Explain how the distribution of wealth in a country impacts on its
development. (30 marks)
The Caribbean is a region built off of inequality and the issue of unequal
wealth distribution is no different. The distribution of wealth is a comparison of
the wealth of various members or groups in a society. This is a feature
stemming from the plantation society which continues to be a feature in
contemporary Caribbean societies. The way in which development has shifted
from purely economic indicators to the Human Development Index (HDI) and
sustainable development has uncovered that wealth distribution has more than
an economic impact. To explain how the wealth distribution affects development
a myriad of factors will be discussed.
The fundamental problem in Caribbean countries such as Jamaica is that
wealth is held by a minority of individuals in the upper class who control the
factors of production (land, labour, capital, enterprise). This allows the upper
class to constantly be wealthier than others in the country which ultimately
affects the country’s development. Inequality depresses economic growth
because when the majority of National Income is taken by the wealthy minority
then there is less wealth for the rest of society to share.The wider the
economic gap between the rich and the poor, the longer a country will take to
develop as the wealth and economic growth is only concentrated to a particular
group as opposed to being widespread. Also, there are only two things which
people can do with money: spend it or save it. The rich tend to save more of
their money while the poor will spend most of their income so the poor alone
cannot drive economic development forward.
Furthermore, income inequality gives rise to other social issues such as
crime and juvenile delinquency. In Jamaica especially there is a lot of income
inequality and in the ‘slums’ or ‘shanty towns’ in places such as Kingston there is
a lot of crime. Tourists are even told to refrain from visiting these areas and
many locals are scared. The residents in these areas are extremely
impoverished and spend more than half of their incomes on food. Many of them
have no choice but to turn to a life of crime to feed their families. In addition,
children are sometimes forced out of school to help provide for the family using
whatever means possible which could also increase the crime rate.The crime
rate in Jamaica is astronomical! Jamaica recorded 1,301 killings in 2020, persons
are living in extreme poverty which is hindering development. Crime potentially
scares tourists from travelling to Jamaica as a result of the crime rate which
lowers GDP and the amount of resources which it takes for crimes to go through
the legal system (courts) diverts scarce resources from other social services
such as healthcare thus hindering human development. Also, the crime rate
could reduce the level of investment in the country as investors become fearful
which would understate the country’s GDP.
Additionally, when there is income inequality, poverty is exacerbated
which means more welfare and unemployment benefits need to be paid out by
the government with no direct tax revenue coming back in. Welfare payments
are referred to as transfer payments when calculating the country’s GDP and
these payments are deducted in the calculation which would understate the
country’s GDP. Output drives economic growth and when there are a large
amount of persons in an economy who rely on welfare benefits then this means
there is an underutilization of human resources in an economy which would
understate the country’s GDP and the country will not experience any economic
growth resulting in little to no levels of economic development. As a result of
poor economic growth the government cannot invest in infrastructure such as
roads, schools and whatnot nor social services such as education.
Moreover, the income inequality gap means that the majority of the
population will be enrolled in public school which will overwhelm the public school
system. For example, Jamaica has a teacher-student ratio of 1:40, one teacher
to 40 students. While the persons in the upper class live lavish lives and are able
to send their children to private schools and overseas for university, persons at
the bottom of the social strata are struggling for their children to gain an
education. With a teacher student ratio as large as 1:40, children will
undoubtedly slip through the cracks and no upward social mobility will occur.
Education is seen as the vehicle to move up the social ladder but without it then
where do these persons stand in society? Furthermore when children do not
have access to quality education it means an element of the human development
index is absent which would result in a poor ranking on the HDI which could
potentially reduce the level of Foreign Direct Investment or aid from donor
agencies. In addition, if persons have little to no education then it severely
limits the labour force because there will be no skilled labour rendering them
unemployable or the government will need to put vocational training programs in
place in an attempt to create skilled labour.
It should also be noted that when income inequality exists that less taxes
can be collected. Jamaica has a gini coefficient (used to measure income
inequality) of 45.5 with 100% representing absolute unequal distribution of
income in the country. If large numbers of persons within the economy are poor
then it means they will fall below the threshold for taxable income. From an
economic standpoint then the government does not have money but they utilize
tax payers’ money to spend on behalf of the citizens which is called government
spending. When the government is unable to collect taxes then there is no
money to spend which means the poor will suffer as a result because social
services cannot be sustained with no government revenue. This would mean
healthcare and education would suffer and there would be a lack of
infrastructure such as roads, bridges, airports and whatnot. For example, during
the Covid-19 pandemic scholarships to the University of the West Indies, Mona
were cut by $1 billion JAM. Furthermore, talks are ongoing about having
Jamaican students pay 40% of their tuition which is double what students are
paying right now (20%).
Finally, poverty often causes people to put relatively more pressure on
the environment which results in larger families , improper human waste disposal
leading to unhealthy living conditions, more pressure on fragile land to meet
their needs, and overexploitation of natural resources. When persons are
impoverished, sustainable development does not matter but it is about survival.
When there is no gas or electricity to cook, impoverished persons will not be
concerned about deforestation or other environmental issues but about survival.
For example, in areas with no water persons may use a river and this could
actually be breeding water borne diseases such as cholera which means the
country’s standard of living is bad and actually pollutes the environment.
In conclusion, income inequality may seem like a minor issue but below the
surface there are far more moving parts. It is a multifaceted problem affecting
all areas of development and not just the economic aspect. The government
needs to analyze the issue and attempt to tackle it. I feel strongly that the
government needs to actively address poverty and ensure that the majority of
the population is not impoverished but formal education in the classroom and
skills training need to play a large role in poverty reduction efforts.
Furthermore, larger investments should be made in education to make UWI for
example more affordable and more accessible to persons in the country to
increase the labour force and allow for upward social mobility. Every attempt
must be made to accommodate every group in society to ensure equity and
reduce polarization.