Economic inequality is set to reach a worrying tipping point next year, when the richest 1 percent will control more than half of the world’s wealth.
That’s the prediction from the charity Oxfam, which will deliver its report on the world’s growing wealth gap at the annual World Economic Forum in Davos, Switzerland, which kicks off on Wednesday. The report tracks the startling rise in the fortunes of the world’s rich, who have seen their control of global wealth rise from 44 percent in 2009 to 48 percent in 2014.
Oxfam is aiming to gain the notice of the world’s leaders at Davos, where billionaires gather to discuss some of the planet’s most pressing issues, such as climate change and and Ebola. Yet observers may wonder if the report’s message will fall on deaf ears, especially given the attendees at Davos include many of the world’s richest people, including Google (GOOG) executive chairman Eric Schmidt, who is worth $8.1 billion, according to the Bloomberg Billionaires index.
Regardless of how the latest evidence of growing inequality is received in Davos, the widening gap between the haves and the have-nots is increasingly prompting concerns from economists and policy makers. In his State of the Union address on Tuesday, President Obama will ask Congress to provide the middle class with tax relief and community college tuition. His plan for paying for those benefits are to hike capital gains taxes on the richest Americans and add a fee for big financial firms.
“Business as usual for the elite isn’t a cost-free option — failure to tackle inequality will set the fight against poverty back decades,” said Winnie Byanyima, executive director of Oxfam and a co-chair at this year’s Davos gathering , in a statement. “The poor are hurt twice by rising inequality. They get a smaller share of the economic pie and, because extreme inequality hurts growth, there is less pie to be shared around.”
The world’s growing inequality isn’t only morally wrong, but threatens to undermine global economic growth, Oxfam said. That echoes concerns raised by ratings agency Standard & Poor’s last year, which warned that the income gap in the U.S. was approaching an “extreme” threshold that would dampen long-term economic growth.
While some argue that increasing wealth among the top 1 percent helps those people create new jobs or business, S&P noted that the gap undermines economic growth by hampering social mobility and creating a less-educated workforce that’s unable to compete in the global economy.
The world’s richest are accumulating greater wealth thanks to a few mechanisms, according to Oxfam. “Elite groups mobilize their vast resources to ensure global rules are favorable toward their interests,” the charity said.
Huge sums of money spent on lobbying are paying off for the richest, allowing their companies to gain tax breaks and favorable policy decisions, which then helps boost their personal fortunes, Oxfam said. The financial sector spent more than $400 million in lobbying in the U.S. in 2013, for instance.
“The cost to the U.S. taxpayer of the bailout of the financial sector was calculated to be $21 billion,” the group noted. “While the financial sector has recovered well as a result of this bailout, median income levels in the USA are yet to return to their pre-crisis levels.”
Growing economic inequality around the world isn’t inevitable, Oxfam said. Through policy steps and corporate initiatives, the 99 percent can gain social mobility, an increasing share of wealth, and a better standard of living. Among other steps to reduce inequality, the group recommends shifting the tax burden away from consumption (such as sales tax) and toward wealth (such as capital gains tax); increasing minimum wages; and promoting women’s economic equality and rights.