Inequality: the future

If inequality continues to rise, it may become a destabilizing global force that manifests not only in increasing disaster risk but also in de-creasing capacities to manage those risks.

If inequality is a driver of increasing disas-ter risk, future projections give no reason to be optimistic. Instead, inequality may well contin-ue to increase in social, economic and territorial terms. As financial capital flows into competitive sectors and locations that provide opportunities for short-term gain, less competitive sectors and locations are left behind. As in the board game Monopoly, where there are winners, by definition there are also losers. Any progress in address-ing vulnerability and social resilience, includaddress-ing progress through risk financing, may be ineffec-tive if inequality continues to grow.

Socially, the divide between those who have access to financial capital and those who depend on wage labour for their needs continues to grow.

All over the world, wealth has become increas-ingly concentrated since 1990 (Davies et al., 2012;

Piketty, 2014; Credit Suisse, 2013). Wealth is dis-tributed very differently within regions, though most exhibit high levels of inequality (Figure 9.9).

Increasing income inequality is closely linked to the race for competitiveness, in which businesses

continue to depress real wages in many sectors while governments likewise cut spending on social welfare and safety nets (ILO, 2013; UNIS-DR, 2013a). As a result, wages for large parts of the population have not kept up with econom-ic growth, the benefits of capital accumulation have not trickled down, and working conditions have become more precarious for larger num-bers of people. For example, labour productivi-ty increased more than twice as much as wages in developed countries between 1999 and 2011 (ILO, 2013). At the same time, competitive new sectors in the world economy in areas like bio-technology and nanobio-technology seem unlikely to generate significant future demand for unskilled or low-skilled labour (Castells et al., 2012).

In the United States, labour productivity grew by 75 per cent in the non-farm sector between 1980 and 2011, while wages increased by only 35 per cent. In China, where wage levels have tripled over the past decade, GDP increased at an even faster rate, resulting in the labour share going

down (ILO, 2013). There has been a long-term trend towards corporate profits rising while wag-es fall. Income gaps between the top 10 per cent of earners and the bottom 10 per cent have wid-ened (ibid.). However, what may be most impor-tant is that global median wealth (as a proxy for the wealth of the middle class) has decreased steadily since 2010 (Figure 9.10), highlighting that the economic recovery after the financial crisis of 2008 has, to date, been short-lived.

This global trend may persist, with a steady increase in inequality over decades to come (OECD, 2011; Piketty, 2014). This increase will con-tinue as global economic output (and therefore income levels) is projected to continue to grow at a lower rate than return on capital (Figure 9.11). In other words, those who are dependent on income from labour for their well-being will struggle even more to create even a small asset base.

Should inequality continue to increase in this manner, even a growing middle class of

Figure . Global distribution of wealth

professionals will not be able to accumulate wealth in the same way as those with financial capital (Piketty, 2014).

At the household level, the middle class will con-tinue to hold the majority of their assets in the form of property (houses) and labour (invest-ments in education and skills). This increas-es their relative exposure and vulnerability to hazards disproportionately compared to those whose wealth depends on financial capital. As a result, growing income inequality will manifest itself as growing disaster risk inequality.

For example, the home of a typical middle-class family in the United States of America represents more than 50 per cent of the total value of the family’s assets (Trawinski, 2013). In the absence of insurance, damage to or loss of this asset in a disaster could halve the family’s wealth and constrain its ability to accumulate assets in the

future, as its members would be forced to spend their savings on alternative accommodation. The percentage of homeowners with flood insurance in Louisiana at the time of Hurricane Katrina was as low as 7.3 per cent in some of the most severely affected counties (Kunreuther and Pauly, 2006).

Figure .10 Minimum wealth of top 50%, 10% and 1% of global wealth holders (base year 2008 = 100)

(Source: Credit Suisse, 2014.)

(Source: Piketty, 2014.¹²)

Figure .11 Economic growth vs income from capital

If the return on capital continues to rise fast-er than economic growth, then inequality may become a destabilizing global force that mani-fests not only in increasing disaster risk but also in decreasing capacities to manage those risks.

Similarly, if inequality is a challenge to global gov-ernance, it is also a challenge to disaster risk man-agement. If successful and competitive countries are able to invest more in disaster risk reduction while unsuccessful and uncompetitive countries are unable to do so, then disaster risk inequality will continue to increase.

Notes

1 Data from 2013. Source: UNDP Human Development Report 2014 database.

2 Data from 2012. Source: WHO Life Expectancy Indicators.

3 Data from 2012. Source: WHO Life Expectancy Indicators.

4 http://www.scotland.gov.uk/Topics/Statistics/SIMD (accessed 11 January 2015).

5 Maps provided to UNISDR by the National Library of Scotland and Ordnance Survey in January 2015.

6 http://www.prb.org/Publications/Articles/2011/disaster-risk.

aspx (accessed 3 December 2014).

7 Using the Gini coefficient, World Bank data and OECD, 2011.

8 For the original data from the Turkish Union Survey, see http://

www.hurriyetdailynews.com/poverty-threshold-continues-to-rise-in-turkey.aspx?pageID=238&nid=53256 (accessed 11 Janu-ary 2015).

9 http://clp-bangladesh.org/work/overview (accessed 3 January 2015).

10 http://www.eenet.org.uk/resources/eenet_newsletter/eer1/

page24.php (accessed 11 January 2015).

11 http://www.un.org/disabilities/default.asp?id=271.

12 For the open source data underlying Piketty’s analysis, see http://piketty.pse.ens.fr/fr/capital21c.