High Inequality a Potential Blow to Economic Growth in the BRICS

By Ariel Gandolfo

According to a new Oxfam report, in 2014 the richest 1% of the world’s population owned 47% of the world’s wealth. By 2016, this same elite will own more than half, meaning that 1% of the world’s population is as wealthy as the other 99%. But is such dramatic inequality necessarily bad for a society?

Yes: research shows that less equal societies experience slower and less sustainable economic growth, and that extreme inequality undermines social trust and national cohesion. These consequences can fuel instability and conflict and discourage long-term investment in national development. The new research has large implications for governments and international development agencies, especially in light of rising inequality in some of the world’s largest emerging economies.

In the BRICS countries, which have experienced solid economic growth over the last few decades, new data indicates that in addition to GDP, inequality is on the rise. The Gini coefficient measures the percent of national income (different from total wealth) earned by the top twenty percent of income earners, meaning that a score closer to 1 indicates more inequality as the upper quintile earns a disproportionately large share of salaries and wages. According to their own data, the BRICS countries report Gini coefficients of: Brazil: .5, Russia: .42, India: .37 (urban) and .28 (rural), and China: .47. In South Africa, one of the world’s most unequal nations, the Gini coefficient of .65 signifies that the richest twenty percent earns sixty-five percent of the national income. An Oxfam report on inequality in the BRICS group has similar findings, shown below.

Inequality as measured by the Gini coefficient in the BRICS countries and OECD average, for the early 1990s and late 2000s. Source: Oxfam

Inequality as measured by the Gini coefficient in the BRICS countries and OECD average, for the early 1990s and late 2000s. Source: Oxfam

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