For richer or poorer: from Brazil to Indonesia

Thomas Dunmore Rodriguez Governance, Inequality

In the emerging economies the fruits of growth are too often not being shared with the majority of the population. Thomas Dunmore Rodriguez, National Influencing Adviser for Latin America, reveals a growing trend of wealth and power being captured by the elite.

It is scandalous that in 2015, just 62 individuals had the same wealth as 3.6 billion people. A report, For Richer or Poorer: The capture of growth and politics in emerging economies, commissioned by civil society networks in the global South, has found that this dramatic trend of increasing economic inequality is also occurring within many
of the world´s emerging economies, countries which have come to be seen as models for growth and prosperity.

The emerging economies of Brazil, Russia, India, China, South Africa, Mexico, Indonesia and Turkey – which I´ll call the BRICSAMIT countries here – have in recent years embarked on a steep economic growth path and have managed to reduce extreme poverty. Even so, today, all eight BRICSAMIT countries are some of the most unequal countries in the world, with small elites increasingly capturing the majority of economic growth. Figures for South Africa, for instance, show that the income share of those at the very top has been increasing significantly,
granting the richest 1% almost 17% of total income in 2011, up from around 8% in the early 1980s.

The high costs of inequality

Excessive inequality hampers development prospects and threatens much lauded poverty reduction efforts

The growing pie is not being shared out evenly, and for those people living in poverty in the BRICSAMIT countries, growth and development largely continue to pass them by. The price these countries pay for this is high. Excessive inequality hampers development prospects and threatens the much lauded poverty reduction efforts some BRICSAMIT countries have made. As a result, there are now two completely different development paths within each of these countries. 

In Brazil, the richest 20% of the population can expect to live almost 26 years longer, than somebody in the poorest 20% of the population, and this type of stark difference is seen across the BRICSAMIT countries. A life of working in the informal sector, with patchy public healthcare coverage, precarious and sometimes dangerous working and living conditions, as well as increased exposure to violence are some of the factors contributing to such a wide gap. 

The gains of economic growth have been captured 

On average inequality has risen across the BRICSAMIT countries in recent years. With the exception of Turkey and Brazil, all of the countries have higher Gini rates now than two decades ago. However, even more shocking is what is happening at the very top. 

Since 2000, overall wealth has tripled in Brazil, India, South Africa and Turkey, increased four-fold in Indonesia and by a startling eight times in Russia. However this growth in wealth is not distributed evenly. In the most extreme case of wealth inequality in the world, Russia, the richest 10% hold 85% of total household wealth.

Examining the top 1%, the wealth inequality is even starker. In all eight BRICSAMIT countries, the share of total wealth held by the richest 1% increased between 2000 and 2014, and a particularly significant increase has been seen since the global financial crisis in 2008. In Mexico, the richest man owns wealth equivalent to almost 6% of the GDP of the entire country with its 122 million people. This is more than the Mexican government currently spends on the entire public healthcare system.  

A cycle of wealth and influence

The capture of power by economic elites drives inequality by ensuring that rules remain rigged in their own favour

Fortunes have been made in the BRICSAMIT countries by large corporations engaged primarily in the extractives, agribusiness, infrastructure, media and telecommunications sectors. As income and wealth becomes concentrated in the hands of the few, so too does the level of influence in political decision-making. The capture of power by economic elites drives inequality by ensuring that rules remain rigged in their own favour, or in favour of the companies they own. Measures to tackle extreme inequality are not high on the political agenda in most emerging economies; or
are effectively blocked by an alliance of the economic and political elites who have little interest in changing the status quo.

This concentration of wealth and power in the hands of the few is clearly at the expense of the many. It excludes millions of people from an equitable share in prosperity. Despite the massive economic growth in these countries, more than 2.3 billion people in the BRICSAMIT are still living on less than $5 a day.  

Time for change

Civil society organisations have long understood that inequality is a barrier to development. This is at last becoming more widely recognized, as the long-held theory of the ‘trickle down’ of wealth as countries grow richer fails to become a reality. The report sheds light on the conditions that enabled the rise of the super-rich and how political capture by these elites is undermining democracy and thwarting attempts to reduce
inequality. We aim to build a movement of citizens across our countries, calling on our governments to tackle the structural causes of inequality.

We urge our governments and leaders to recognize that reducing inequality is a deeply political undertaking by which the vested interests of the existing elites will need to be challenged. If developmental goals – such as equal rights for all and an end to poverty and gender discrimination – are to be achieved, the debate must shift away from growth at all costs to focus instead on achieving greater equality.

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Photo: School children in India. Credit: Oxfam India

Author: Thomas Dunmore Rodriguez
Archive blog. Originally posted on Oxfam Policy & Practice.