To What Extent do Inequalities Compromise Development?

Economics, Long Reads
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Illustration: Axios Visuals

In the 21st Century one of the primary goals of governments worldwide and international organisations is to engineer development, a concept which according to the UN itself is ‘a multidimensional undertaking to achieve a higher quality of life for all people.’[1] However, one of the hallmarks of modern society is inequality, in both the economic sense of the word largely as a result of liberal capitalism and social inequalities due to restrictive social norms and prejudices. The term itself refers to “the unfair situation in society when some people have more opportunities, money, etc. than other people”[2], and has become widely used on the global stage, including by large global NGOs. They point out the fact that 8 people hold the same amount of wealth as 3.7 billion[3] in a specific attempt to display the extent of this. Long-term development must be sustainable development, or ‘development that meets the needs of the present without compromising the ability of future generations to meet their own needs.’[4] It is debatable whether the existence of inequality interferes with the achieving of sustainable development.

Structural inequalities, or the allocation of groups into unequal status, between different ethnic groups, political allegiances and the sexes are a massive barrier to development. The discriminatory mistreatment of women across the world, especially in conservative Muslim nations such as in the Middle East and Africa, and their exclusion by law and by social norm from opportunities such as education, compromises development because it limits the choices available to them and prevents them from achieving a higher standard of living, such as for example preventing them from entering high-paying job markets or emigrating to more developed countries. According to UNICEF, adolescent girls are 50% more likely to be out of school in lower secondary education in the Middle East and North Africa. [5] In the United States, inequalities persist in the opportunities available to non-white compared to white Americans, with non-white school districts receiving $23 billion dollars less in funding overall[6]. Development is most valuable for society when it increases living standards across the board. When inequalities persist, different groups are disproportionately affected by structural and economic growth and development is harmed.   

In addition, gender and racial inequality prevents development because economic discrimination such as the global wage gap and the fact that 2.7 billion women globally are prevented by law from working in certain jobs[7] wastes a vast amount of human capital that could be spent in productive labour. According to the OECD, 50% of the economic growth in OECD countries in the past 50 years can be attributed to increased availability of education. Most of this has been the reduction of gender inequality.[8] Fundamentally the unfair exclusion of certain groups from the workplace, such as proven hiring discrimination against African Americans[9], decreases efficiency and growth because factors such as experience which determine workplace performance become secondary to preconceived notions of race or gender. Overall a less efficient economy impedes development as both the goods and services available to consumers and tax revenue available for government investment on infrastructure and administration are reduced.

 Economic inequality generally refers to the stratification of wealth, or ‘the extreme concentration of wealth in the hands of small percentage of a population.’[10] This can happen both within and between economies, usually resulting in class divisions, where members of society are grouped based off their socioeconomic status. Firstly, when this results in inequality of access to certain basic services, such as universal education and access to clean air and fresh water, development not only becomes far more difficult, but the very goal of development should be to eradicate such inequality. The ability of individuals to contribute productively to society and to both economic development through labour and management and culturally through social interactions is impeded when large swathes of the population are left without things such as education.

This is tied to inequality because for common goods such as fresh water unequal access in favour of some very often leads to denial of access for many. Those who can monopolise control of basic services, usually the well-connected, voting urban elite, have an incentive to benefit as much as possible from their monopoly- this results in high prices and unequal access for the rest. The UN concedes that there is more than enough fresh water for the population of the planet.[11] The largest problem is that access is not mandated on an equal basis, such as the inequality between availability in poorer, usually rural areas and wealthier urban areas: in 2015 in South East Asia the poorest fifth of the population was 13 times less likely to have improved sanitation than the rest[12]. This places restrictions on the living standards and productivity on a large portion of the population.

Inequality on a basis of pure income is justifiable in terms of its impact on development: it depends largely on the basis of this inequality and its causes. In a capitalist system of private property and the rule of law, according to Hayek a system of fixed, publically known and impartial rules, inequality is useful in generating development. As outlined in Capitalism and Freedom by Milton Friedman, the distribution of wealth by market forces results in inequality, but the presence of such forces encourages long-term economic growth that improves the quality of life for all people. With such a system unequal wealth is created by personal initiative, through the providing of goods and services at an acceptable price to others. The ‘Invisible Hand’ of Adam Smith has proven to benefit both sides of mutually consensual relationships.

This inequality is beneficial because it alters the incentives of individuals, encouraging them to discover and exploit other ways of providing marketable goods and empowering them to continue do so if they are successful. The richest man on Earth, Jeff Bezos, acquired his wealth through the creation of an internet marketplace which facilitates easier shopping, allows for lower prices and ultimately benefits consumers in a unique way. The factor of competition encourages the wealthy to constantly improve the services they offer, in theory benefiting all. Economic growth, greater access to goods, less unemployment and higher tax revenue are results of the incentives of inequality. All these fuel the engine of development. In developing countries undergoing rapid economic growth such as Vietnam, inequality has similarly risen[13], but the economic condition of society as a whole has benefited: according to the World Bank, poverty rates have fallen from 60% in the early 1990s to 20.7% in 2010, a remarkable change.  [14]

It is only a fair society which successfully regulates externalities, such as the poisoning of the local environment, in which that inequality is as beneficial as possible: in China pollution from rural factories which seeps into rivers has resulted in surges in cancer rates in nearby communities[15]. The unequal representation before the law in societies where mechanisms such as bribes are common means that the health of human communities and the environment can easily be threatened. Other regulations, such as an inheritance tax which limits the wealth an individual can achieve without work that benefits others, and antitrust laws, which prevent companies from using their privileged position to exploit consumers, ensure that inequality does not compromise development economically. In other words, if unequal wealth is accrued to pillage or position in the social and ethnic hierarchy, it is unambiguously contrary to development. If it is acquired through the market, it has the potential to drive entire countries out of poverty.

