The Risks of Growing Income Inequality
By Esther Pan Sloane, Guest Contributor / September 7th, 2021
Esther Pan Sloane, a U.S. national, joined UNCDF as the Head of the Partnerships, Policy and Communications in October 2016.
Prior to joining UNCDF, Esther was a U.S. diplomat for 10 years. As Adviser at the Permanent Mission of the United States to the United Nations in New York, she was on the U.S. team that negotiated the 2030 Agenda and the Sustainable Development Goals. She also served on the Executive Boards of UNDP, UNICEF, UNOPS, and UNFPA, pushing the agencies to become more efficient, effective, and accountable for results.
Esther previously served as a U.S. diplomat in China and the United Kingdom, as well as at the State Department Operations Center in Washington.
Prior to joining the U.S. Foreign Service, Esther worked as a journalist in print, radio, and magazines. Esther graduated from Stanford University with a BA with honors in English and International Relations and earned an MA in Theater and Performance from the University of Cape Town, which she attended on a Fulbright Fellowship.
The global distribution of wealth has become increasingly unequal. In the United States, the income gap between the rich and everyone else has grown steadily for more than 30 years. America’s top 10 percent now earn more than nine times as much income as the bottom 90 percent on average, according to UC Berkeley economist Emmanuel Saez. The top 1% earn even more, averaging over 39 times more than the bottom 90 percent. And the very top 0.1 percent takes in more than 196 times the income of the bottom 90 percent.
Worldwide, the picture is not better. In 2020, according to the United Nations, the average income of people living in the European Union was 11 times higher than that of people in sub-Saharan Africa; the income of people in Northern America was 16 times higher than that of sub-Saharan Africans. “The distinction between relative and absolute inequality is not merely of academic interest,” according to the World Social Report 2020. “People perceive and experience absolute inequalities in their daily lives, in terms of living conditions and well-being.”
Income inequality threatens health and well-being as well as societal stability. A recent study by Frank Elgar of McGill University and colleagues examined 84 countries and found that a 1% increase in the Gini coefficient, a statistical measure of economic inequality in a population, was associated with a .67 increase in the mortality rate from Covid. “The results indicate that societies that are more economically unequal and lack capacity in some dimensions of social capital experienced more COVID-19 deaths,” the study states.
The Covid 19 pandemic and attendant lockdowns have only exacerbated the trends. Since March 2020, the formal beginning of the pandemic lockdown, the combined wealth of 713 U.S. billionaires has surged by $1.8 trillion, a gain of almost 60 %. The total combined wealth of U.S. billionaires increased from $2.9 trillion on March 18, 2020 to $4.7 trillion on July 9, 2021.
At the same time, an estimated 270 million people are expected to face potentially life-threatening food shortages this year compared to 150 million before the pandemic, according to the United Nations World Food Programme. The number of people on the brink of famine, the most severe phase of a hunger crisis, jumped to 41 million people from 34 million last year, the analysis showed.
So what can your average investor do in the face of these trends?
Plenty. Start by assessing where your money sits and what it is doing. Is it in an index fund? Pension plan? 501(c)3? What are those instruments invested in? Do you agree with the management priorities, sector concentrations and human resources policies of the companies you own? If not, move your money. The Environmental, Social and Governance (ESG) movement has grown exponentially over the last few years. Funds invested, according to ESG criteria, are on track to reach $53 trillion, or one-third of global assets under management by 2025. Investors now have more options than ever to make their money reflect their values.
The United Nations Capital Development Fund (UNCDF), the UN agency that uses finance to fight poverty in the world’s poorest countries, is working to help combat inequality by attracting much-needed investment finance to the 46 Least Developed Countries (LDCs). UNCDF created an exchange traded fund on the New York Stock Exchange, SDGA, that rewards companies creating positive economic impact in the LDCs.
UNCDF also established a blended finance fund with Bamboo Capital Partners that makes debt and equity investments into small and medium enterprises in the LDCs. Later this year we will launch a climate ETF and a municipal infrastructure fund to help developing countries tap the capital markets to build the climate resilient infrastructure they need.
The LDCs have an income of less than $1,000 per capita. Their governments have limited capacities and resources to fight the pandemic or address its economic shocks. They are the most vulnerable to climate change impacts, despite doing the least to contribute to global warming. They are “structurally” vulnerable to climate risks, declines in foreign direct investment, loss of biodiversity, and declines in commodity prices that damage their hard currency reserves.
As global citizens, we must ask ourselves if we can condone the massive inequality – and attendant misery, social instability, and health risks— we see around us. If you want to make a difference, start by examining where and what your money is doing.