Global growth and progress in human development give us good reasons to believe that we can achieve the goal of eradicating poverty for good. However, the reality of what billions of people in the poorest socio-economic groups have experienced, and what they can expect if current trends continue, is less encouraging. The gap between rich and poor is reaching new extremes. Rising economic inequality also compounds existing inequalities. Countries with higher income inequality also tend to have larger gaps between women and men in terms of health, education, labor market participation, and representation in institutions like parliaments. One of the key trends underlying this huge concentration of wealth and incomes is the increasing return to capital versus labor. In almost all rich countries and in most developing countries, the share of national income going to workers has been falling. This means workers are capturing less and less of the gains from growth. In contrast, the owners of capital have seen their capital consistently grow (through interest payments, dividends, or retained profits) faster than the rate the economy has been growing. Tax avoidance by the owners of capital, and governments reducing taxes on capital gains have further added to these returns.
Across the global economy, in different sectors, firms and individuals often use their power and position to capture economic gain for themselves. Economic and policy changes over the past 30 years – including deregulation, privatization, financial secrecy and globalization, especially of finance – have supercharged the age-old ability of the rich and powerful to use their position to further concentrate their wealth. This policy agenda has been driven essentially by ‘market fundamentalism’. It is this that lies at the heart of much of today’s inequality crisis. As a result, the rewards enjoyed by the few are very often not representative of efficient or fair returns. The share of income going to labor compared with capital is in decline, the gap between wages and productivity is growing and income inequality is slowing overall growth, further hurting the poorest people most and preventing millions of people from escaping poverty.
What is needed is a multi-pronged strategy to rebalance power within global and national economies, empowering people who are currently excluded and keeping the influence of the rich and powerful in check. This is necessary for economies to work better in the interests of the majority and in particular in the interests of the poorest people, who have the most to gain from a fairer distribution of income and wealth.
A social innovation aligning finance with individual values and social purpose.
We have a duty to focus the world’s attention on the rapidly growing numbers of people in dire need. They are among the people who face the greatest risk of being left behind. While some of those in extreme distress might make themselves heard and receive media attention for periods of time, the vast majority remains voiceless and invisible, struggling to survive from one day to the next. A sound understanding of poverty traps—defined as poverty that is self-reinforcing due to the poor’s equilibrium behaviors—and their underlying mechanisms is fundamentally important to the development of policies and interventions targeted to assist the poor and/or eradicate poverty. This understanding on poverty traps focuses on understanding why some people, communities, and even entire nations remain mired in grinding poverty while others have enjoyed rapid improvements in standards of living. An improved understanding of such heterogeneous well-being dynamics can help inform the design of interventions that might put individuals, households, and nations on a more favorable trajectory out of poverty and towards sustainably higher standards of living. Aspects of poverty traps include financial and social exclusion linked to human capital accumulation and natural capital feedbacks
Initiatives that could move people out of a poverty traps such as interventions to induce investment in or protection of productive assets, adoption of improved production technologies, participation in more remunerative markets, entrepreneurial risk-taking, and so on attract particular interest because they are seen as opportunities for short-term interventions to precipitate permanent changes in well-being trajectories.
We have to keep in mind that existing and rising inequalities pose fundamental challenges to European societies and economies as well. The increasing gulf between rich and poor, exacerbated by the financial and economic crises, is a key concern. The sources of inequalities in contemporary societies are complex and highly intertwined and they and their consequences can only be understood through comprehensive and innovative research activities. Given our relatively mature understanding of life course inequalities, it is time to focus on the dynamics of inequalities – across different life stages, across different dimensions of inequality, and across different dimensions of identity – and to identify opportunities to reduce them.
Of importance at the current time in Europe is the increasing destandardisation of the life course, strongly related to the current economic context, which has led to increasing risks of employment insecurity. This is reflected in delayed transitions into employment, increasing risk of job loss, prolonged unemployment, non-standard employment, earnings instability, more complex, varied and risky transitions into retirement, and pension reform. Alongside this are changes in the social, cultural and technological spheres of work, reflected in demands for workers to possess a broad set of skills, rather than a narrow trade, making them more productive and more easily adjustable to the changing conditions and demands of work. And coupled with this is an urgent need to understand how reforms to European welfare systems impact on the life course and the dynConsequently, it is, as mentioned, necessary to focus on understanding the dynamics of inequalities as they unfold over the life course, causal processes and drivers in relation to these inequalities, the impact of these inequalities on social cohesion, and the identification of opportunities for policy intervention to increase possibilities for social mobility and to reduce inequalities.amics of inequalities across the life course.
Consequently, it is, as mentioned, necessary to focus on understanding the dynamics of inequalities as they unfold over the life course, causal processes and drivers in relation to these inequalities, the impact of these inequalities on social cohesion, and the identification of opportunities for policy intervention to increase possibilities for social mobility and to reduce inequalities.