Seven out of ten people in the world today live in countries like India and China where income inequalities have increased over the past three decades, Christine Lagarde, managing director of the International Monetary Fund (IMF), said yesterday.
In India, income inequality has been on the rise despite the fact that the net worth of the country's billionaire community has soared 12-fold in 15 years - enough to eliminate absolute poverty twice over in the country, according to the IMF chief.
"We are all keenly aware that income inequality has been rising in most countries. In India, the net worth of the billionaire community increased 12-fold in 15 years, enough to eliminate absolute poverty in this country twice over," she said while delivering the Richard Dimbleby Lecture in London.
The richest 85 people in the world own as much wealth as the bottom half of the world's population, Lagarde said (See: World's 85 richest own as much as the poorest 3.5 bn).
She called for suitable fiscal policies and tax measures for redistribution of income in these countries.
At the same time, she also proposed a new multilateralism that would usher in a redistribution of wealth among the rich and poor countries.
''Income inequality, as skewed income distribution harms the pace and sustainability of growth over the longer term. Fiscal systems can help to reduce inequality through careful design of tax and spending policies.''
"In the US, inequality is back to where it was before the Great Depression, and the richest 1 per cent captured 95 per cent of all income gains since 2009, while the bottom 90 per cent got poorer," Lagarde said, lamenting that in the past, economists have underestimated the importance of inequality.
Observing that over the next three decades, the world's population will get much larger and much older, she said that in 30 years' time, there will be about two billion more people on the planet, including three quarters of a billion people over the age of 65.
By 2020, there will be more old people over 65 than children under five, Lagarde said.
"The geographical distribution will also change - young populations in regions like Africa and South Asia will increase sharply, while Europe, China, and Japan will age and shrink.
"In the coming decades, we expect India to surpass China, and Nigeria to surpass the United States, in terms of population. And both China and India will start ageing in the near future.
"This can create problems on both ends of the demographic spectrum -- for youthful countries and for greying countries. Right now, the young countries are seeing a 'youth bulge', with almost three billion people - half the global population - under 25. This could prove a boon or a bane, a demographic dividend or a demographic time bomb," Lagarde said.
"A youthful population is certainly fertile ground for innovation, dynamism, and creativity. Yet everything will depend on generating enough jobs to satisfy the aspirations of the rising generation," Lagarde said.
She said this would need single-minded focus on improving education and, in particular, on the potentially massive effects of technological change on employment.
She said economists have all the time been focused on economic growth, "on the size of the pie rather than its distributionů. Today, we are more keenly aware of the damage done by inequality.
Put simply, a severely skewed income distribution harms the pace and sustainability of growth over the longer term. It leads to an economy of exclusion, and a wasteland of discarded potential."
"Looking ahead, factors such as the internet revolution, the rise of smart machines, and the increasing high-tech component of products will have dramatic implications for jobs and the way we work. Yet governments are not thinking about this in a sufficiently strategic or proactive way," Lagarde added.