For Richer… or Poorer? The Capture of Growth and Politics in Emerging Economies

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For Richer or Poorer

In the rapidly emerging economies, inequality remains the biggest challenge

International attention this week has yet again focused on increasing economic inequality at a global level. It is scandalous that in 2015, just 62 individuals had the same wealth as 3.6 billion people.[1] A new report, ‘For Richer or Poorer: The Capture of Growth and Politics in Emerging Economies’, commissioned by civil society networks in the Global South, has found that this dramatic trend of increasing economic inequality is also occurring within many of the world´s emerging economies, countries which have come to be seen as models for growth and prosperity.

The emerging economies of Brazil, Russia, India, China, South Africa, Mexico, Indonesia and Turkey – which we´ll call the BRICSAMIT countries here – have in recent years embarked on a steep economic growth path and have managed to reduce extreme poverty. Even so, today, all eight BRICSAMIT countries are some of the most unequal countries in the world, with small elites increasingly capturing the majority of economic growth. Figures for South Africa, for instance, show that the income share of those at the very top has been increasing significantly, granting the richest 1% almost 17% of total income in 2011, up from around 8% in the early 1980s.

The high costs of inequality

The growing pie is not been shared out evenly, and for those people living in poverty in the BRICSAMIT countries, growth and development largely continue to pass them by. The price these countries pay for this is high. Excessive inequality hampers development prospects and threatens the much lauded poverty reduction efforts some BRICSAMIT countries have made. As a result, there are now two completely different development paths within each of these countries.

For example, the report highlights differences in life expectancy according to income level. In Indonesia, whilst the richest 20% of the population can expect to live almost 71 years, the life expectancy of somebody in the poorest 20% is only 53 years, a difference of nearly 18 years. This gap is even higher in South Africa, where the difference in life expectancy between the poorest 20% and richest 20% amounted to 19 years; in India, 21; and in Brazil, almost 26 years. A life of working in the informal sector, with patchy public healthcare coverage, precarious and sometimes dangerous working and living conditions, as well as increased exposure to violence are some of the factors the reports finds as contributing to such a wide gap.

The gains of economic growth in the BRICSAMIT have been captured by the very richest

The report finds that inequality on average rose across the BRICSAMIT countries in recent years. With the exception of Turkey and Brazil, all of the countries have higher Gini rates now than two decades ago. However, even more shocking is what is happening at the very top. The income share of the richest 5% of the population in Brazil and Turkey still corresponds to more than double the income share of the poorest 40%. In China, Russia, South Africa and Indonesia, the income share of the richest 5% is actually increasing. In Russia, China, Indonesia and India the richest 10% account for about a third of total income.

The report also examines wealth inequality. Since 2000, overall wealth has tripled in Brazil, India, South Africa and Turkey, increased four-fold in Indonesia and by a startling eight times in Russia. However this growth in wealth is not distributed evenly. In Mexico and China the richest 10% now hold more than 60% of total wealth; in Brazil, India, Indonesia, South Africa and Turkey this proportion rises to above 70%; and in the most extreme case of wealth inequality in the world, Russia, the richest 10% hold 85% of total household wealth. Alarmingly, even in those countries where income inequality seems to have fallen over recent decades – namely Brazil and Turkey – wealth inequality is actually on a fast rise.

Examining the top 1%, the wealth inequality is even starker. In all eight BRICSAMIT countries, the share of total wealth held by the richest 1% has increased in the period 2000-2014, and a particularly significant increase has been seen since the global financial crisis in 2008. In Turkey, the richest 1% accounted for over 50% of the country´s total wealth in 2014. In Mexico, the richest man owns wealth equivalent to almost 6% of the GDP of the entire country with its 122 million people. This is more than the Mexican government currently spends on the entire public healthcare system.

How did the rich make their fortunes? A vicious cycle of wealth and influence

Fortunes have been made in the BRICSAMIT countries by large corporations engaged primarily in the extractives, agribusiness, infrastructure, media and telecommunications sectors. As income and wealth becomes concentrated in the hands of the few, so too does the level of influence in political decision-making. The capture of power by economic elites drives inequality by ensuring that rules remain rigged in their own favour, or in favour of the companies they own. Measures to tackle extreme inequality are not high on the political agenda in most emerging economies; or are effectively blocked by an alliance of the economic and political elites who have little interest in changing the status quo.

This concentration of wealth and power in the hands of the few is clearly at the expense of the many. It excludes millions of people from an equitable share in prosperity. Despite the massive economic growth in these countries, more than 2.3 billion people in the BRICSAMIT are still living on less than $5 a day.

Time for change

Civil society organisations have long understood that inequality is a barrier to development. This is at last becoming more widely recognized, as the long-held theory of the ‘trickle down’ of wealth as countries grow richer fails to become a reality. This report aims to shed light on the conditions that enabled the rise of the super-rich and how political capture by these elites is undermining democracy and thwarting attempts to reduce inequality. As such, we aim to build a movement of citizens across our countries, calling on our governments to tackle the structural causes of inequality.

We urge our governments and leaders to recognize that reducing inequality is a deeply political undertaking by which the vested interests of the existing elites will need to be challenged. If developmental goals – such as equal rights for all and an end to poverty and gender discrimination – are to be achieved, the debate must shift away from growth at all costs to focus instead on achieving greater equality.

To download the full report, please click here: ForRicherOrPoorer

[1] Oxfam (2016), Oxfam Briefing Paper ‘An Economy for the 1%’, accessed online on 18 January 2016 at http://policy-practice.oxfam.org.uk/our-work/inequality/an-economy-for-the-one-percent

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