According to an OECD report, the gap between the richest and poorest has never been so wide. In 2015, the income of the richest 10% was 9.6 times that of the poorest 10% in the world (OECD, 2015).

In addition, the question of poverty is raised, as a 2006 World Bank study collected data showing that an increase in inequality tends to increase poverty (Bank, 2006). The fight against inequality therefore serves not one but several objectives, including the fight against poverty.

It is therefore a question for European countries to understand better where these inequalities come from, but also how to act efficiently against them.

 

The inequalities concerned are first of all those of income.

In Europe, the share of the income of the richest 10% in national income is 37% in 2016. According to the World Inequality Lab’s 2018 Global Inequality Report, this share has been steadily increasing since the 1980s. The same document also raises the question of the “horizon of inequalities” that Europe wishes to achieve, pointing in particular to the risk of falling into extreme situations as may be the case in Brazil or India for example.

While this phenomenon is very important in Eastern Europe, in Western Europe the 50% with the lowest incomes represented only 22% of national income in 2016, while the 1% with the highest incomes represented 12%. This phenomenon can be explained in particular by the decline in the progressivity of taxes over the period 1980-2000, among other factors (Alvaredo, Chancel, Piketty, Saez, & Zucman, 2018).

The other major aspect of inequality is that of disparities in terms of economic wealth.

These have increased sharply in recent decades in Europe. This is particularly the case in the United Kingdom and France, where the share of capital held by the top decile was 52% (in 2012) and 55% (in 2014) respectively, or more than half in both countries. Moreover, these two figures have been mitigated by the phenomenon of wealth accumulation by the middle classes, which has helped to reduce inequalities in this area.

The report points to the policies pursued since the 1980s, during which inequalities worsened under the impetus of the “turn of severity”, under François Mitterrand in France and Margaret Thatcher in the United Kingdom. The increased return on financial assets and the privatization of large parts of the economy have contributed significantly to the increase in these disparities.

 

Finally, a final aspect to be taken into account, according to the World Inequality Lab report, is the distribution of capital between the public and private sectors in relation to national wealth. Indeed, public heritage is an important instrument of the “capacity of States to act”, in particular to fight against inequalities. In the four European countries analyzed (France, United Kingdom, Spain and Germany), net private wealth represents more than 550% of national income, where net public wealth represents less than 25%, even falling below 0% in the United Kingdom. As the authors state, “This situation probably limits the capacity of States to act against inequalities, and it certainly has important consequences for inequalities in wealth between individuals”. Yet, “The wide disparity in the degree of inequality observed from one country to another, even when these countries are at comparable levels of development, highlights the decisive role of national institutions and public policies in the evolution of inequalities” (Alvaredo, Chancel, Piketty, Saez, & Zucman, 2018).

These observations lead us to another question: what answers can states provide to the increase in inequalities?

 

Progressive taxation is one of the major instruments to be used in the fight against inequality.

This type of tax allows the State to collect funds, while taking into account the economic situations of each individual, unlike so-called “regressive” taxes, such as value added tax for example. Wealth or income taxes are good illustrations of progressive taxes.

This instrument has proven its worth throughout history in terms of combating inequality, “Economic and historical research has shown that progressive taxation is an effective tool to combat inequality” (Voituriez, Cathelineau, & Rivière, 2016). This is also what Thomas Piketty argues in Le Capital au XXIe siècle, when he explains that in view of the tendency of capital income to grow faster than the economies of countries, a global tax policy should be put in place to tax significant assets from a redistributive perspective (Piketty, 2013).

A second tool to combat inequalities is the fight against tax evasion.

Today, national legislation is often insufficient to combat this scourge, which prevents States from properly collecting the means that would enable them to combat inequalities, and which further accentuates them, given that these tax evasion processes are often only accessible to the wealthiest. According to IDDRI and AFD, “capital invested in tax havens has increased considerably since the 1970s and now represents more than 10% of global GDP” (Voituriez, Cathelineau, & Rivière, 2016).

For this reason, the analysis carried out by these two organizations recommends the creation of a global securities register, which would make it possible to identify those who own them. Indeed, land and property registers already exist, but the assets held by individuals engaged in tax evasion often take the form of financial securities. Thus, the creation of a register in this area would make it possible to combat tax fraud much more effectively.

The third major means of action to combat inequalities is the promotion of equal opportunities, particularly in access to education.

Indeed, and as stated in the World Inequality Lab report, access to education is crucial to promote income growth for the poorest half of the population. It also states that “studies show that universities of excellence that are more open to students from disadvantaged backgrounds do not compromise their results” (Alvaredo, Chancel, Piketty, Saez, & Zucman, 2018), which can be a good argument against the fears raised by some forms of positive discrimination.

However, education is not the only aspect of equal opportunity that needs to be addressed. It is also important to take into account issues of access to health, the labor market, etc. Only in this way can inequalities be reduced in the long term (Voituriez, Cathelineau, & Rivière, 2016).

Finally, workers’ rights are also a determining factor.

While the issue of strengthening social protection has already been raised, the AFD and IDDRI analyses also highlight the importance of guaranteeing income and employment, “ex ante and ex post” redistribution (Voituriez, Cathelineau, & Rivière, 2016).

The 2018 Inequality Report also highlights the role of employee representation in organizations, including the role of worker’s syndicates, as well as the establishment of decent minimum wages. Without these elements, education would not be enough to reduce inequalities (Alvaredo, Chancel, Piketty, Saez, & Zucman, 2018).

 

Faced with the increase in protean inequalities, both in areas such as income and wealth, but also in terms of opportunities or the division of capital between public and private, there are many ways for European states to act. These means include the introduction of more progressive taxes, the fight against tax evasion, the promotion of equal opportunities and the improvement of workers’ rights.

 

 

Nicolas P. Task officer on economic, social and cultural rights.

 

Sources

Alvaredo, F., Chancel, L., Piketty, T., Saez, E., & Zucman, G. (2018). Rapport sur les inégalités mondiales 2018. World Inequality Lab.

Bank, W. (2006). World Development report 2006. Equity and Development. Washington DC: World Bank; Oxford University Press.

Dabla-Norris, E., Kochnar, K., Ricka, F., Suphiphat, N., & Tsounta, E. (2015). Causes and Consequences of Income Inequality: A Global Perspective. International Monetary Fund.

OECD. (2015). In It Together: Why Less Inequality Benefits All. Paris: OECD Publishing.

Piketty, T. (2013). Le Capital au XXIe siècle. Seuil.

Voituriez, T., Cathelineau, E., & Rivière, F. (2016, Octobre 21). Les fabriques d’un avenir durable. Dossier. Vaincre les inégalités. Regards sur la Terre, pp. 1-13.