How to break the cycle of wealth inequality

By: Xinnuo Lyu - (CiCi） Student ID: 2406104

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How to break the cycle of wealth inequality

Nowadays, with the development of economy and technology, there is an unbridgeable economic gap between high-income people and low-income people. In Capital in the Twenty-First Century, economist Thomas Piketty points out that capital gains have long grown faster than labor income (Piketty, T. 2014). This means that the rich can quickly accumulate wealth through investment, while the wages of ordinary workers do not keep up.

The cycle of wealth inequality refers to the widening gap between the rich and the poor, which is transmitted across generations in society, making the rich richer and the poor poorer. Economic policies in most countries now favor the rich, the children of high-income people have easier access to quality education and job resources, and the debt trap that low-income people may fall into are all contributing factors to this vicious circle. So how to break this vicious cycle is the problem we will discuss, I will discuss from the individual and the government system.

Breaking Wealth Inequality at the Individual Level

The first thing I want to address is how to break through wealth inequality at the individual level. Good education is the basis for acquiring professional skills. In the modern society with rapid development of science and technology, there are many emerging jobs and occupations. People should pay attention to the digital economy, AI, renewable resources and other high-growth fields to improve their competitiveness and adapt to the future job market. Also with the Internet background, we have more learning opportunities and can enhance our value through online courses. One way to foster our extra-curricular education could be to cultivate financial awareness and improve our saving ability. Diversifying income streams, expanding our social networks, and seeking better job opportunities can all contribute to upward mobility.

Breaking Wealth Inequality at the government Level: Addressing the Root Causes

Individual efforts are important, but the underlying problem of wealth inequality is institutional. What is needed to break the vicious cycle that perpetuates poverty is a combination of political imagination and political will (De Schutter, O., et al. 2023). In sub-Saharan Africa (SSA) countries, for example, wealth inequality has a serious impact on educational inequality. With the exception of Zimbabwe, SSA have largely  failed to increase access to secondary and tertiary education. Despite oil and gas endowments, investment in education remains low in these countries (Temitope Obasuyi, F. O., & Rasiah, R. 2019). Therefore, the government should strengthen the education equality strategy, education equity reform, and improve the quality of public education. Making compulsory education more widely available. Increase educational resources (scholarships, student loans, free preschool, etc.) for low-income families. Lower college tuition and increase access to higher education for less fortunate students.

Reducing the gap between the rich and the poor by improving the quality of education is a long-term process that needs to rely on the continuous development of talents. And taxation and income transfers to the segments of society are the most direct ways to control inequality and reduce poverty in the short run. The success of conditional cash transfer programs has demonstrated that it is possible to transfer cash efficiently to poor people in developing economies. These cash transfer programs give money to households on the condition that they comply with certain pre-defined requirements, such as up-to-date vaccinations or regular school attendance by children (Bourguignon, F. 2018).

So raise taxes on high-income people and use the revenue for social benefits (such as free health care, low-income subsidies, etc.). Limiting tax havens and tax loopholes to ensure social responsibility by corporations and the wealthy. If income is redistributed properly, it will reduce poverty by reducing inequality. Allow the poor to devote more resources to human and physical asset accumulation. The opportunity to invest directly in the poor is critical. It's not just cash transfers to the poor; They should also enhance people's ability to generate income now and in the future.

In addition to improving tax policy, raising taxes on high-income people to make cash flow to low-income, improving labor protection laws and raising the minimum wage can also better protect the rights and interests of low-income people. Bruno Kawaoka et al (2016).compare changes in the wage distribution of workers during the months of minimum wage increases and the periods of non-increases in Brazil over 12 years. The results of the study show that the increase of the minimum wage is directly related to the decrease of wage inequality in Brazil from 2002 to 2013 (Komatsu, B., Kawaoka, B. and Menezes Filho, N.2016 ). We will raise the minimum wage so that low-income workers have a better living security. We will strengthen protection of workers' rights and interests and ensure that employees receive fair wages and benefits. By improving education and tax policies, we create an ecosystem where wealth is not perpetuated across generations, but rather redistributed for more equitable opportunities.

Reform of housing and health care policies, promotion of entrepreneurship and the development of small and medium-sized enterprises are all part of the government's efforts to narrow the gap between the rich and the poor. 

Conclusion

Wealth inequality is a long-standing global problem, and efforts by individuals and governments are indispensable to break the vicious cycle of wealth gap. In 1990, the number of people living in extreme poverty in the world was about 1.9 billion, accounting for 35.9 percent of the world's population. By 2018, that number had fallen to 659 million, or 8.6 percent of the global population (United Nations, 2021). The problem of the gap between the rich and the poor has been paid more and more attention worldwide, and it is hoped that this inequality data can be continuously reduced with joint efforts.

Reference List

1. Bourguignon, F. (2018) 'Spreading the Wealth', Finance & Development, 55(1). Availableat: https://www.imf.org/en/Publications/fandd/issues/2018/03/bourguignon (Accessed: 31 January 2025)

   
   

2. De Schutter, O., et al. (2023) The Escape from Poverty: Breaking the Vicious Cycles Perpetuating Disadvantage. 1st ed. Bristol University Press. Availableat: https://doi.org/10.2307/jj.7941369 (Accessed: 31 January 2025)

   
   

3. Komatsu, B., Kawaoka, B. and Menezes Filho, N. (2016) Does the rise of the minimum wage explain the fall of wage inequality in Brazil? Policy Paper 16. INSPER, São Paulo. Available at: https://repositorio.insper.edu.br/server/api/core/bitstreams/da64163b-ff0d-455d-ada4-d3567dd36021/content (Accessed: 31 January 2025)

4. Piketty, T. (2014) Capital in the Twenty-First Century. Harvard University Press. Available at: https://www.hup.harvard.edu (Accessed: 31 January 2025)

   
   

5. United Nations (2021), Poverty reduction and progress towards the Sustainable Development Goals. Availableat: https://digitallibrary.un.org/record/3952874 (Accessed: 31 January 2025)

   
   

6. Temitope Obasuyi, F. O., & Rasiah, R. (2019), Addressing education inequality in sub-Saharan Africa†. African Journal of Science, Technology, Innovation and Development, 11(5), 629–641. Availableat: https://www-tandfonline-com.uniessexlib.idm.oclc.org/doi/full/10.1080/20421338.2019.1567655#d1e124 (Accessed: 31 January 2025)