Bridging the rich-poor divide

The global gap between the haves and the have-nots has reached new extremes and is still growing, with ruinous effects on economic, political and social well-being. But the continued rise of inequality is not inevitable, and governments can take action to build a fairer economic and political system, insists a new Oxfam report “Even It Up”, the executive summary of which is reproduced below.

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From Ghana to Germany, South Africa to Spain, the gap between rich and poor is rapidly increasing, and economic inequality has reached extreme levels. In South Africa, inequality is greater today than at the end of apartheid.

The consequences are corrosive for everyone. Extreme inequality corrupts politics, hinders economic growth and stifles social mobility. It fuels crime and even violent conflict. It squanders talent, thwarts potential and undermines the foundations of society.

Crucially, the rapid rise of extreme economic inequality is standing in the way of eliminating global poverty. Today, hundreds of millions of people are living without access to clean drinking water and without enough food to feed their families; many are working themselves into the ground just to get by. We can only improve life for the majority if we tackle the extreme concentration of wealth and power in the hands of elites.

Oxfam’s decades of experience in the world’s poorest communities have taught us that poverty and inequality are not inevitable or accidental, but the result of deliberate policy choices. Inequality can be reversed. The world needs concerted action to build a fairer economic and political system that values everyone. The rules and systems that have led to today’s inequality explosion must change. Urgent action is needed to level the playing field by implementing policies that redistribute money and power from wealthy elites to the majority.

Extreme economic inequality has exploded across the world in the last 30 years, making it one of the biggest economic, social and political challenges of our time. Age-old inequalities on the basis of gender, caste, race and religion – injustices in themselves – are exacerbated by the growing gap between the haves and the have-nots.

As Oxfam launches the Even It Up campaign worldwide, we join a diverse groundswell of voices, including billionaires, faith leaders and the heads of institutions, such as the International Monetary Fund (IMF) and the World Bank, as well as trade unions, social movements, women’s organizations and millions of ordinary people across the globe. Together we are demanding that leaders around the world take action to tackle extreme inequality before it is too late.

The growing gap between rich and poor

Trends in income and wealth tell a clear story: the gap between the rich and poor has reached new extremes and is still growing, while power increasingly lies in the hands of elites.

Between 1980 and 2002, inequality between countries rose rapidly, reaching a very high level. It has since fallen slightly due to growth in emerging countries, particularly China. But it is inequality within countries that matters most to people, as the poorest struggle to get by while their neighbours prosper, and this is rising rapidly in the majority of countries. Seven out of 10 people live in countries where the gap between rich and poor is greater than it was 30 years ago. In countries around the world, a wealthy minority are taking an ever-increasing share of their nation’s income.

Worldwide, inequality of individual wealth is even more extreme. At the start of 2014, Oxfam calculated that the richest 85 people on the planet owned as much as the poorest half of humanity. Between March 2013 and March 2014, these 85 people grew $668 million richer each day. If Bill Gates were to cash in all of his wealth and spend $1 million every single day, it would take him 218 years to spend it all. In reality though, he would never run out of money: even a modest return of just under 2% would make him $4.2 million each day in interest alone.

Since the financial crisis, the ranks of the world’s billionaires have more than doubled, swelling to 1,645 people. And extreme wealth is not just a rich-country story. The world’s richest man is Mexico’s Carlos Slim, who knocked Bill Gates off the top spot in July 2014. Today, there are 16 billionaires in sub-Saharan Africa, alongside the 358 million people living in extreme poverty. Absurd levels of wealth exist alongside desperate poverty around the world.

The potential benefit of curbing runaway wealth by even a tiny amount also tells a compelling story. Oxfam has calculated that a tax of just 1.5% on the wealth of the world’s billionaires, if implemented directly after the financial crisis, could have saved 23 million lives in the poorest 49 countries by providing them with money to invest in healthcare. The number of billionaires and their combined wealth has increased so rapidly that in 2014 a tax of 1.5% could fill the annual gaps in funding needed to get every child into school and deliver health services in those poorest countries.

Some inequality is necessary to reward talent, skills and a willingness to innovate and take entrepreneurial risk. However, today’s extremes of economic inequality undermine growth and progress, and fail to invest in the potential of hundreds of millions of people.

