Gap between the Rich and the Poor
All recent studies regarding the gap between the rich and the poor are consistent in their findings; that there has been a growing gap between the rich and the poor in all countries. Developed countries such as United States, France, Germany and Britain have not been left out.
A country’s per capita income is not sufficient to tell whether inhabitants of that country are poor. A large percent of total incomes could be earned by a few individuals. This would mean that there is no equality in the distribution of resources in these countries.
Statistics regarding income inequalities in the world are available. Countries have been rated according to income inequalities among their populations. A Gini index is given. An index of 0 shows absolute equality. This means that as the index approaches zero, countries have reduced income inequalities. An index of 100 represents absolute inequality. This means that as the index approaches 100, countries have increased income inequalities. Some of the countries in the world with the greatest income inequalities include Namibia, with 74.3, Lesotho 63.2, Sierra Leone, 62.9, Haiti, 59.2, Paraguay, 58.4, Chile, 54.9, and Madagascar, with 47.5. Countries with the least income inequalities include Bangladesh, with an index of 33.4, Mongolia, 32.8, Netherlands, 30.9, Germany, 28.3, Finland, 26.9, Norway 25.8, Sweden, 25, and Denmark with 24.7. It is important to note that there are many other countries in between those mentioned. These 2007 statistics were provided by the World Bank (Gap Between Rich and Poor: World Income Inequality).
Most nations that have the highest indexes are third world countries, that is, they are developing countries. Several factors could lead to these situations. For example, rampant corruption and personalization of the state has previously enabled the power elite to manipulate the state for personal benefit. In addition, structural problems ensure that most poor people remain in a vicious cycle of poverty and underdevelopment. These problems include lack of enough money for savings and consequent investments. What is earned is usually spent and rarely saved. Third world countries have high unemployment rates. This scenario compounds the inequality problem because high unemployment rates translate into higher dependency rates and higher crimes rates, the latter is a threat to investment. Overall, stimulation for growth is minimal. In developed countries, there is a low inequality index, probably because of high literacy rates, existence of economic incentives and accountability of state machinery in ensuring income inequality gaps are brought down (Salverda & Nolan, 2009).
The Role of World Leaders
Various conferences and seminars have been organized by world leaders and organizations in an attempt to find solutions to the problem of income inequality. For example, Millennium Development Goals were agreed upon by all member countries of United Nations, and were hoped to partly address the same issue. One of the MDGs is to reduce poverty. The specific steps included reducing the number of people living on less than a dollar every day. Conclusively, such steps are indirectly aimed at bridging the gap between the rich and the poor, both at the local and the international level (Lambert, 2002).
World leaders have, in their respective countries, initiated short-term and long-term plans to bridge the gap between the rich and the poor. Some countries, such as Britain, have unemployment benefit plans where unemployed people are paid, at least for a period not exceeding six months.
World leaders have a tendency to formulate progressive taxation policies. Revenues collected from the rich population are used to offset imbalances in income distribution, for example, through infrastructure development. Infrastructural development projects include construction and improvement of roads, railway systems, airports, shipping ports, hospitals and schools. These funds are also divided among local governments to help them bridge income inequalities, both at individual or district level (Schmidtz, 2006).
Opinion on the Initiatives to Reduce Inequalities
Poverty reduction plans can greatly reduce the problem of income inequality. However, it is important to note that all countries have different inequality indexes. This means that inequalities could be explained by different sets of structural, cyclical and financial problems that only individual countries can define and respond with appropriate set of mechanisms to reduce the inequality gap. It would be useless, therefore, for world leaders to assume that a particular set of proposed actions can be applicable in all countries.
Most actions taken to reduce the gap between the rich and the poor in specific countries are short-term solutions. For example, unemployment benefit plans do not incorporate strategies to resolve cyclical and structural problems. The pool of money from which payments to the unemployed are sourced should be turned into a Fund from which entrepreneurs can access cheap loans (Wilkinson & Foster, 1997).
There has been overemphasis on progressive taxation as a means of bridging the gap between the rich and the poor. This is a short-term method. Potential structural problems, such as low literacy, low level of awareness and insufficient capital are ignored. Even if the rich are taxed more, they still earn more. Incentives to the lower classes only serve to increase dependency rates on government-sponsored projects.
Recommendations for Resolving Income Inequalities
A pool of qualified personnel from diverse fields such as economics, administration, public policy, law and technology should be formed in various countries, and be tasked with formulation of a nationalistic strategy to reduce the gap between the rich and the poor. The strategy will investigate the causes of widening gaps and the environment in which they thrive. The team of professionals will come up with measures to reduce long-term barriers of equality. For example, if capital is the main reason why people cannot be entrepreneurial, ways of granting the necessary capital and availing free information about running businesses should be examined.
World leaders need to come up with ways of reducing government expenditure on luxuries and then using the money to reduce income inequalities. For example in United States, the wars in Iraq and Afghanistan are believed to cost the government billions of dollars. At the same time, the economy is recovering from the worst recession since 1980s. In some developing countries, public offices are associated with increased wealth, gained through manipulation of state machinery, and high salaries. Salaries and remuneration commissions have been established in the past, to determine the amount of salaries befitting public officers. Unfortunately, the idea of such commissions has not been accepted in most countries. It has been proven to be successful, for example in Ghana and Kenya. The amount saved is used in developmental projects, especially those that empower women and youth (Penalosa & Turnoysky, 2006).
Local approaches to reducing the gap between the rich and the poor should be long-term. Development funds granted by federal/national governments to state and local governments should be allocated in such a way that cheap but repayable loans for entrepreneurs are offered. In addition, local and state governments should invest in basic infrastructure such as schools and colleges. This will create immediate employment and increase productive capacity. Local and state governments also need to offer economic incentives such as industrialization and export tariffs, at least for new businesses.
All recent studies on the gap between the rich and the poor reveal that the gap is widening. Most countries that have the highest inequality indexes are third world. First world countries have low inequality indexes. Second world countries have average income inequalities.
Unemployment benefit plans, progressive taxes and Millennium Development Goals (MDGs) are directly and indirectly aimed at reducing income inequalities. These methods are not the best. Some of these are not long-term solutions. World leaders need to come up with ways of identifying structural, financial, environmental and cyclical problems, and analyzing appropriate solutions applicable to specific countries or regions. Luxury spending should be reduced or avoided, and more funds need to be set aside to empower disadvantaged groups.
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