Falling Equality in Asia

Piketty wrote his book at the Paris School of Economics based on historical data on income and wealth distribution gathered from 20 countries over three centuries. At the same time, the World Bank (WB) and the Asian Development Bank (ADB) were sounding an alarm about increased inequality in the Indo-Pacific region. Its rapid economic growth in the past 20 years has pulled many people out of poverty, but it has also generated a widening gap between rich and poor, with the rate of wealth accumulation for the rich increasing much faster than that for the poor.

As capitalism spreads across Asia, market-based economic models have created winners and losers. These conditions, combined with rampant corruption within governmental structures, have often given rise to crony capitalism and monopolies, contributing to an even greater sense of injustice among those who shared less of the growth and progress. This sense of unfairness was captured by the Pew Research Center’s Global Attitudes Project 2013, in which more than 60 percent of Asian respondents said their country’s economic system favors the wealthy.

Residents living in a squatter colony protest the demolition of their homes in Quezon city, Philippines.

As inequality increases, the legitimacy of the political system declines among the “have-nots.” When inequality is amplified along the lines of racial, ethnic and religious divides, resentment and discontent can cause political instability ranging from peaceful protests to criminal activities, social unrest, political violence, military coups, armed conflicts and revolutions. We have witnessed such cases throughout the Indo-Pacific and the rest of the globe. American sociologist Neil Smelser argues in his book, Faces of Terrorism: Social and Psychological Dimensions, that awareness of socio-economic disparity serves to “make other, remaining foci of exclusion more visible and aggravating.” The effects of such awareness can be seen, for example, in the long-running ethnic conflict in Burma and Muslim uprisings in the southern Philippines and Thailand.

The ADB and WB weren’t the only ones concerned about the trend of increasing inequality in the region. In 2013, the World Economic Forum surveyed 1,000 experts from industry, government, academia and civil society to evaluate 50 risks and asked them to rank these risks by their likelihood and impact in the next decade. “Severe income disparity” ranked as the No. 1 risk. Oxfam International published a report showing that the richest 1 percent have seen their share of global wealth increase from 44 percent in 2009 to 48 percent in 2014. As of March 2018, Forbes magazine’s billionaires list had a record 2,208 names, accounting for a total of U.S. $9.1 trillion in wealth, up from U.S. $7.7 trillion in 2017. “The super-rich continue to get richer, widening the gap between them and everyone else,” said Luisa Kroll and Kerry A. Dolan, assistant managing editors of wealth at Forbes Media.

Climbing Inequity in the U.S.

The U.S. is not immune from the problem of inequality. Joseph Stiglitz, a U.S. Nobel laureate in economics, argues that increasing inequality in a weaker economy can create a negative self-reinforcing loop. “The problem of inequality is not so much a matter of technical economics. It’s really a problem of practical politics,” according to Stiglitz. Economic inequality “can lead to a capture of the political process by a tiny high-income and high-wealth elite.”

Homeless children sleep on a sidewalk in Mumbai, India. Researchers say economic disparity that leads to such conditions can cause political instability.

In other words, economic inequality is linked to political inequality. Indeed, some economists such as New York University’s Nouriel Roubini caution that “any economic model that does not properly address inequality will eventually face a crisis of legitimacy.” Legitimacy underpins democratic governments’ ability to instill trust in institutions and leaders and to enforce rule of law.

In this age of widespread advancement in communication and transportation, the images and awareness of inequality between rich and poor are seeping into the people’s consciousness, especially for those who are at the bottom of the wealth pyramid. As their aspirations change, they may no longer be satisfied with small, incremental improvements in their lives when they know that others are gaining much more.

Security risks

Policymakers and security professionals should be cognizant of persistently rising socio-economic inequalities. The World Economic Forum’s Global Risks 2012 reported that “on an unprecedented scale around the world, there is a sense of receding hope for future prospects. Gallup polling data reveal that, globally, people perceived their living standards to be falling, and they expressed diminishing confidence in the ability of their government to reverse this trend.

A woman asks passersby for donations to fight child poverty in Tokyo.

International Monetary Fund Managing Director Christine LaGarde, in her remarks at the Conference on Inclusive Capitalism, warned that “disparity also brings division. History also teaches us that democracy begins to fray at the edges once political battles separate the haves against the have-nots.” Such sentiment can be easily amplified and exploited by extremists such as al-Qaida and ISIS with charismatic appeal and entrepreneurial use of modern communication technology.

This returns the discussion to the plausibility of Piketty’s 2015 pronouncement in the French newspaper Le Monde attributing the rise of ISIS to persistently increasing socio-economic inequality. On the basis of a review of literature and studies across various disciplines showing that relative deprivation and socio-economic inequality have a significant correlation with social unrest, political instability and violent conflict, Piketty’s argument appears to be well-founded. Relative deprivation and inequality can indeed promote radicalization by reinforcing other sources of grievances, creating fractured societies and loss of legitimacy for existing systems, which in turn offers greater opportunity for social unrest and violent political expression. Therefore, Piketty is on target in recommending that the strategy to address the ISIS problem must include approaches to improve overall economic conditions and narrow the socio-economic gaps within and between countries.