Extreme inequality hurts us all

Extreme inequality: A barrier to poverty reduction

The rapid rise of extreme economic inequality is significantly hindering the fight against poverty. New research from Oxfam has shown that in Kenya, Indonesia and India, millions more people could be lifted out of poverty if income inequality were reduced. If India stops inequality from rising, it could end extreme poverty for 90 million people by 2019. If it goes further and reduces inequality by 36%, it could virtually eliminate extreme poverty. The Brookings Institution has also developed scenarios that demonstrate how inequality is preventing poverty eradication at the global level. In a scenario where inequality is reduced, 463 million more people are lifted out of poverty compared with a scenario where inequality increases.

Income distribution within a country has a significant impact on the life chances of its people. Bangladesh and Nigeria, for instance, have similar average incomes. Nigeria is only slightly richer, but it is far less equal. The result is that a child born in Nigeria is three times more likely to die before their fifth birthday than a child born in Bangladesh.

Leaders around the world are debating new global goals to end extreme poverty by 2030. But unless they set a goal to tackle economic inequality they cannot succeed – and countless lives will be lost.

Extreme inequality undermines economic growth that helps the many

There is a commonly held assumption that tackling inequality will damage economic growth. In fact, a strong body of recent evidence shows extremes of inequality are bad for growth. In countries with extreme economic inequality, growth does not last as long and future growth is undermined. IMF economists have recently documented how economic inequality helped to cause the global financial crisis. The “growth” case against tackling economic inequality clearly no longer holds water.

Extreme inequality also diminishes the poverty-reducing impact of growth. In many countries, economic growth already amounts to a “winner takes all” windfall for the wealthiest in society. For example, in Zambia, GDP per capita growth averaged 3% every year between 2004 and 2013, pushing Zambia into the World Bank’s lower-middle-income category. Despite this growth, the number of people living below the $1.25 poverty line grew from 65% in 2003 to 74% in 2010. Research by Oxfam and the World Bank suggests that inequality is the missing link explaining how the same rate of growth can lead to different rates of poverty reduction.

Economic inequality compounds inequalities between women and men

One of the most pervasive – and oldest – forms of inequality is that between men and women. There is a very strong link between gender inequality and economic inequality.

Men are over-represented at the top of the income ladder and hold more positions of power as ministers and business leaders. Only 23 chief executives of Fortune 500 companies and only three of the 30 richest people in the world are women. Meanwhile, women make up the vast majority of the lowest-paid workers and those in the most precarious jobs. In Bangladesh, for instance, women account for almost 85% of workers in the garment industry. These jobs, while often better for women than subsistence farming, offer minimal job security or physical safety: most of those killed by the collapse of the Rana Plaza garment factory in April 2013 were women.

Studies show that in more economically unequal societies, fewer women complete higher education, fewer women are represented in the legislature, and the pay gap between women and men is wider. The recent rapid rise in economic inequality in most countries is, therefore, a serious blow to efforts to achieve gender equality.

Economic inequality drives inequalities in health, education and life chances

Gender, caste, race, religion, ethnicity and a range of the other identities that are ascribed to people from birth also play a significant role in creating the division between the haves and the have-nots. In Mexico, the maternal mortality rate for indigenous women is six times the national average and is as high as that in many countries in Africa. In Australia, Aboriginal and Torres Strait Islander peoples are disproportionately affected by poverty, unemployment, chronic illness and disability; they are more likely to die young and to spend time in prison.

Economic inequality also leads to huge differences in life chances: the poorest people have the odds stacked against them in terms of education and life expectancy. The latest national Demographic and Health Surveys demonstrate how poverty interacts with economic and other inequalities to create “traps of disadvantage” that push the poorest and most marginalized people to the bottom – and keep them there.

The poorest 20% of Ethiopians are three times more likely to miss out on school than the wealthiest 20%. When we consider the impact of gender inequality alongside urban/rural economic inequality, a much greater wedge is driven between the haves and the have-nots. The poorest rural women are almost six times more likely than the richest urban men to never attend school. Without a deliberate effort to address this injustice, the same will be true for their daughters and granddaughters.

Condemned to stay poor for generations

Many feel that some economic inequality is acceptable as long as those who study and work hard are able to succeed and become richer. This idea is deeply entrenched in popular narratives and reinforced through dozens of Hollywood films, whose rags-to-riches stories continue to feed the myth of the American Dream around the world. However, in countries with extreme inequality, the reality is that the children of the rich will largely replace their parents in the economic hierarchy, as will the children of those living in poverty – regardless of their potential or how hard they work.

