Inequality

We can address it if we choose to.

Photo by Elyse Chia on Unsplash

I wrote a little paper on the topic of income inequality for a firm I work with, ED4S that does sustainability education for financial firms and companies.

We thought these investors and companies should know more about income inequality and how to help alleviate the problem, so we decided to write this paper. Take a gander here if you are interested.

Here are some of the highlights:

A 2020 study by the RAND Corporation put the first-ever price tag on how much income inequality costs American workers today. The bill is estimated to be about $50 trillion. According to the study, $50 trillion has been diverted from working Americans to the wealthiest 1% since 1975.

Inequality is not only a problem in the United States. Statistics show that as of the writing of this report, inequality in Canada has never been higher. The gap in the share of disposable income between the richest two-fifths of Canadians and the bottom two-fifths grew to 47 percentage points in 2024 according to Statistics Canada. That is the widest gap recorded since 1999, when Statistics Canada first started collecting such data.

In Europe, four out of five EU citizens perceive inequality is too high in their country, a proportion that has remained fairly stable since 2017. On average in the EU, income inequality levels are broadly back to those from before the double-dip recession of 2009 and 2012.

Today, there seems to be a consensus that the current level of global equality is not properly balanced. The below chart from Credit Suisse in 2021 shows that just over 1 percent of the global population in the world-controlled half of the world’s wealth.

Historical Context.

Our history and the history of those who came before us echo through today’s society. One classic case is slavery and the Jim Crow era in the United States. The United States famously declared its independence from England in 1776. However, freedom from the tyranny of the English was not granted to slaves at that time. Even after the emancipation of American slaves in the late 19th century, Jim Crow policies and practices in the United States treated African Americans as second-class citizens. It wasn’t until the Civil Rights Act of 1964 that African Americans enjoyed the same rights as all Americans under the law. Societies do not change overnight. In the case of the United States, the time before the Civil Rights Act of 1964 deprived most African-Americans of building wealth through investing and homeownership due to redlining and other Jim Crow-era policies.

As of 2024 the median wealth ($24,520) of African-American households in the US was about one-tenth the median wealth of households with a white householder ($250,400).

Sitaraman's book, The Crisis of the Middle-Class Constitution: Why Economic Inequality Threatens Our Republic, addressed this issue in the modern context.

Sitaraman argues that democracy can’t survive pronounced levels of economic inequality. His conclusions echo those of Aristotle. He found that if you have a deeply unequal society, the rich will try to control the government, and undermine democracy. Sometimes this results in a revolt of the poor, which can of course be violent like the French revolution, or the poor can coalesce behind a populist leader that can become a tyrant, who claims to serve the poor, but consolidates his power as a tyrannical head of a police state.

According to Sitaraman, a large and thriving middle class is needed to make a democracy stable. A large middle class often forms a bulwark against the attempts of the ruling class from gaining too much power and influence. Of course, if the middle class of a nation is largely hollowed out, then that bulwark is not as strong.

What can be done?

Policymakers have a powerful tool to measure inequality, the Gini coefficient. The Gini coefficient is named after sociologist Corrado Gini, who came up with the measurement. A coefficient of zero means a society of perfect equality, or everyone has the same. A coefficient of 1 represents maximum inequality, or a society in which one person has all the wealth.

To give you an idea of where different countries stand on inequality based on income around the world, the following table is a cross section of Gini coefficients taken from the World Bank Poverty and Inequality Platform in 2024.

Addressing inequality can result in a more vibrant and resilient economy, and a more stable society with increased levels of well-being across a society.

Investors have a pivotal role to play in addressing inequality by adopting systems-level thinking, advocating for fair labor practices, and supporting policies that reduce wealth concentration. Corporations can promote shared success models, such as employee ownership, while policymakers can implement measures such as progressive taxation, universal basic income, and equitable education reform.

The report urges all stakeholders to move beyond short-term thinking and recognize that long-term stability requires a more just and balanced distribution of wealth and opportunity. By fostering inclusive growth, we can create a future where businesses thrive, workers are fairly compensated, and societies are more equitable and sustainable. The time to act is now, and the pathway to progress lies in collaboration, accountability, and a shared commitment to addressing inequality at its root.