New report investigates increasing inequality in rich countries and why this needs to be taken seriously

21 September 2017

© Citi

The Oxford Martin School in partnership with Citi have published a new Global Perspectives and Solutions (GPS) report highlighting how inequality has been increasing within the rich countries of the OECD, with potentially far-reaching economic, social and political implications.

Inequality and Prosperity in the Industrialized World: Addressing a Growing Challenge sets out how income inequality has risen in most OECD countries in recent decades. The recession following the global financial crisis has exacerbated this trend in some of the worst-hit countries, while sometimes interrupting it elsewhere. The report investigates the forces driving inequality upwards, highlighting the role of technological change, globalisation, deregulation, declining union power, demographic change and weakening redistribution by taxes and transfers.

It also warns that inequality can undermine economic growth, with evidence that global growth has declined in recent decades while inequalities have risen. Growing inequality can also undermine social trust and social cohesion, and contribute to the degradation of the political process and the rise of populism.

Key areas of analysis include:

  • In a global context, income inequality has been declining, contributing to a remarkable fall in the total number of people considered to be in extreme poverty since the late 1980s — from 1.85 billion to 800 million — despite rising world population.
  • However, income and wealth inequalities have soared since the 1980s across most advanced economies, reflecting in particular growing inequality in incomes from the market and an increasing share going to the top.
  • Inequality has risen particularly sharply in some countries that were already relatively unequal decades ago (notably the U.S.), as well as some that started with much lower levels of inequality (such as Sweden).
  • Wealth inequality has also risen, and wealth is much more unequally distributed than income. The U.S. is again an outlier, with 75% of wealth held by the top ten per cent compared with an average of 50% across the OECD.
  • The drivers of this increase in inequality include technological change and globalisation, as well as the structure and regulation of labour and product markets. The institutional context of public policy also plays a central role, as can be seen from the cross-country variation in how much inequality has risen.

Co-author Professor Brian Nolan, Director of the Oxford Martin Programme on Inequality and Prosperity, Director of the Employment, Equity and Growth Programme within The Institute for New Economic Thinking at the Oxford Martin School, and Professor of Social Policy at the University of Oxford, said as the report was launched that

“Increasing inequality must be recognised as central to the experience of rich countries in recent decades, and represents a growing threat to economic progress and societal stability. While tackling inequality effectively will be far from easy, the forces driving inequality upwards are not to be seen as inexorable. Instead, they are amenable to well-designed intervention by governments, especially if they cooperate in long-term strategies to promote inclusive growth. Failure to do so will undermine shared prosperity, social cohesion and democratic processes.”

Andrew Pitt, Global Head of Citi Research writes in the report

“Our plan for this research programme is ambitious: not only do we aim to generate a consistent series of reports and related events over the coming years on a topic that is increasingly relevant to both the economic and the public policy debate, but we also aim to stimulate a positive engagement between academia, the public sector and the private sector on how best to generate sustainable, inclusive global growth in line with Citi’s mission to be an enabler of growth and progress.”

As part of a broader long-term research partnership between the Oxford Martin School and Citi, co-produced GPS reports examine the key global challenges and opportunities of the 21st Century and their implications for business and finance audiences.

This report launches the Oxford Martin Programme on Inequality and Prosperity, funded by Citi and led by Professor Nolan.