Fighting income disparity with some basic FTC recommendations

January 28th, 2014

The Financial Transparency Coalition issues play an important role in the context of global income inequality. By discouraging tax evasion and corruption among the world’s wealthy individuals and corporations, the FTC recommendations could play an important role in alleviating egregious and dangerous income disparity.

When we talk about global inequality, we are usually referring to one of two issues: (1) inequality between nations and regions and (2) inequality between individuals. Inequality between nations usually refers to the huge disparities between the average incomes of people in different countries. The other kind of inequality, that between individuals, refers to the overwhelming disparity of incomes between the world’s richest and the world’s poorest people.

Many of the world’s wealthiest individuals live in rich nations and many of its poorest live in poor nations, but not always. In fact, the world’s current wealthiest individual is Carlos Slim Helu, a telecom mogul from Mexico—the same nation where nearly half of the population lives in poverty, including 11.5 million men, women and children in extreme poverty.  Likewise, Mukesh Ambani, whose net worth totals $21.5 billion, and Prince Alwaleed Bin Talal Alsaud ($20 billion), live in India and Saudi Arabia, respectively.  While neither of these nations is among the poorest in the world, nearly one third of India’s population lives below the poverty line and one quarter of Saudi Arabia’s does.

A recent Oxfam report shows this inequality with striking clarity. According to Oxfam, the world’s richest 85 people hold as much wealth as half of the world’s population. That means that less than 100 people have the same wealth as the poorest 3.5 million people combined.

The causes of income inequality are incredibly complicated and not well-understood. Economists have suggested many different causes, including: differential population growth, the fall of non-oil commodity prices, debt, and technological change.

In many ways, the international financial system is both a driver and consequence of inequality. Rising income inequality creates more individuals with the resources and opportunities to send funds abroad, contributing to increasing concentrations of wealth among wealthy tax evaders.

Meanwhile tax evasion reduces government revenues and compromises governments’ ability to make investments that alleviate poverty. For example, illicit financial flows erode governance, constrain domestic investment and economic activity, and reduce governments’ ability to provide social services, such as healthcare and education.

In turn, high income inequality can undermine social cohesion, foster a lost sense of trust in government, create barriers to social and economic mobility, and result in increased corruption and cronyism. These effects could create feedback loops, thereby perpetuating the cycle.

Income inequality is a problem morally, socially, and economically. For example, the World Economic Forum recently cited “severe income disparity” as one of the most pressing problems the global economy faces today.

Yet largely, while income inequality is an economic problem, its solution is a moral imperative. At the UN Leadership Meeting in Copenhagen last year, Executive Director Anthony Lake described it this way:

“Addressing inequalities is not a choice – it’s a moral and practical necessity. A moral necessity that speaks directly to our conscience…our sense of fairness and justice…our conviction that all people must have a fair opportunity to live full, healthy lives, no matter where they live, no matter what barriers they face. That is their right.”

To effectively deal with these complex issues, we must address them holistically. Reforming the international financial system is an important step on that path.


Written by Ann Hollingshead

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