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Fair distribution between nations
Summary:
Recent decades of neoliberal globalization and deregulation of trade and finance have been
characterized by an acceleration of global economic inequality. These inequalities create major
obstacles to adoption of international environmental agreements, financial stability, democracy and
social protection. Breaking the vicious cycles of inequality and these ecological, economic and social
crises requires urgent policies to reduce greenhouse gas emissions, reforms of the global economic
system and ad-hoc interventions to promote global social protection. Policy changes toward a more
sustainable and fair world include a global agreement on climate change on the basis of “equal
rights to pollute”, a new global financial architecture emulating the Bretton Woods System,
regulations of TNCs, global taxes on carbon, currency speculations, and offshore transactions, and a
global social fund to reduce poverty and promote social protection worldwide.
The staggering extent of global inequality
According to The United Nations University (UNU) and the World Institute for Development
Economic Research (WIDER), in 2008 the richest 2% of all adults owned half of global
household wealth, while poorest half of the world owned just 1%. In the same year, the Gini
coefficient for global wealth inequalities, an index ranging from 0 (lowest value) to 1 (highest
value), was estimated at 0.89. This is the value that would obtain in a population of ten
people if one person had $1,000 and the other nine had just $1.1 Figure 1 presents data for
180 nations ranked by Gross National Income (GNI) per capita (purchasing power parity in
current international $) from the World Bank’s World Development Indicators, 2012.
Although some authors have argued that economic globalization reduced economic
inequality between countries2 3 4 5 and created a “level playing field”, the shape representing
today’s distribution of wealth still resembles a pyramid.
Figure 1
The Pyramid of World Wealth Inequalities between 180 Nations ranked by Gross National
Income (GNI) per capita PPP (current international $), 2009.
Source: World Bank’s World Development Indicators database (2012).
[Reprinted from De Vogli R. Progress or Collapse: the Crises of Market Greed. New York and London: Routledge (Taylor &
Francis), 2013.]
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Globalization has increased global inequality
Recent decades global deregulation of trade and finance have been characterized by an
acceleration of global economic inequalities.6 7 8 Figure 2 shows a temporal trend in global
wealth inequality measured as a mean difference in GNI per capita (Atlas method, in current
international $) between 88 Nations from 1960-2010. In line with previous evidence, the
figure shows that after a stable period in the 1960s, global wealth inequality rapidly
increased between 1970 and 2010 during the era of ‘neoliberal’ globalization.
Figure 2
Trend in Global Wealth Inequality (Mean Difference in GNI per capita, Atlas method –
current international $) between 88 Nations, 1960-2010.
Source: World Bank’s World Development Indicators database (2012).
[Reprinted from De Vogli R. Progress or Collapse: the Crises of Market Greed. New York and London: Routledge (Taylor &
Francis), 2013.]
One of the mechanisms explaining the rapid increase of global economic inequality relates
to the rise of transnational corporations (TNCs) (mostly based in developed nations) that
have accumulated a spectacular amount of wealth in the last few decades. A recent study
revealed that 1,318 global companies collectively own, through their shares, the majority of
the world’s largest manufacturing firms and blue chip companies, representing about 60%
of global revenues. The same study also showed, however, that a “super-entity” of 147
companies, less than 1% of the total, controls about 40% of the entire wealth in the
network.9 When considering global financial actors such as hedge funds, private pension
funds, mutual funds, investment banks and insurance companies, concentration of wealth
reached even more grotesque proportions. In 2010, 6 banks—Bank of America, JP Morgan
Chase, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley—controlled about 60%
of the US GDP.10
The impact of global inequality
A large body of evidence indicates that excessive global inequality creates major obstacles
to the adoption of international environmental agreements, financial stability, democracy
and social protection (poverty reduction).
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International environmental agreements
Excessive inequalities undermine effective international cooperation for the
resolution of global ecological crises,11 12 13 and long-term agreements on climate
change because these inequalities erode conditions of generalized trust and
promote very different views of “fair” solutions in rich and poor nations.14 15
Financial stability
Economic historians have recently recognized that both the 1929 Great Depression
and the 2008 Great Recession were preceded by a high concentration of wealth and
income at the top of the income distribution in the US.16 IMF economists have
recently argued for “restoring the bargaining power of low income groups” as the
most effective strategy to prevent future financial meltdowns 17.
Democracy
Numerous authors have decried the loss of national sovereignty caused by the threat
of short-term capital flight ad the destabilizing political effects of too large TNCs and
financial powers.18 19 These organizations have acquired the ability to influence
political decisions on interest rates, exchange rates, budget deficits, social security
and redistributive taxation and can compel national governments to follow “fiscally
responsible” policies for fear of “financial retaliation.”20 21
Social protection (poverty reduction)
The distributional failures of the current global economic system are perhaps most
apparent when we compare endemic poverty and indigence with the wealth of the
world’s super rich. While the average pay package of a CEO in the US is about 350
times that of an average worker,22 23 24, about 5.1 billion people (75% of the world
population) are not covered by adequate social security (ILO), 2.6 billion people (38%
per cent of the global population) do not have access to adequate sanitation and 884
million people lack access to adequate sources of drinking water (UN-HABITAT); 925
million suffer from chronic hunger (FAO) and nearly 9 million children under the age
of five die every year from largely preventable diseases (UNICEF/WHO).”25
Reducing global inequality
Measures to deal with the threat of climate change provide an opportunity for a new model
of globalization and cooperation to both prevent ecological collapse and reduce global
economic inequality. We have therefore presented a series of proposals to tackle these
problems and redistribute wealth worldwide.
