Purposeful Innovation in Finance
Citi GPS Opinion Article
15 January 2019 – For many, a real perception exists that leaders, politicians, policymakers and those characterized as the ‘elite’ are not listening to the broader population, which increases the sense of frustrated marginalization. The trait of ‘I know better’ is not limited to the elite but manifests itself across many areas of society — such as the controversial policy of ‘no platforming’ being witnessed at some universities in the U.K. This provides an example of a perhaps increasingly intolerant and selfish society — which highlights the importance of values in society and the importance of the dignity of, and respect afforded to, the individual.
Inequality is a hugely important topic and one that we examined in great detail in our recent report written in conjunction with the Oxford Martin School: Citi GPS – Inequality and Prosperity in the Industrialized World. Inequality within countries has indeed risen markedly in recent years, as has inequality between generations, regions, and even companies. As we observed in the report, inequality matters economically because countries with greater levels of inequality often grow less fast than more equal countries, and there is reason to believe that growth is also more fragile. Inequality leads to declining social trust, the erosion of social cohesion and degradation of the political processes via lower electoral engagement, and it has even been linked to poorer health. Inequality also appears to be self-perpetuating, with the significant correlation between intergenerational mobility and the GINI coefficient implying a lower level of social mobility in less equal societies, again a key factor in the perception of equality and opportunity, which can be so important to an individual’s sense of self-esteem.
As always, however, beneath the headlines, the detail can sometimes paint a different (though less attention-grabbing) picture. It is important to draw distinctions between income inequality and wealth inequality (typically defined as the share of aggregate wealth owned by the top 1%), as the latter is typically more unequally distributed. The U.K. actually has, in a relative sense, an intermediate level of wealth inequality, despite having relatively high income inequality, while the reverse is true for Germany and the Netherlands. It is also worth noting that wealth inequality was substantially higher in the early 20th century in many economies than it is today. Alvaredo et. al. estimated that the share of the top 1% in the U.K. may have been as high as 70% in the early years of the 20th century and was still about 45% mid-century compared to around 20% currently. Moreover, in contrast to most developed countries, U.K. income inequality as defined by the Gini coefficient has actually declined since 2008, which flies in the face of the popular perception. However, regional and intergenerational inequality has risen, and it is this (along with other factors, such as wage growth) that is potentially more likely to be what is being ‘felt’. Whatever one’s view of this complex subject — facts or semantics — the key point is that the belief of inequality is there and forms a key element of the sense of not being listened to and of frustrated marginalization. It is also worth considering the extent to which our ever-more connected world is a factor in the cementing of concepts into perceived wisdom and ultimately accepted realities. We do not intend to reproduce the wealth of detail contained in our Citi GPS inequality report in full in this limited response but highlight it as a source for further reading
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