Do something quickly about the growing inequality in the world, otherwise the consequences for the earth will be great. That is the message of more than two hundred economists, including well-known names such as Joseph Stiglitz, in one open letter published Monday night to the head of the World Bank, Ajay Banga, and to the Secretary-General of the United Nations (UN) António Guterres.
According to the scientists, data shows that inequality in the world has increased to new heights in recent years. Between 2019 and 2020, global inequality grew even faster than at any time since World War II. The richest 10 percent of the world’s population earn just over half of all income. The poorest half remains stuck at 8.5 percent.
This contrasts with the goal that all governments set themselves in 2015, when they joined the UN’s ‘sustainable development goals’. One of these deals with reducing inequality. According to the economists, little has come of this, partly due to the corona crisis. The current high inflation would also exacerbate the differences.
The resulting growing inequality is risky: disastrous for citizens’ trust in politics, according to studies, and that difference can make solving the climate problem more difficult. It also simply means that poverty is increasing, which according to UN goals should be prevented.
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The economists specifically point to two points: the UN’s targets for combating inequality must be tightened, and the measurement methods (on which the targets themselves are also based) must be improved. According to the open letter, the calculation methods used by the World Bank – and also used by the UN to monitor inequality – are not very usable. “Now, for example, the Gini coefficient is often used,” says development economist and co-signer Irene van Staveren of Erasmus University Rotterdam. This is a complex method for calculating inequality, which looks at the incomes of all households in a country.
Skeptical about the Gini
According to Van Staveren, many economists have long been skeptical about the use of this Gini coefficient. The method is not very sensitive to shifts at the extreme ends of the spectrum, which means that, according to many, inequality is not always measured properly. Instead, the Gini reacts especially fiercely to center shifts, which would occur relatively infrequently.
According to Van Staveren, economists look more often at the Palma ratio, which is more sensitive to shifts at the ends of the spectrum: the Palma ratio changes more quickly if rich people become extra rich, or poor people become extra poor. Van Staveren: “The inequality often turns out to be greater.” For example, there are countries, such as Chile and Vietnam, where inequality has decreased according to the Gini method in recent years, but has actually increased according to the Palma ratio.
The economists also want the World Bank to use this measurement method. In the coming months, the institute will evaluate the measurement methods; hence the timing of the economists’ call. This is an “opportunity” for the World Bank, say the economists.
One of the most famous signatories of the letter is the American economist Joseph Stiglitz, who was chief economist of the World Bank in the 1990s, but is now very critical of his former employer. The other name known to the general public is Thomas Piketty, the French economist who achieved great fame a few years ago with his book Capital in the 21st century.