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a blog from young economists at Nova SBE

Inequality: The Ugly Duckling

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One interesting topic that seems to be some sort of neglected in our public opinion is the fact that in the past 30 years inequalities have raised in the major part of western societies and even in some developing countries. For instance, if we look to the 10 most powerful economies of the world, in terms of nominal GDP, only Brazil was able to decrease its income inequalities. Countries such as China and India, that are facing enormous economic growth rates, were incapable to decrease their income disparities.       

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 Given this, it’s surprising that income inequalities were never an integrant part of the political and economical leaders’ speech for the past 30 years. The role of inequalities in economical and social public policies leaded by the political rulers was totally subordinated to other issues such as economic growth, unemployment and price control, particularly in 90s, and to subjects such as fiscal balances and public debt shrinking, in these recent years after the 2008 financial crisis.

 Why income inequalities are not approached as an economic and social setback by political and social interveners is quite a surprising fact to me.

 In a book published in 2009, The Spirit Level, Richard Wilkinson and Kate Pickett, two British professors, try to proof through statistical evidence that income inequality is negatively correlated with a wide range of social problems, such as mental illness, imprisonment, violence, drug abuse and social mobility. One of their most impressive results was the connection that they made between the level of trust within a society and income gaps:

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When asked, “Do you think most people can be trusted?” people  from more unequal societies, such as Portugal or the US, tend to say no, while more equal societies like the Scandinavians tend to answer yes.

The outcomes of this situation of distrust are quite straightforward if we think in the importance of trust in terms of social relations or its impact in something that is very discuss nowadays which is the social capital, despite its difficult measurability, it’s an grand feature of a country’s economic potential. Lack of trust within a society leads to segregation by increasing physical distances between rich and poor people, widening the living conditions and the lifestyles between the two groups.

The impact of inequality diminishing policies on economic growth is still under though economical discussion. Although, orthodox economists tend to tell us that such policies have a negative impact on a country’s economical performance. This may or may not be true, nevertheless one think we have to realize, perhaps, economic growth is not the same thing as economical, social and human development.

PS. For more information about the link between income inequality and social problems go to equalitytrust.org.uk

Rui Rodrigues

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Author: studentnovasbe

Master student in Nova Sbe