Inequalities in Emerging Economies: The Concern of Concerns

Inequality is something that indicates deeper, structural economic problems.

President Obama referred to the increasing inequality within both the developed and emerging markets as the “defining challenge of our time.” Research by Pew Research Center (PRC) outlined that the gap between the poor and the rich is a major concern for at least 60 percent of the world respondents. Regardless of culture, ideology, and religion, people are always concerned about inequality.  Inequality is a signal of lack of opportunity and income mobility. This represents societal segmentation, with some segments consistently disadvantaged. Therefore, the degree of inequality, its driving forces, and the strategies to reduce it is currently the most debated topic by researchers and policy-makers.

Increased inequality can have adverse implications for macroeconomic stability and growth. It can place the decision-making and political power in the hands of a small population, resulting in underutilization of human resources; investment-reducing economic and political instability; and increase crisis risk. Attention to the growing income inequality in the emerging markets has been heightened by social and economic fallout from the global financial crisis and the subsequent headwinds to global employment and growth.

Inequality has become a concern in development because of economic and socio-political rationale, impairing social well-being causing political unrest. Most people blame inequality on government’s economic policies.  A worldwide median of 29 percent attribute poor policies to the gap existing between the rich and the poor. A few more blame inequality on the amount of the worker’s wages and salaries, the fact that some work harder than others, and, trade, education system, and the tax systems.

High and sustained levels of inequality, including inequality of opportunity can mean large social costs. Well-established inequality of outcomes can significantly undermine individuals’ educational and occupational choices. Inequality of outcomes does not generate the “right” incentives if it rests on rents. As such, people have an incentive to channel their efforts toward securing favoured protection and treatment, leading to resource misallocation, nepotism and corruption, with attendant adverse economic and social consequences. Specifically, citizens can lose confidence in institutions, eroding social cohesion and confidence in the future.

Opinions about taxation policy that will help reduce inequality differ between advanced economies and emerging and developing nations. The difference is whether to impose low income taxes on the corporations and the wealthy to boost economic growth and investment or higher taxes on the wealthy and corporation to fund initiatives that help the poor. The balance of the opinion in emerging economies is in favour of low taxes while people in developed economies say that high taxes are most effective.

Irrespective of the inequalities, people in the emerging economies are optimistic that the next generation will have a better life. A survey of 25 emerging markets revealed that more than half in 16 emerging economies agree that the children in their nations will be financially better off. However, at least seven out of ten people in China, Vietnam, Brazil, and Chile are more sceptical. Poland citizens are significantly pessimistic about their next generation’s future opportunities. The Poles’ pessimism emanates is much influenced by the economic crisis within the European Union. Generally, economies that witnessed greater economic growth after the 2008 financial crisis are more optimistic for their next generation. More emerging markets are shifting their attitudes to a better off future generation.

The opinion of getting ahead in life among the emerging economies is in favour of hard work and good education system. Most of the economies list good education as the key to successful living, followed by hard work. People in developed world worry more about unemployment and public debt rather than inequality. However, the emerging markets and developing economies are much concerned about jobs and inflation.

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