Researchers have shown that, across the 21 countries for which there is data, there is a strong correlation between extreme inequality and low social mobility. If you are born poor in a highly unequal country, you will most probably die poor, and your children and grandchildren will be poor too. In Pakistan, for instance, a boy born in a rural area to a father from the poorest 20% of the population has only a 1.9% chance of ever moving to the richest 20%. In the US, nearly half of all children born to low-income parents will become low-income adults.

Around the world, inequality is making a mockery of the hopes and ambitions of billions of the poorest people. Without policy interventions in the interests of the many, this cascade of privilege and disadvantage will continue for generations.

Inequality threatens society

For the third year running, the World Economic Forum’s Global Risks survey has found “severe income disparity” to be one of the top global risks for the coming decade. A growing body of evidence has also demonstrated that economic inequality is associated with a range of health and social problems, including mental illness and violent crime. This is true across rich and poor countries alike, and has negative consequences for the richest as well as the poorest people. Inequality hurts everyone.

Homicide rates are almost four times higher in countries with extreme economic inequality than in more equal nations. Latin America – the most unequal and insecure region in the world – starkly illustrates this trend. It has 41 of the world’s 50 most dangerous cities, and saw a million murders take place between 2000 and 2010. Unequal countries are dangerous places to live in.

Many of the most unequal countries are also affected by conflict or instability. Alongside a host of political factors, Syria’s hidden instability before 2011 was, in part, driven by rising inequality, as falling government subsidies and reduced public sector employment affected some groups more than others.

While living in an unequal country is clearly bad for everyone, the poorest people suffer most. They receive little protection from the police or legal systems, often live in vulnerable housing, and cannot afford to pay for private security measures. When disasters strike, those who lack wealth and power are worst affected and find it most difficult to recover.

The equality instinct

Evidence shows that, when tested, people instinctively feel that there is something wrong with high levels of inequality.

Experimental research has shown just how important fairness is to most individuals, contrary to the prevailing assumption that people have an inherent tendency to pursue self-interest. A 2013 survey in six countries (Spain, Brazil, India, South Africa, the UK and the US) showed that a majority of people believe the gap between the wealthiest people and the rest of society is too large. In the US, 92% of people surveyed indicated a preference for greater economic equality, by choosing an ideal income distribution the same as Sweden’s and rejecting one that represented the reality in the US.

Across the world, religion, literature, folklore and philosophy show remarkable confluence in their concern that an extreme gap between rich and poor is inherently unfair and morally wrong. This concern is prevalent across different cultures and societies, suggesting a fundamental human preference for fairness and equality.

What has caused the inequality explosion?

Many believe that inequality is somehow inevitable, or is a necessary consequence of globalization and technological progress. But the experiences of different countries throughout history have shown that, in fact, deliberate political and economic choices can lead to greater inequality. There are two powerful economic and political drivers of inequality, which go a long way to explaining the extremes seen today: market fundamentalism and the capture of power by economic elites.

Market fundamentalism: A recipe for today’s inequality

Over the last 300 years, the market economy has brought prosperity and a dignified life to hundreds of millions of people across Europe, North America and East Asia. However, as economist Thomas Piketty demonstrated in Capital in the Twenty-First Century, without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise.

Despite this, in recent years economic thinking has been dominated by a “market fundamentalist” approach which insists that sustained economic growth only comes from reducing government interventions and leaving markets to their own devices. However, this undermines the regulation and taxation that are needed to keep inequality in check.

There are clear lessons to be learnt from recent history. In the 1980s and 1990s, debt crises saw countries in Latin America, Africa, Asia and the former Eastern bloc subjected to a cold shower of deregulation, rapid reductions in public spending, privatization, financial and trade liberalization, generous tax cuts for corporations and the wealthy, and a “race to the bottom” to weaken labour rights. Inequality rose as a result. By 2000, inequality in Latin America had reached an all-time high, with most countries in the region registering an increase in income inequality over the previous two decades. It is estimated that half of the increase in poverty over this period was due to redistribution of wealth in favour of the richest. In Russia, income inequality almost doubled in the 20 years from 1991, after economic reforms focused on liberalization and deregulation.

