Global Inequality on A Rise

The World Bank Group unveiled a new system to rank countries based on their success in developing human capital, an effort to prod governments to invest more effectively in education and healthcare. 

Background 

The Human Capital Index quantifies the contribution of health and education to the productivity of the next generation of workers. Countries can use it to assess how much income they are foregoing because of human capital gaps, and how fast they would be able to turn their losses into gains if they act now. The Global Human Capital Index (GHCI) measures the country’s ability to nurture, develop and deploy talent for economic growth against four key area of human capital development; past investment in formal education, accumulation of skill through education, re-skilling and up-skilling of workers and specialised skills-use at work. In recent reports, the countries ranked at the top are Norway, Finland, Switzerland and the United States. India is ranked 103rd out of the 130 countries in the GHCI. 

Inequality has been on the rise everywhere across the world. It has grown faster in countries like Russia, India and China. Europe, on the other hand, is the least unequal region in the world, having experienced a middle increase in inequality. Rising income inequality should be focal to public debate because it is a close factor which motivates human behaviour. Globalisation, ageing populations and immigration contribute to inequality by diverting public service from redistributive policies. 

Analysis 

Asian countries have topped the new World Bank measure called the “human capital index”. The institution said increasing health and education investment could lead to more than half the children born this year to double their lifetime earnings. 

According to the International Labor Organization, income inequality has increased by about two-thirds of the countries since the 1990s. The financial crisis and the accompanying global recession are expected to widen the gap between the rich and the poor. The global economic downturns have caused serious pain to individuals across the world and have threatened to widen significantly, in developing and developed societies. 

Education - primary, secondary and tertiary - is perhaps the most critical means of improving the welfare of the disadvantaged population, particularly as more of the world enters into the global knowledge society. It should be viewed as inextricably linked to the health, social, economic and security status of individuals.

Namibia is a country that inherited the highest levels of inequality in Africa when it gained independence from apartheid-era South Africa in 1990. By investing in education, the Namibian government has managed to systematically reduce the gap between the rich and the poor, more than halving the poverty rate from 53 per cent to 23 per cent. It also spends a greater proportion of its budget on health. 

Other countries like Zimbabwe are also using this policy tool to buck the inequality trends. Zimbabwe spends the world’s highest percentage of their overall budget on education - a commitment recognised by UNESCO. 

Despite India being one of the world’s fastest growing economies, has a widening disparity between the rich and poor. Government spending on health, education and social protection are woefully low. Oxfam calculated that if India were to rescue inequality by a third, more than 170 million people would escape poverty. 

Assessment 

Our assessment is that human capital is the largest component of overall wealth followed by natural wealth. We feel that inadequate resourcing for health, education, sanitation and investment among the poorest drives extreme inequality. The main reason is corruption, lack of good leadership and outflow of unaccounted cash. 

We understand that inequality is a major concern for the rich countries as well. The top 1 per cent is not only capturing the larger share of national income, but the tax rates on the higher income groups have also dropped. Establishing a progressive tax code system would adjust capital gains tax rates in line with income tax rates. This would provide equal benefit for the lower-income families.