Inequality is growing. While economic (income) inequality is often the focus of discussion, it is linked to many other types of inequality that are also on the rise, including gender, intergenerational, digital and racial/ethnic inequality.^[1]​ This trend of ‘diversifying inequalities’ also has strong links to many other trends.

Although economic inequality between countries has reduced over the last 30 years (largely due to rapid economic growth in Asia), inequality within many countries has increased and is predicted to rise steeply in coming decades, if current trends continue.^[2] A number of interlinked factors will contribute to this rise, such as:

• slower and more volatile economic growth (compounded by high government debt, swings in financial and commodity markets and the threat of an uneven economic rebound after the COVID-19 crisis);
• potential job losses due to automation and shifts in the job market toward lower paid or more precarious employment (more freelancers, sharing economy, temporary workers and declining labour market protections);
• the impact of the technology sector exacerbating wealth concentration amongst those with the right skills and capital ownership (1% of the world’s population may own two-thirds of global wealth by 2030, entrenching power in the hands of elites who will be less likely to implement economic reforms that will benefit the poor)^[3]; and
• population growth and mobility, particularly in developing countries (economic opportunities will be greater in urban areas, creating potential for growing urban slums and increasing urban/rural inequalities).

Not only is inequality growing, but awareness of it is growing, as increasing numbers of people gain access to the Internet and social media.

This growing inequality, together with heightened awareness, could lead to social fragmentation fuelled by perceived injustices. Discontent spurs protests and violent mobilization, increasing support for populist or nationalist leaders. It additionally leads to decreasing support for globalization and trade liberalization, which are seen as having created this situation of inequality. Crime increases in turn, as does the potential for religious radicalization.^[2,4]

Rise of the middle class

The trend towards poverty reduction around the world has been ongoing for decades, in Europe for at least 50 years, and more recently in Asia and Latin America. In particular, extreme poverty (defined as living on less than USD 1.90/day) saw a huge decrease, from 36% of the world’s population in 1990 to 10% in 2015.^[5] Some reports predict that by 2030, the majority of the world’s population will be middle class (defined as those falling between 67–200% of the median income in a country)^[3], with the middle class in the Asia-Pacific growing at a tremendous rate, led by China and India. Indeed, by 2030, the Asia-Pacific region is forecast to be home to two-thirds of the global middle class, who will become the world’s biggest spenders.^[6]

As people get richer, they can shift their focus from survival to enjoyment of life, progressively seeking better quality (and more) goods and services. The rising middle classes could become a key engine of economic growth in coming decades, as they consume higher quality goods, travel more, invest more and improve their education levels. With more purchasing power and more access to information, they may develop a stronger political voice and create pressure in many parts of the world to strengthen democratic processes and institutions.^[7]

At the same time, however, this will also lead to increased consumption of energy (largely fossil fuels in Asia and Africa) and could exacerbate risks related to climate change and resource scarcity. Good governance, innovation and new technologies will be vital if we are to reconcile increasing middle class consumption and sustainability.

Of course, the economic downturn resulting from the COVID-19 pandemic has slowed progress in reducing poverty and stalled the expansion of the global middle class, so some of these predictions may have to be revised once the longer-term effects of the pandemic become clearer.^[8] In a more pessimistic scenario where economic slowdown is protracted, some predict that a frustrated middle class, fearing a backslide into poverty, may become a force for instability or a bastion of populism.

Stagnating happiness levels

People are becoming more prosperous overall as the global middle class grows, but this growth is mostly in developing countries. In developed countries, by contrast, middle class wages and employment could be threatened by increased automation and global competition in low-cost manufacturing (for example, McKinsey estimated that as of 2014, two-thirds of households in developed economies had real incomes at or below their 2005 levels).^[4]

Slow economic growth means that these citizens, who have come to expect regular rises in living standards over time, will no longer perceive any visible improvements, leading to public dissatisfaction, disappointment and stagnating happiness levels. As their societies also become more unequal, this dissatisfaction could even lead to social divisions and internal conflict.^[2] At the same time, governments will find it increasingly difficult to fund rising welfare costs and investment in public services without sufficient economic growth.

In the absence of an economic miracle, governments will have to concentrate more on the other elements that can determine human happiness such as mental wellbeing and social connectivity.^[3]

References

1. The global risks report 2021 (World Economic Forum, 2021)
2. Global strategic trends. The future starts today (UK Ministry of Defence, 2018)
3. Global trends to 2030. Challenges and choices for Europe (European Strategy and Policy Analysis System, 2019)
4. Global trends. Paradox of progress (US National Intelligence Council, 2017)
5. Poverty overview (World Bank, 2014)
6. Global connectivity outlook to 2030 (World Bank, 2019)
7. Latin America and the Caribbean 2030. Future scenarios (Inter-American Development Bank, 2016)
8. The pandemic stalls growth in the global middle class, pushes poverty up sharply (Pew Research Center, 2021)