Women are worst affected by market fundamentalist policies. They lose out most when labour regulations are watered down – for instance, through the removal of paid maternity leave and holiday entitlements – or when state services are eroded, adding to their already higher burden of unpaid care. And, because women and children disproportionately benefit from public services like healthcare or free education, they are hit hardest when these are cut back.

Despite the fact that market fundamentalism played a strong role in causing the recent global economic crisis, it remains the dominant ideological worldview and continues to drive inequality. It has been central to the conditions imposed on indebted European countries, forcing them to deregulate, privatize and cut their welfare provision for the poorest, while reducing taxes on the rich. There will be no cure for inequality while countries are forced to swallow this medicine.

Capture of power and politics by elites has fuelled inequality

The influence and interests of economic and political elites have long reinforced inequality. Money buys political clout, which the richest and most powerful use to further entrench their unfair advantages. Access to justice is also often for sale, legally or illegally, with court costs and access to the best lawyers ensuring impunity for the powerful. The results are evident in today’s lopsided tax policies and lax regulatory regimes, which rob countries of vital revenue for public services, encourage corrupt practices and weaken the capacity of governments to fight poverty and inequality.

Elites, in rich and poor countries alike, use their heightened political influence to curry government favours – including tax exemptions, sweetheart contracts, land concessions and subsidies – while blocking policies that strengthen the rights of the many. In Pakistan, the average net worth of parliamentarians is $900,000, yet few of them pay any taxes. This undermines investment in sectors, such as education, healthcare and small-scale agriculture, which can play a vital role in reducing inequality and poverty.

The massive lobbying power of rich corporations to bend the rules in their favour has increased the concentration of power and money in the hands of the few. Financial institutions spend more than €120 million per year on armies of lobbyists to influence European Union policies in their interests.

Many of the richest people made their fortunes thanks to the exclusive government concessions and privatization that come with market fundamentalism. Privatization in Russia and Ukraine after the fall of communism turned political insiders into billionaires overnight. Carlos Slim made his many billions by securing exclusive rights over Mexico’s telecom sector when it was privatized in the 1990s.

Market fundamentalism and political capture have worsened economic inequality, and undermined the rules and regulations that give the poorest, the most marginalized and women and girls a fair chance.

What can be done to end extreme inequality?

The continued rise of economic inequality around the world today is not inevitable – it is the result of deliberate policy choices. Governments can start to reduce inequality by rejecting market fundamentalism, opposing the special interests of powerful elites, changing the rules and systems that have led to today’s inequality explosion, and taking action to level the playing field by implementing policies that redistribute money and power.

Working our way to a more equal world

The low road: Working to stand still

Income from work determines most people’s economic status and their future chances. But the vast majority of the world’s poorest people cannot escape poverty no matter how hard they work, and far too many suffer the indignity of poverty wages. Meanwhile, the richest people have high and rapidly rising salaries and bonuses, as well as significant income from their accumulated wealth and capital. This is a recipe for accelerating economic inequality.

Since 1990, income from labour has made up a declining share of GDP across low-, middle- and high-income countries alike. Around the world, ordinary workers are taking home an ever-dwindling slice of the pie, while those at the top take more and more.

In 2014, the UK’s top 100 executives took home 131 times as much as their average employee, yet only 15 of these companies have committed to paying their employees a living wage. In South Africa, a platinum miner would need to work for 93 years just to earn the average CEO’s annual bonus. Meanwhile, the International Trade Union Confederation estimates that 40% of workers are trapped in the informal sector, where there are no minimum wages and workers’ rights are ignored.

Oxfam research found evidence of poverty wages and insecure jobs in middle-income Vietnam, Kenya and India, and below the extreme poverty line in Malawi, despite being within national laws. Living wages are a dream for the vast majority of workers in developing countries. And women are on an even lower road than male workers; at the current rate of decline in the gender pay gap, it will take 75 years to make the principle of equal pay for equal work a reality.

Unions give workers a better chance of earning a fair wage. Collective bargaining by unions typically raises members’ wages by 20% and drives up market wages for everyone. However, many developing countries have never had strong unions and, in some, workers are facing a crackdown on their right to organize.

 The high road: Another way is possible

Some countries are bucking the trend on wages, decent work and labour rights. Brazil’s minimum wage rose by nearly 50% in real terms between 1995 and 2011, contributing to a parallel decline in poverty and inequality. Countries such as Ecuador and China have also deliberately increased wages.