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Contraction & convergence to tackle climate change
Developed nations must lead by example by helping poor countries with new
environmental technologies and committing to the principle that each world citizen
has an equal entitlement to the atmosphere. “Contraction & convergence” to reduce
greenhouse gas emissions enough to ensure “safe and stable” concentrations in the
Earth’s atmosphere are strongly needed. Chakravarty and colleagues proposed a
new framework for allocating a global carbon reduction target among nations with
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using each country’s income distribution to estimate how its average greenhouse gas
emissions are distributed across its citizens.26 Numerous authors have also proposed
a global carbon tax as an alternative – or complementary – solution to address
climate change, together with an aggressive pro-poor redistribution scheme that
redirected large shares of tax revenues to the extreme poor to address the
potentially regressive redistributive effects of a carbon tax.27
A new global financial architecture
 Numerous writers including John Eatwell and Lancet Taylor28 and institutions such as
the UNCTAD”29 advanced a series of regulations and global rules to prevent future
financial meltdowns. Several influential commentators have also proposed a new
version of the Bretton Woods system designed to promote high employment and
reduced vulnerability to crises through laws and regulations against speculation,
inequality and excessive capital movement.30 Figure 1 shows that both the 1929
Great Depression and the 2008 Great Recession were anticipated by years of
excessive capital flow, and deregulation of financial markets. More importantly, data
highlight the extremely low number of banking crises during the period covered by
the Bretton Woods System of capital controls, fixed exchange rates and banking
regulations.31
Figure 3
From the Great Depression to the Great Recession: Index of Capital Mobility and
Number of Banking Crises, 1900-2010.
Data sources: Reinhart, CM and Rogoff KS. “Dates for Banking Crises for 70 countries” available at
http://www.reinhartandrogoff.com/data/browse-by-topic/topics/7/ and Reinhart CM and Rogoff KS “Banking Crises: An
Equal Opportunity Menace” JEL E6, F3, and N0, 2008.
[Reprinted from De Vogli R. Progress or Collapse: the Crises of Market Greed. New York and London: Routledge (Taylor &
Francis), 2013.]
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Regulating transnational corporations
New global agencies charged with monitoring and regulating the practices of
transnational corporate powers, such as the UN Center on Transnational
Corporations (UNCTC), are also necessary if we are to protect the public interest and
move towards sustainable wellbeing. Numerous authors have also advanced new
rules such as the UN Code of Conduct for TNCs (and the revocation of corporate
charters and expulsion of a corporation when corporate powers grossly violate
public interests) to regulate the abuses of large companies on human rights, workers
and the environment.32 33 34 35 36
A global fund for social protection
 A promising tool for redistributing income and reducing poverty worldwide is the
development of a global fund for social protection as proposed by the International
Labor Office (ILO), WHO and other multilateral organizations. According to the
designers of the fund, the “social protection floor” is “a set of social policies that
include guarantees of: a) basic income security, in the form of various social
transfers (in cash or in kind) such as pensions for the elderly and persons with
disabilities, child benefits, income support benefits and/or employment guarantees
and services for the unemployed and working poor; b) universal access to essential
affordable services in health, water and sanitation, education, food security,
housing, and others defined according to national priorities.25
Global taxation to fund global social protection
 A key obstacle to the development of a global fund for social protection is often
thought to be the difficulty of identifying sources of revenue to support such a fund.
Here we propose two major mechanisms to recover public revenues for the fund:
global taxes and financial sanctions on tax havens. Jacques Cossart estimated the
potential of global taxation of $1,175 billion, a figure fairly close to that of the
Landau Report in 2004 which found that the revenue potential of global taxes is
$956 billion. Cossart proposed to tax: a) speculative transactions at 0.1%; b) stock
exchange transactions at 0.01%; c) profits of TNCs; d) assets; e) carbon emission tax;
f) plutonium and g) air transport. Recently, a coalition of civic society organizations
that are supported by UNICEF and 350 economists has re-popularized the idea
proposed by Tobin in 197238 and called it the Robin Hood Tax, a package of financial
transaction taxes on speculative dealings in foreign currencies, shares and other
securities of 0.05%.
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Taxing offshore transactions to fund global social protection
Another way of accumulating funds for environmental and social justice programs
worldwide would be to recover the taxes unpaid by corporations and wealthy
individuals using offshore centers. A congressional study estimated that, in 2000,
about 63% of US corporations paid no taxes and 6 out of 10 reported no tax liability
throughout the years from 1996 to 2000.42 A recent report by the Tax Justice
Network estimated that the global super-rich have between $21 and $32 trillion
hidden in tax havens. The author estimated that this amount of unreported wealth
would have generated income tax revenues of between $190-280 billion a year.
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Inspited by Tobin, that proposed that, in order to avoid a shift of transactions to tax
havens after the implementation of a financial transactions tax, was necessary to tax
activities performed at offshore havens,47 numerous authors proposed actions
against offshore havens. Smith and colleagues proposed to discourage the
development of tax havens by imposing a punitive tax on transactions between
those in tax havens and those outside tax havens.45 Arestis and Sawyer46 also
envisaged the possibility of applying transaction taxes at penalty rates to funds that
are transferred to or from tax havens.
Annex References & bibliography
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