The problem with stratification of wealth is that in many cases, both authoritarian and democratic, this results in a similar stratification of political power. This happens for several reasons. Firstly, a number of authoritarian and democratic countries are corrupt in the purest sense of the word, where politicians and enforcers at every level take bribes from and are controlled by the wealthy. We note the example of Brazil, which is still reeling from a massive corruption scandal in 2017 in which it was discovered that the conglomerate Odebrecht paid around $800 million in bribes across Latin America. It is the concentration of wealth in the hands of the few which makes illicit, massive transactions such as these easy to conceal. Often in democratic societies the upper classes can monopolise control of mass media, as laid out by Noam Chomsky and Edward Hermann in the work Manufacturing Consent. We consider the fact that 6 corporations and the billionaires who own them control 90% of American media.[16] This inequality in control over public sources of information allow wealthy individuals to shift public opinion by framing issues in certain ways, influencing government policy. Finally, concentrations of wealth allow a few individuals to disproportionately contribute campaign donations, allowing them to skew the democratic process in their favour.

Ultimately, it is generally agreed that the state plays an important role in ensuring development: through its control of interest rates, taxation, regulation and foreign policy it can manage economic growth, local infrastructure and the global political climate to vastly impact where development happens and to what extent. If the state does not represent all its people equally, usually as a result of the concentration of political power in the hands of the wealthy, development is compromised for several reasons. Firstly, programs intended at encouraged and carrying out development are hampered or prevented. Whilst the richest of society have some interest in ensuring infrastructure is developed in their home country, they also have an incentive to use their influence to keep taxation and therefore government spending on development as low as possible. Furthermore, unequal representation in government results in the aforementioned problems: faulty regulations, unequal access to basic government services and corruption. The circumvention of measures such as environmental protection, such as the situation in Indonesia where forestry officials allow beyond the legal logging quota in exchange for bribes[17] makes economic development unsustainable. This means that it cannot continue in the long term without significant changes or sacrifices.

Finally, inequality in some societies can potentially harm social cohesion. In the United States the percentage who believes there is a “strong” or “very strong” conflict between the rich and the poor has risen from 47% in 2009 to 66% today. [18] Especially if an unfair economic system prevails, inequality appears to many to be the result of injustice, resulting in civil disobedience and unrest when exclusionary class systems based off inheritance, or in some societies race, form. We can see this recently in Chile, where violent protests have erupted against its neoliberal administration, with economic inequality being one of the main causes of the violence.[19]

Milton Friedman wrote “A society that puts equality before freedom will get neither.” Whilst income inequality is stigmatised and attack by the media, popular culture and international organisations, under the right liberal conditions it has been responsible for a large amount of global development since the Industrial Revolution. Economic inequality, whilst it inherently holds some problems, can more seriously compromise development when such inequality can translate to influence in the halls of government. With certain prerequisite measures and regulations, inequality can be harnessed for the common good. What is necessary is the rule of law, government transparency, equal representation regardless of race or gender and a system in which one can only achieve self-benefit through benefiting others.


[1] https://research.un.org/en/docs/dev

[2] https://dictionary.cambridge.org/dictionary/english/inequality

[3] https://www.oxfam.org.uk/media-centre/press-releases/2017/01/eight-people-own-same-wealth-as-half-the-world

[4] United Nations, (1987) Our Common Future – Brundtland Report

[5] https://www.unicef.org/mena/education

[6] https://psmag.com/education/nonwhite-school-districts-get-23-billion-less-funding-than-white-ones

[7] https://www.worldbank.org/en/topic/gender/overview

[8] http://www.oecd.org/employment/50423364.pdf

[9] http://scholar.harvard.edu/files/pager/files/pager_ajs.pdf

[10] https://www.investopedia.com/terms/i/income-inequality.asp

[11] https://www.un.org/waterforlifedecade/scarcity.shtml

[12] UNICEF (2010) Narrowing the gaps to meet the goals

[13] http://vietnamnews.vn/society/349627/inequality-on-the-rise-in-viet-nam.html

[14] http://www.worldbank.org/en/news/feature/2013/01/24/poverty-reduction-in-vietnam-remarkable-progress-emerging-challenges

[15] https://www.theguardian.com/environment/2010/jun/07/china-cancer-villages-industrial-pollutionx

[16] https://www.businessinsider.com/these-6-corporations-control-90-of-the-media-in-america-2012-6?r=US&IR=T

[17]https://www.researchgate.net/publication/228303311_Corruption_in_Developing_Countries

[18] http://www.pewsocialtrends.org/files/2012/01/Rich-vs-Poor.pdf

[19] https://www.bbc.co.uk/news/world-latin-america-50119649

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