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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Highlights of the Human Development Report 2014

By Julia Marvin

On July 24, the United Nations Development Programme (UNDP) released the 2014 Human Development Report: Sustaining Human Progress. The annual report measures global well-being by collating data on life expectancy at birth, mean and expected years of education, GNI per capita, HDI value (2012), and measures of inequality including inequality in income, the Palma ratio, and the Gini coefficient. Below are a few highlights from this year’s report:

Progress in human development is slowing down

As shown above, the HDI growth rate slowed in the last five years across all four human development groups identified by the UNDP – very high, high, medium, and low. This is a different tone than the 2013 report which highlighted rapid growth in human development in more than 40 developing countries over the last decade. For donors, this means dealing with human vulnerability– scenarios by which people’s capabilities and choices are decreased — as soon as possible to avoid a disruption of growth and to secure existing gains.

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Slowing of HDI growth, Human Development Report 2014, pg. 3

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