1. INEQUALITIES HARM SOCIAL COHESION…
Inequalities and social justice create a feeling of frustration that fuels tensions within society, explains Anda David, a specialist on inequality issues at Agence Française de Développement (AFD): “The individuals who suffer from it tend to cooperate less among each other, and this increases the risk that social conflicts, political crises, or armed conflicts occur.”
For example, 27 years after the end of apartheid, the persistent inequalities in South Africa between rich and poor, among ethnic groups, and between inhabitants of big cities and those of the former “bantustans” (regions reserved for Blacks during apartheid) continue to cause tensions.
2. … AND WEAKEN GROWTH.
A country’s economic growth is generally stimulated by domestic demand. But if inequalities are too pronounced between poor people who lack strong purchasing power and rich people who spend a smaller share of their income—and if the middle class is not large enough—then domestic demand is weak, leading to weak growth in the country’s gross domestic product (GDP).
In a 2015 report, the International Monetary Fund (IMF) refuted the “trickle down” theory, according to which the income of the richest stimulates growth. Instead, it supported the contrary: the more their fortune increases, the less strong is growth. “That left a deep impression,” recalls Anda David.
3. THEY REDUCE ECONOMIC OPPORTUNITIES…
In an inegalitarian society, the poorest become discouraged in their attempts to invest in or create an economic activity, because of the credit constraints they face. “In that case, they can’t take advantage of their skills, thus leading to fewer economic opportunities for everyone,” comments Anda David.
These constraints are particularly harmful when they hinder a household’s ability to finance the studies of its children. “Creating scholarships for the poorest people, starting from basic schooling, can help put them on a full educational path and then enable them put their creativity and their skills at the service of the country’s development,” points out Rohen d’Aiglepierre, an economist specialized in education and employment at AFD.
4. … AND AFFECT WELL-BEING.
In a study published in April 2018, the Organisation for Economic Cooperation and Development (OECD) confirmed the link between the level of inequality and the level of well-being among the population.
According to the study, the richest 20% are twice as likely to express a high level of satisfaction with their life than the poorest 20%. And the more the gap grows between rich and poor, the more pronounced are the feelings of well-being and malaise.
5. INEQUALITIES REDUCE THE EFFECTIVENESS OF DEVELOPMENT ASSISTANCE.
Today it is a commonly accepted opinion that inequalities have a negative impact on the development of countries because they are sources of tension, slower growth, and malaise among the population.
“If there are strong inequalities in a country, the resources used to fight poverty there are not very useful,” indicates Anda David. “If, as an actor of development, we support projects that contribute to the growth of a country but that growth benefits the rich more than the poor, our operations will be less effective.”
That’s why it’s important to take better into account the effects that development assistance programs have on the reduction of inequalities. This is already a major concern at AFD [see more on the “100% social link” strategy].
6. THEY INCREASE CRIMINALITY…
Strong inequalities within a society tend to make the crime rate grow there. Why? “In a society in which incomes are mostly very low, the opportunity cost of a violent act—a theft for example—will be lower and expected profit higher,” remarks Anda David. And, as Rohen d’Aiglepierre observes, “Young graduates who can’t find a job locally may be tempted by criminality, violent extremism, or migration.”
7. … AND INCREASE THE NUMBER OF CHILDREN PER WOMAN.
The world population has doubled in half a century. In 2018 it reached 7.6 billion people and by 2100 will exceed 11.2 billion people according to UN forecasts. At the time when our impact on the environment and the growing scarcity of certain natural resources compel us to make fewer children, inequalities can, on the contrary, push women to have more.
This is also a question of opportunity cost: “In a society with no redistribution and thus no social security net, and when the opportunity cost of having children is low, parents count on their children to take care of them when they are older. But if the expected income of a child on the job market is low, it then becomes important for the parents to have several children in order to ensure themselves adequate resources,” explains Anda David. And in some cases this mechanism becomes a vicious circle, when the increase of the population leads to growth in the unskilled labor force, thereby pulling wages down.
Fighting inequalities is therefore not just a priority: it’s a long-term struggle.
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