When income inequality hurts economic growth

By Mohammad Badrul Ahsan

Bad news for the advocates of spasmodic growth, an economy doesn’t work like an inflated balloon. Pumping air stretches the balloon uniformly, but that’s not exactly how prosperity gets distributed across the population in a country. This is the finding of the Paris-based Organisation of Economic Cooperation and Development (OECD). Its new study reveals that income inequality hurts economic growth. That’s why making many people rich doesn’t diminish poverty. Instead it promotes polarization and concentration of wealth. Big businesses are built, luxuries abound and decadence stalks a society. The poor get upgraded as poverty moves from the belly to the brain. The howl of deprivation gets shifted from mouths to souls. The OECD concludes that the single biggest impact on growth is the widening gap between the lower middle class and poor households. The rising income has to chase growing needs as luxuries continue to transform into necessities. Absolute poverty soon cedes place to relative poverty. Better fed, clad and housed, the poor still fail to afford an investment in education. They lag behind like their ancestors, and inequality persistently resists growth. How exactly does it happen? When the children from poor families don’t have access to education opportunities, it holds back their chance of social mobility and limits their scope of skills development. The vicious circle sets in for those whose parents have low levels of education, because their educational outcomes deteriorate as income inequality rises. So, the OECD experts argue that the anti-poverty programs cannot do enough unless cash transfers and increasing access to public services, such as high-quality education, training and health care are also fostered as essential pillars of social investment. In other words, poverty alleviation is bound to remain an elusive goal if a country does not engender greater equality of opportunities for its citizens.