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A Sharp Growth in Inequality

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The losers in much of this are the majority of citizens and their governments. Governments become poorer, partly as a result of tax evasion and partly because more of their citizens are impoverished and therefore less capable of meeting their social obligations. The Genuine Progress Indicator (GPI) is a comprehensive measure that includes social conditions and environmental costs; it adjusts expenditure using twenty-six variables so as to account both for costs such as pollution, crime, and inequality and for beneficial activities where no money changes hands, such as housework and volunteering.


After twenty or more years of IMF and World Bank restructuring programs, many countries now carry a far larger burden of debt to diverse private lenders represented by the IMF than they did before international financial intervention.

An international team led by Ida Kubiszewski from Australian National University collected GPI estimates for seventeen countries, which together account for over half the world’s population and GDP, to generate a global overview of GPI changes over the last five decades. They found that GPI per person peaked in 1978 and has been declining slowly but steadily ever since. In contrast, GDP per capita has been rising steadily since 1978. The research team argues that this signals that social and environmental negatives have outpaced the growth of monetary wealth. Clearly, an additional factor is the distribution of that monetary wealth, which, as we know from other data examined in this chapter, has become increasingly concentrated at the top.


Using IMF data on public expenditures and adjustment measures in 181 countries, Isabel Ortiz and Matthew Cummins examine the impact of the crisis, from 2007 through the forecasts for 2013– 2015. The authors find that the IMF data used in 314 studies show that a quarter of the countries are undergoing excessive contraction. “Excessive contraction” is defined as a cut in government expenditures as a percentage of GDP in the 2013–2015 postcrisis period compared to the equivalent measure in the precrisis levels of 2005–2007. Fiscal contraction is found to be most severe in the developing world. Overall, sixty-eight developing countries are projected to cut public spending by 3.7 percent of GDP on average in 2013–2015, compared to 2.2 percent in twenty-six high-income countries. In terms of population, austerity will affect 5.8 billion people, or 80 percent of the global population, in 2013; this is expected to increase to 6.3 billion, or 90 percent of people worldwide, by 2015. This leads the authors to question the desirability of fiscal contraction as the way out of the crisis. They argue that the worldwide propensity toward fiscal consolidation is likely to aggravate unemployment, produce higher food and fuel costs, and reduce access to essential services for many households in all these countries. These households are bearing the costs of a “recovery” that has passed them by.


Some of the major processes feeding the increased inequality in profit-making and earnings capacities are an integral part of the advanced information economy; thus this growing inequality is not an anomaly nor, in the case of earnings, the result of low-wage immigrant labor, as is often asserted. One such process is the ascendance and transformation of finance, particularly through securitization, globalization, and the development of new telecommunications and computer-networking technologies. Another source of inequalities in profit making and earnings is the growing service intensity in the organization of the economy generally, that is to say, the increased demand for services by firms and households. Insofar as there is a strong tendency in the service sector toward polarization in the levels of technical expertise that workers need, and in their wages and salaries, the growth in the demand for services reproduces these inequalities in the broader society.


The exceptionally high profit-making capacity of many of the leading service industries is embedded in a complex combination of new trends. Among the most significant over the past twenty years are technologies that make possible the hypermobility of capital at a global scale; market deregulation, which maximizes the implementation of that hypermobility; and financial inventions such as securitization, which liquefy hitherto illiquid capital and allow it to circulate faster, hence generating additional profits (or losses). Globalization adds to the complexity of these service industries, their strategic character, and their glamour. This in turn has contributed to their valorization and often overvalorization, as illustrated in the unusually high salary increases for top-level professionals that began in the 1980s, a trend that has now become normalized in many advanced economies.


Of all the highly developed countries, it is the United States where these deep structural trends are most legible. National-level data for the United States show a sharp growth in inequality. For instance, earnings growth during the precrisis level for 2001 to 2005 was high but very unequally distributed. Most of it went to the upper 10 percent and, especially, the upper 1 percent of households. The remaining 90 percent of households saw a 4.2 percent decline in their market-based incomes. [Looking at the twentieth century, we see] a longer-term pattern from the boom and bust of the 1920s, the growth of the middle sectors in the decades of the Keynesian period, and the return to rapidly rising inequality by 1987. It was in that immediate postwar period extending into the late 1960s and early 1970s that the incorporation of workers into formal labor market relations reached its highest level in the most advanced economies. In the United States, it helped bring down the share of total job earnings going to the top 10 percent from 47 percent at its height in the 1920s and early 1930s to 33 percent from 1942 until 1987. The formalization of the employment relation in this period helped implement a set of regulations that, overall, protected workers and secured the gains made by often violent labor struggles. Not that all was well, of course. This formalization also entailed the exclusion of distinct segments of the workforce, such as women and minorities, particularly in some heavily unionized industries. Whatever its virtues and defects, this golden period for organized labor came to an end in the 1980s. By 1987, inequality was on its way up again, and sharply.


The Global South has had its own version of shrinkage, a subject I develop at greater length in Chapter 2. Very briefly, after twenty or more years of IMF and World Bank restructuring programs, many of these countries now carry a far larger burden of debt to diverse private lenders represented by the IMF than they did before international financial intervention. Their governments now pay more to their lenders than they invest in basic components of development such as health and education.


These are some of the key destructive trends that began in the 1980s, took off globally in the 1990s, and reached some of their highest levels in the 2000s. Although many of them began before the 2008 crisis, they were not quite visible. What was visible was the redevelopment and gentrification of vast urban areas, which produced an impression of overall prosperity, from Paris to Buenos Aires, from Hong Kong to Dublin. Now these formerly invisible trends have been exacerbated and have become visible. In their extreme forms they can function as windows into a more complex and elusive reality of impoverishment in the making, one partly engendered by what was mostly visible as explosive growth in wealth and profits, a twenty-year process I have examined in great detail elsewhere.


In what follows I examine the sharp shifts in a number of very diverse domains. They range from the rapid growth in corporate profits alongside the rapid increase in government budget deficits to the rise of displaced populations in the Global South and the rising rates of incarceration in the Global North. Each of the domains examined is highly specific and functions within a particular assemblage of institutions, laws, aims, and obstacles. As conditions become acute, they contribute to a third phase that is just beginning, one marked by expulsions—from life projects and livelihoods, from membership, from the social contract at the center of liberal democracy. It goes well beyond simply more inequality and more poverty. It is, in my reading, a development not yet fully visible and recognizable. It is not a condition faced by the majority, though it might become one in some cases. It entails a gradual generalizing of extreme conditions that begin at the edges of systems, in microsettings. This is important, because much of this sharp shift I am seeking to capture is still invisible to the statistician. But it is also to the passerby—the impoverished middle classes may still be living in their same nice houses, with their losses hidden behind neat facades. Increasingly these households have sold most of their valuables to afford payments, have started to sell their basics, including furniture, and are doubling up with grown-up children. My assumption is that in their extreme character these conditions become heuristic and help us understand a larger, less extreme, and more encompassing dynamic in our political economies.


Photo: Asiya Khaki 2008

Photo: Asiya Khaki 2008


Saskia Sassen is Robert S. Lynd Professor of Sociology and co-chair of the Committee on Global Thought at Columbia University.


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