Forward-looking companies and cooperatives are also taking action to limit executive pay. For instance, Brazil’s SEMCO SA employs more than 3,000 workers across a range of industries, and adheres to a wage ratio of 10 to 1. Germany’s Corporate Governance Commission proposed capping executive pay for all German publicly traded companies, admitting that public outrage against excessive executive pay had influenced its proposal.

Taxing and investing to level the playing field

The tax system is one of the most important tools a government has at its disposal to address inequality. Data from 40 countries shows the potential of redistributive taxing and investing by governments to reduce income inequality driven by market conditions.

The low road: The great tax failure

Tax systems in developing countries, where public spending and redistribution is particularly crucial, unfortunately tend to be the most regressive and the furthest from meeting their revenue-raising potential. Oxfam estimates that if low- and middle-income countries – excluding China – closed half of their tax revenue gap, they would gain almost $1 trillion. But due to the disproportionate influence of rich corporations and individuals, and an intentional lack of global coordination and transparency in tax matters, tax systems are failing to tackle poverty and inequality.

The race to the bottom on corporate tax collection is a large part of the problem. Multilateral agencies and financial institutions have encouraged developing countries to offer tax incentives – tax holidays, tax exemptions and free trade zones – to attract foreign direct investment. Such incentives have soared, undermining the tax base in some of the poorest countries. In 2008-09, for instance, the Rwandan government authorized tax exemptions that, if collected, could have doubled health and education spending.

Well-meaning governments around the world are often hamstrung by rigged international tax rules and a lack of coordination. No government alone can prevent corporate giants from taking advantage of the lack of global tax cooperation. Large corporations can employ armies of specialist accountants to minimize their taxes and give them an unfair advantage over small businesses. Multinational corporations (MNCs), like Apple and Starbucks, have been exposed for dodging billions in taxes, leading to unprecedented public pressure for reform.

The richest individuals are also able to take advantage of the same tax loopholes and secrecy. In 2013, Oxfam estimated that the world was losing $156 billion in tax revenue as a result of wealthy individuals hiding their assets in offshore tax havens. Warren Buffet has famously commented on the unfairness of a system that allowed him to pay less tax than his secretary.

Ordinary people in rich and poor countries alike lose out as a result of tax dodging. Yet tax havens are intentionally structured to facilitate this practice, offering secrecy and low tax rates and requiring no actual business activity to register a company or a bank account. A prime example of this blatant tax dodge is Ugland House in the Cayman Islands. Home to 18,857 companies, it famously prompted US President Barack Obama to call it “either the biggest building or the biggest tax scam on record”. Tax havens allow many scams that affect developing countries, such as transfer mispricing (the most frequent form of corporate tax abuse, where companies deliberately over-price imports or under-price exports of goods and services between their subsidiaries), which causes Bangladesh to lose $310 million in corporate taxes each year. This is enough to pay for almost 20% of the primary education budget in a country that has only one teacher for every 75 primary school-aged children.

The high road: Hope for a fairer future

Some countries are taking the high road and adopting tax policies that tackle inequality. Following the election of a new president in Senegal in 2012, the country adopted a new tax code to raise money from rich individuals and companies to pay for public services.

International consensus is also shifting. Despite the limitations of the ongoing Base Erosion and Profit Shifting process, the fact that the G8, G20 and OECD took up this agenda in 2013 demonstrates a clear consensus that the tax system is in need of radical reform. The IMF is reconsidering how MNCs are taxed and, in a recent report, has recognized the need to shift the tax base towards developing countries. It is also considering “worldwide unitary taxation” as an alternative to ensure that companies pay tax where economic activity takes place. OECD, G20, US and EU processes are making progress on transparency and global automatic exchange of tax information between countries, which will help lift the veil of secrecy that facilitates tax dodging.

Ten EU countries have also agreed to work together to put a financial transaction tax in place, which could raise up to €37 billion per year. Wealth taxes are under discussion in some countries, and the debate about a global wealth tax has been given new life through Thomas Piketty’s recommendations in Capital in the Twenty-First Century, which gained widespread public and political attention.

Oxfam has calculated that a tax of 1.5% on the wealth of the world’s billionaires today could raise $74 billion. This would be enough to fill the annual gaps in funding needed to get every child into school and deliver health services in the poorest 49 countries.

