While world economic growth is on the rise, inequality has worsened. According to a recent Oxfam report, 62 billionaires now own as much as the poorest half of the world’s population.
Inequality, as it affects developed and emerging markets, often resulting in unemployment, poverty, political instability and conflict, has become one of the key agenda items on the global policy stage.
The issue is also a topic of discussion in the Cayman Islands, where many have begun to describe a widening gap between the rich and the poor. It was recently the focus of Fidelity Bank’s 2016 Cayman Economic Outlook conference.
The 13th annual conference, “Think: Inequality Addressing the Global Imbalance,” at The Ritz-Carlton, Grand Cayman, brought a panel of international speakers and local leaders to discuss the ramifications of inequality on global and local markets.
While the morning began with fairly bullish perspectives on the global economy, keynote speaker Dambisa Moyo warned the audience that her outlook on the global macroeconomic environment and, specifically, income inequality, would be “pretty negative and pretty bearish.”
Though income inequality between countries has improved over the last several years, she said, the same cannot be said for income inequality within countries, especially developed countries.
Ms. Moyo, a global economist and author who analyzes the macroeconomy and international affairs, and who was named one of Time magazine’s “100 Most Influential People in the World”in 2009, offered four reasons why income inequality is an important – and complicated – issue.
First, she said, is there is no clear solution.
“The over-arching theme here is actually, we don’t really have an answer for what we should do given the income inequality problem,” Ms. Moyo said.
She asked which model countries should choose: Market capitalism or state capitalism? One one hand, China has shown “significant and positive” signs of improving income inequality, while the U.S. model has “undoubtedly” created a GDP surplus over the last 150 years – though, she said it seems to be coming at a cost. In particular, in the aftermath of the financial crisis, income inequality in the United States has worsened, while in China, which has prioritized the issue, it has improved.
Either way, Ms. Moyo concluded, income inequality in both countries is virtually the same.
Narrowing it down to the spectrum of left-leaning versus right-leaning governments in a liberal democracy, should countries rely on a tax-and-distribute model or keep taxes low and rely on trickle-down, with the idea that more people will be hired and invest in their society?
“Well, I’m sorry to tell you that neither of these models have actually worked,” Ms. Moyo said.
Third, Ms. Moyo said, is that income inequality will be an issue as long as countries do not create social mobility.
Using the United States as an example, Ms. Moyo described how much of the economic success in the middle of the 20th century the U.S. saw was on the back of mass migration into the United States, but also the belief of those immigrants that they could move up the social ladder.
However, in recent years, she noted, the vehicles which immigrants, or anyone, uses to better their position in a society have deteriorated and become less accessible. For example, in the history of the United States, she said, this is the first generation where education standards are lower than in the preceding generation.
“I think that’s incredibly damning,” Ms Moyo said. “Fundamentally the education system of the United States is not bestowing opportunities to young people, and actually the probability of somebody ascending from a low-income or immigrant status into a higher income, which used to be very much the pattern with the United States…social mobility has become a big big problem there.”
The final point Ms. Moyo made to illustrate why income inequality is a “very urgent” issue is that global growth is stalling. In September 2014, the Organization for Economic Cooperation and Development stated that the world should not expect to see the kind of growth it saw before 2007 ever again.
“Now this is particularly important for emerging markets, but also for developing markets,” My Moyo said.
She said that productivity in a country, largely determined by quality and quantity of labor, represents 60 percent of the reason one country performs well and another one doesn’t.
“From the perspective of developed countries alone…we know that they continue to struggle with debts and deficits in terms of capital, we have a real issue in terms of labor markets both in terms of the quality and quantity,” Ms. Moyo said.
In the emerging market, where 90 percent of the world’s population lives, and 70 percent of that population is under the age of 25, Ms. Moyo said governments are struggling to determine how and where to fund themselves, in order to invest “not just in education and healthcare, but to provide the opportunity to create jobs.”
She added that the advent of technology has also become quite a disrupter in terms of job creation, particularly in the emerging markets.
“Income inequality is ultimately about economic growth,” Ms. Moyo said, but added that she is “suspicious” of anyone that says they have an answer for income inequality or indeed for economic growth.
“I think to the extent that we see some proof of life of economic growth in the United States, for example, is very superficial and I think it’s very targeted on consumers and housing but does not address any of the fundamental problems that I’ve mentioned here,” Ms. Moyo said. “It’s not investing in education, it’s not investing in infrastructure, and these are really the pillars that we have created.”
Ms. Moyo said, “We love to solve things, to find Band-Aid, short-term solutions, but we don’t like to think about long-term solutions” to establish and maintain a minimal acceptable standard of living.
The issue of where and how governments should invest in order to reduce income inequality continued in the conference’s panel discussion on the topic of inequality in the Cayman context.
Panelist Paul Byles, CEO of First Regents Bank, said income inequality is a serious problem in the Cayman Islands because it creates social instability. He said around 50 percent of all workers in the territory earn $2,800, and around 25 percent of the population earn less than $1,200 a month. Such salaries, Mr. Byles said, do not go very far in a place where it is so expensive to live.
MLA and employment minister Tara Rivers said establishing a minimum wage, which goes into effect March 1, will increase individuals’ ability to live more comfortably in the Cayman Islands.
She added that she wants to make sure Caymanians are given the opportunity to get the very best education as well as more opportunities to enter the job market, and pointed to current projects “in the pipeline” in which the public and private sectors will team up to do just that. The newest program, she said, is Ready2WorkKY, which involves government paying the wages of private sector employees during a trial period as an incentive to firms to take a chance on unemployed Caymanians.
Mr. Byles said that while such a program is “great,” Cayman is still “nowhere near where we need to be” in its long-term planning. He said the educational efforts should also focus on creating a proper vocational school.
He also stressed that Cayman’s unemployment woes cannot be entirely blamed on the business community, and that the territory should not expect the business community to solve the issue on its own.
“This country has a huge unemployment issue. It doesn’t mean that all of a sudden some guys in the business community created that problem,” Mr. Byles said. “There are so many reasons why a particular person may be unemployed.”
Conference attendee Eamon McErlean said, “Leaders seem to think they can pass ownership of this problem to the islands’ private sector, blaming it year after year for not employing all of them.”
He asked panelists if there was not more that could be done to help the unemployed and unemployable – individuals who cannot or will not gain employment due to a variety of issues, including poor education, a limited skill set, low motivation, health issues or criminals records.
According to Mr. Byles, some people in the Cayman Islands are getting benefits, but it is a question of whether the government has the necessary resources to access and process these individuals who need assistance.
Panel moderator Jeremy Hurst asked if, perhaps, people were overreacting about unemployment in the Cayman Islands. After all, he said, compared to other juridictions in the region, the unemployment rate is relatively low.
Ms. Rivers agreed that when considered in the global context, the unemployment rate in Cayman is low, but it is gradually improving. According to the Economic and Statstics Office’s 2015 spring labor force report, unemployment for Caymanians is 8.3 percent, down from 10.5 percent in 2012.
“In absolute terms…we’re certainly moving in the right direction,” Ms. Rivers said. “But that said, for the individual man or woman on the street who is unemployed, that means absolutely nothing…
“So we certainly as a government, as a people, as a country, can’t just sit back and be complacent or content with just the increasing national statistics as an indication of whether or not we still have a problem to address.