Oct 24, 2008

World - Economic gap widens in rich nations

PARIS: Economic inequality is growing in the world’s richest countries, particularly in the United States, jeopardising the American Dream of social mobility just as the world tilts toward recession, said a 30-nation report on Tuesday.

The gap between rich and poor has widened over the last 20 years in nearly all the countries studied, even as trade and technological advances have spurred rapid growth in their economies.

With job losses and home foreclosures skyrocketing and many of these countries now facing recession, policy makers must act quickly to prevent a surge in populist and protectionist sentiment such as was seen following the Great Depression, said the Paris-based Organization for Economic Cooperation and Development.

“What will happen if the next decade is not one of world growth but of world recession? If a rising tide didn’t lift all boats, how will they be affected by an ebbing tide?” asked Oxford University economist Anthony Atkinson at a conference at the OECD headquarters.

In a 20-year study of its member countries, the OECD found inequality had increased in 27 of its 30 members as top earners’ incomes soared while others’ stagnated.

The U.S. has the highest inequality and poverty rates in the OECD after Mexico and Turkey, and the gap has increased rapidly since 2000, the report said. France, meanwhile, has seen inequalities fall in the past 20 years as poorer workers are better paid.

Rising inequality threatens social mobility — children doing better than their parents, the poor improving their lot through hard work — which is lower in countries like the U.S., Great Britain and Italy, where inequality is high, than countries with less inequality such as Denmark, Sweden and Australia, said the report.

Wealthy households are not only widening the gap with the poor, but in countries such as the U.S., Canada and Germany they are also leaving middle-income earners further behind, with potentially ominous consequences if the global financial crisis sparks a long recession. The two decades covered in the study — 1985-2005 — saw the development of wider global trade and the Internet, and a period of overall strong economic growth. The countries covered are mostly developed nations, especially in Europe.

OECD Secretary-General Angel Gurria said the study, which took three years to complete, would be useful to policy makers because it is coming out just as the world is undergoing “the worst crisis in decades.”

With several OECD countries already in recession, the “key question” raised by the report is whether governments can prevent a possible drop in top earners’ incomes from sparking “a second wave” hit to the lowest-income households, said Martin Hirsch, France’s high commissioner for fighting poverty.

The OECD’s Gurria urged governments to address the “divisive” issue of growing inequality. He said they should do more to educate the whole work force — and not just the elite — while helping people get jobs and increasing incomes for working families, rather than relying on social benefits.

“Greater income inequality stifles upward mobility between generations, making it harder for talented and hardworking people to get the rewards they deserve,” he said in a statement. “It polarises societies, it divides regions within countries, and it carves up the world between rich and poor.”

In the U.S., the richest 10 per cent earn an average of $93,000 — the highest level in the OECD. The poorest 10 per cent earn an average of $5,800 — about 20 per cent lower than the OECD average.

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