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ORIGINAL FRENCH ARTICLE: Les inégalités troublent la croissance mondiale

by Stéphane Aubouard

Inequality Perturbing World Growth

Translated Wednesday 17 December 2014, by Gene Zbikowski

The gap between rich and poor is the widest it has ever been in the past thirty years. The solution for the economy is a better redistribution.

The disciples of unbridled free trade, which has flooded practically the whole planet, will have to revise their ideological beliefs. According to the Organization for Economic Cooperation and Development, to which 34 countries belong (including both developed and emerging countries), their system is decidedly not working: the inequality between the rich and the poor has never been greater over the past thirty years. A single sentence sums up the worrying report (oecd.org/fr) that was published on Dec. 9: “Today, the richest 10% of the population in the OECD area earn 9.5 times more than the poorest 10%.”

Inequality is greatest in Mexico, the United States, Finland, Israel, and the United Kingdom. However France, Belgium and the Netherlands have experienced a smaller variation.

Another striking analysis: the increase in inequality is also affecting growth in all of these countries. “Rising inequality is estimated to have knocked more than 10 percentage points off growth in Mexico and New Zealand, nearly 9 points in the United Kingdom, Finland and Norway and between 6 and 7 points in the United States, Italy and Sweden,” according to the report which moreover again points out the full weight of social origin in this inequality.

The report favors a reinforcement of access to public services.

“The average incomes at the top of the distribution have seen particular gains. However, there have also been significant changes at the other end of the scale. In many countries, incomes of the bottom 10% of earners grew much more slowly during the prosperous years and fell during downturns.”

The negative impact on growth is also due to the gap that separates the poorest 40% of households from the rest of the population, “by hindering human capital accumulation, income inequality undermines education opportunities for disadvantaged individuals, lowering social mobility and hampering skills development.”

Finally, the OECD report wrings the neck of the barkers who see the state as responsible for world economic stagnation. “The most direct policy tool to reduce inequality is redistribution through taxes and benefits. The analysis shows that redistribution per se does not lower economic growth.”

And it concludes with some advice that is not very fashionable these days in the corridors of Brussels, Washington, and Paris: “Not only cash transfers but also increasing access to public services, such as high-quality education, training and healthcare, constitute long-term social investment to create greater equality of opportunities in the long run.”

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