Nevertheless, the vested interests opposing reform are very powerful. There is a real risk that the gaps in global tax governance will not be closed, leaving the richest companies and individuals free to continue exploiting loopholes to avoid paying their fair share.

Health and education: Strong weapons in the fight against inequality

Providing clinics and classrooms, medics and medicines, can help to close the gap in life chances and give people the tools to challenge the rules that perpetuate economic inequality. Free public healthcare and education are not only human rights; they also mitigate the worst impacts of today’s skewed income and wealth distribution.

Between 2000 and 2007, the “virtual income” provided by public services reduced income inequality by an average of 20% across OECD countries. In five Latin American countries (Argentina, Bolivia, Brazil, Mexico and Uruguay), virtual income from healthcare and education alone has reduced inequality by between 10% and 20%. Education has played a key role in reducing inequality in Brazil and has helped maintain low levels of income inequality in South Korea.

The low road: Fees, privatization and medicines for the few

The domination of special interests and bad policy choices – especially user fees for healthcare and education, and the privatization of public services – can increase inequality. Unfortunately, too many countries are suffering as a result of these “low road” policies.

When public services are not free at the point of use, millions of ordinary women and men are excluded from accessing healthcare and education. User fees were encouraged for many years by the World Bank, a mistake its president now says was ideologically driven. Yet, despite the damage they do, user fees persist. Every year, 100 million people worldwide are pushed into poverty because they have to pay out-of-pocket for healthcare. In Ghana, the poorest families will use 40% of their household income sending just one of their children to an Omega low-fee school. Women and girls suffer most when fees are charged for public services.

Significant amounts of money that could be invested in service provision that tackles inequality are being diverted by tax breaks and public-private partnerships (PPPs). In India, numerous private hospitals have been given tax incentives to provide free treatment to poor patients, but have failed to honour their side of the bargain. Lesotho’s Queen Mamohato Memorial Hospital in the capital city Maseru operates under a PPP that currently costs half of the total government health budget, with costs projected to increase. This is starving the budgets of health services in rural areas that are used by the poorest people, further widening the gap between rich and poor.

Despite the evidence that it increases inequality, rich-country governments and donor agencies, such as the UK, the US and the World Bank, are pushing for greater private sector involvement in service delivery. The private sector is out of reach and irrelevant to the poorest people, and can also undermine wealthy people’s support for public services by creating a two-tier system in which they can opt out of public services and therefore are reluctant to fund these through taxation. In three Asian countries that have achieved or are close to achieving universal health coverage (UHC) – Sri Lanka, Malaysia and Hong Kong – the poorest people make almost no use of private health services. Private services benefit the richest rather than those most in need, thus increasing economic inequality.

International rules also undermine domestic policy. Intellectual property clauses in current international trade and investment agreements are driving up the cost of medicines so that only the richest can afford treatment. The 180 million people infected with Hepatitis C are suffering the consequences, as neither patients nor governments in developing countries can afford the $1,000-per-day bill for medicine that these rules result in.

The high road: Reclaiming the public interest

There are, however, good examples from around the world of how expanding public services are helping to reduce inequality.

The growing momentum around UHC has the potential to improve access to healthcare and drive down inequality. World Bank President Jim Yong Kim has been unequivocal that UHC is critical to fighting inequality, saying it is “central to reaching the [World Bank] global goals to end extreme poverty by 2030 and boost shared prosperity”. Emerging economies, such as China, Thailand, South Africa and Mexico, are rapidly scaling up public investment in healthcare, and many low-income countries have driven down inequality by introducing free healthcare policies and financing them from general taxation. Thailand’s universal coverage scheme halved the amount of money that the poorest people spent on healthcare costs within the first year, as well as cutting infant and maternal mortality rates.

There have also been victories over moves by major pharmaceutical companies to block access to affordable medicines. Leukaemia patients can now take generic versions of cancer treatment Glivec/Gleevec for only $175 per month – nearly 15 times less than the $2,600 charged by Novartis – thanks to the Indian Supreme Court’s rejection of an application to patent the drug.

Since the Education For All movement and the adoption of the Millennium Development Goals in 2000, the world has seen impressive progress in primary education, with tens of millions of poor children going to school for the first time. In Uganda, enrolment rose by 73% in just one year – from 3.1 million to 5.3 million – following the abolition of school fees.

Improving the quality of education through adequate investment in trained teachers, facilities and materials is now critical to capitalize on these promising moves, as are policies to reach the most marginalized children who risk missing out. While there is much more to be done, there are some examples of progress. For example, Brazil has championed reforms that increase access to quality education and allocate more spending to poor children, often in indigenous and black communities, which has helped to reduce inequality of access since the mid-1990s. As a result, the average number of years spent in school by the poorest 20% of children has doubled from four years to eight years.

Taxation and long-term predictable aid are crucial to enabling the poorest countries to scale up investment in inequality-busting healthcare and education services. They can also help to tackle political capture that concentrates wealth in the hands of elites. In Rwanda, for example, budget support has enabled the government to remove education fees and treat more people with HIV and AIDS. The US is seeking to target aid to district councils in poor areas of Ghana and to support farmers to hold policy makers accountable.

Freedom from fear

Social protection provides money or in-kind benefits, such as child benefits, old-age pensions and unemployment protection, which allow people to live dignified lives free from fear even in the worst times. Such safety nets are the mark of a caring society that is willing to come together to support the most vulnerable. Like healthcare and education, social protection puts income into the pockets of those who need it most, counteracting today’s skewed income distribution and mitigating the effects of inequality.

However, recent figures show that more than 70% of the world population is at risk of falling through the cracks because they are not adequately covered by social protection. Even in the poorest countries, the evidence suggests that basic levels of social protection are affordable. Countries like Brazil and China have per capita incomes similar to Europe’s after the Second World War, when their universal welfare systems were created. Universal social protection is needed to ensure that nobody is left behind or penalized because they have not climbed high enough up the economic ladder.

Achieving economic equality for women

The wrong economic choices can hit women hardest, and failure to consider women and girls in policy making can lead governments to inadvertently reinforce gender inequality.

In China, for instance, successful efforts to create new jobs for women were undermined by cutbacks in state and employer support for child care and elderly care, which increased the burden of women’s unpaid work. According to research conducted on the impact of austerity in Europe, mothers of young children were less likely to be employed after the financial crisis, and more likely to attribute their lack of employment to cuts to care services. A recent study in Ghana also found that indirect taxes on kerosene, which is used for cooking in low-income households, are paid mostly by women.

Many of the policies that reduce economic inequality, such as free public services or a minimum wage, also reduce gender inequality. In South Africa, a new child-support grant for the primary caregivers of young children from poor households is better than previous measures at reaching poor, black and rural women because the government gave careful consideration to the policy’s impact on women and men. In Quebec, increased state subsidies for child care have helped an estimated 70,000 more mothers to get into work, with the resulting increased tax revenue more than covering the cost of the programme. Governments must implement economic policies aimed at closing the gap between women and men, as well as between rich and poor.

People power: Taking on the 1%

To successfully combat runaway economic inequality, governments must be forced to listen to the people, not the plutocrats. As history has shown, this requires mass public mobilization. The good news is that despite the dominance of political influence by wealthy elites and the repression of citizens in many countries, people around the world are demanding change. The majority of the hundreds of thousands who took to the streets in recent protests were frustrated by a lack of services and a lack of voice, and opinion polls confirm this feeling of discontent around the world.

In Chile, the most unequal country in the OECD, mass demonstrations in 2011 were initially sparked by discontent over the cost of education, and grew to encompass concerns about deep divisions of wealth and the influence of big business. A coalition of students and trade unions mobilized 600,000 people in a two-day strike demanding reform. Elections at the end of 2013 brought in a new government that included key members of the protest movement committed to reducing inequality and reforming public education.

In early 2010, a series of popular protests against the proposed mass bailout of Iceland’s three main commercial banks forced the newly elected government – who had pledged to shield low- and middle-income groups from the worst effects of the financial crisis – to hold a referendum on the decision. Ninety-three percent of Icelanders rejected a proposal that the people, rather than the banks, should pay for the bankruptcy. This led to crowd-sourcing of a new constitution that was approved in 2012, with new provisions on equality, freedom of information, the right to hold a referendum, the environment and public ownership of land.

History shows that the stranglehold of elites can be broken by the actions of ordinary people and the widespread demand for progressive policies.

Time to act to end extreme inequality

Today’s extremes of inequality are bad for everyone. For the poorest people in society, whether they live in sub-Saharan Africa or the richest country in the world, the opportunity to emerge from poverty and live a dignified life is fundamentally blocked by extreme inequality.

Oxfam is calling for concerted action to build a fairer economic and political system that values every citizen. Governments, institutions and corporations have a responsibility to tackle extreme inequality. They must address the factors that have led to today’s inequality explosion, and implement policies that redistribute money and power from the few to the many.

1) Make governments work for citizens and tackle extreme inequality

Public interest and tackling extreme inequality should be the guiding principle of all global agreements and national policies and strategies. It must go hand in hand with effective governance that represents the will of the people rather than the interests of big business.

Specific commitments must include: agreement of a post-2015 goal to eradicate extreme inequality by 2030; national inequality commissions; public disclosure of lobbying activities; freedom of expression and a free press.

2) Promote women’s economic equality and women’s rights

Economic policy must tackle economic inequality and gender discrimination together.

Specific commitments must include: compensation for unpaid care; an end to the gender pay gap; equal inheritance and land rights for women; data collection to assess how women and girls are affected by economic policy.

3) Pay workers a living wage and close the gap with skyrocketing executive reward

Corporations are earning record profits worldwide and executive rewards are skyrocketing, whilst too many people lack a living wage and decent working conditions. This must change.

Specific commitments must include: increasing minimum wages towards living wages; moving towards a highest-to-median pay ratio of 20:1; transparency on pay ratios; protection of workers’ rights to unionize and strike.

4) Share the tax burden fairly to level the playing field

Too much wealth is concentrated in the hands of the few. The tax burden is falling on ordinary people, while the richest companies and individuals pay too little. Governments must act together to correct this imbalance.

Specific commitments must include: shifting the tax burden away from labour and consumption and towards wealth, capital and income from these assets; transparency on tax incentives; national wealth taxes and exploration of a global wealth tax.

5) Close international tax loopholes and fill holes in tax governance

Today’s economic system is set up to facilitate tax dodging by multinationals and wealthy individuals. Until the rules are changed and there is a fairer global governance of tax matters, tax dodging will continue to drain public budgets and undermine the ability of governments to tackle inequality.

Specific commitments must include: a reform process where developing countries participate on an equal footing, and a new global governance body for tax matters; public country-by-country reporting; public registries of beneficial ownership; multilateral automatic exchange of tax information including with developing countries that can’t reciprocate; stopping the use of tax havens, including through a blacklist and sanctions; making companies pay based on their real economic activity.

6) Achieve universal free public services by 2020

Health and education can help to close the gap between the haves and have-nots, but under-spending, privatization and user fees as well as international rules are standing in the way of this progress and must be tackled.

Specific commitments must include: removal of user fees; meeting spending commitments; stopping new and reviewing existing public subsidies for health and education provision by private for-profit companies; excluding public services and medicines from trade and investment agreements.

7) Change the global system for research and development (R&D) and pricing of medicines so everyone has access to appropriate and affordable medicines

Relying on intellectual property as the only stimulus for R&D gives big pharmaceutical companies a monopoly on making and pricing of medicines. This increases the gap between rich and poor and puts lives on the line. The rules must change.

Specific commitments must include: a new global R&D treaty; increased investment in medicines, including in affordable generics; excluding intellectual property rules from trade agreements.

8) Implement a universal social protection floor

Social protection reduces inequality and ensures that there is a safety net for the poorest and most vulnerable people. Such safety nets must be universal and permanent.

Specific commitments must include: universal child and elderly care services; basic income security through universal child benefits, unemployment benefits and pensions.

9) Target development finance at reducing inequality and poverty, and strengthening the compact between citizens and their government

Development finance can help reduce inequality when it is targeted to support government spending on public goods, and can also improve the accountability of governments to their citizens.

Specific commitments must include: increased investment from donors in free public services and domestic resource mobilization; assessing the effectiveness of programmes in terms of how they support citizens to challenge inequality and promote democratic participation.                                         

Oxfam is an international confederation of 17 organizations networked together in more than 90 countries, as part of a global movement for change, to build a future free from the injustice of poverty. The above material, from “Even It Up: Time to End Extreme Inequality” (2014, Executive Summary, pp. 6-23), is reproduced with the permission of Oxfam GB, Oxfam House, John Smith Drive, Cowley, Oxford OX4 2JY, UK (www.oxfam.org.uk). Oxfam GB does not necessarily endorse any text or activities that accompany the material.

Third World Economics, Issue No. 580, 1-15 Nov 2014, pp10-16