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Elements of Financial Inequality

Financial inequality is recognised as a main problem of our age. Asymmetries emerging from the global production system give some clarity into this issue.



May 12, 2021

Financial inequality is an issue burdening all countries around the world, horizontally present in every model of society, which gradually led to the socio-political problems of our age. As a result of specific economic policies, while living in extreme poverty has globally decreased, there has been a general increase in economic inequality.

Asymmetries Underpinning Socio-Economic Disparities

A vast scholarship traces financial inequality to discover the driving forces behind it. Nicola Phillips own contributions focus on forces that affect the current industrial organisation, under the global political economy. In his approach, financial inequality emerges from the interaction of distinct, but interrelated, asymmetries present in market power, social power, and political power.

The contemporary pattern of industrial production sits on the control of transnational corporations which - both functionally and geographically - fragmented the production process. Indeed, outsourcing and offshoring production shaped new regional patterns of specialisation and distribution.

As Phillips outlines, we now live in a Global Value Chain (GVC) world, where international trade is mostly about intermediaries and services, and industrial enhancement matches economic development. Therefore, a huge section of global employment is concentrated in this production segment. Despite this, concerns approached by GVC players have little to do with economic inequality. At the basis of this analysis there is the aim to demonstrate how the dynamics of the global political economy both stress financial inequality patterns and exploit them.

‘To put the point slightly differently, global patterns of inequality are critical to understanding how the GVC world was enabled to come into being from the 1970s onwards, and how it continues to serve the powerful economic and political interests which benefit from this form of global economic organization.’ (Nicola Phillips, 2017)

Let’s delve into the three dimensions of asymmetry above mentioned. 

  • Asymmetry of market power is founded on the oligopoly of some firms in GVCs systems, marked by imbalances created by top companies and high competition between suppliers. Thanks to softening of competition policies, firms play as they prefer with mechanisms of labour cost. As a result, even if not uniformly, precarious and exploitative work in global production has increased, boosting socio-economic inequalities. 
  • Globalisation then brought three fundamental changes: a global adjustment of labour and capital due to the increase in the labour force; policy favouring labour flexibilisation; and finally, migrant labour representing one of the most consistent sections of this labour force. Asymmetry of social power can be found in the control over labour resources through social categorisations (like age, gender, race, or caste), that facilitate patterns of exclusion. Therefore, inclusion in the global economic activity occurs through precarious employment, which is leveraged by industrial production.
  • In addition to domains of governance that foster social exclusion, such as immigration policies, global business policy, and regulation, underpin economic inequality. The asymmetry of political and bargaining power between some national governments and foreign businesses not only encourages the geographical fragmentation of production, but also ensures the maintenance of these systems. Therefore, policies to maintain the production hubs within the national territory marks a lack of political control in the GVC world, making work exploitation replicable and radicalising financial inequalities. 

As it clearly appears from the analysis, this system of chronic inequalities is structural in the current global political economy, due to the GVC’s industrial production. Yet, are some of the extremes we live under today avoidable? 

Microspecifities of Financial Inequality

Beyond financial inequality and all its macro socio-economic consequences, like the wealth gap, micro impacts of this widespread phenomena further disproportionately affect specific groups and aspects of our daily life. 

  • Political tensions and radicalisation - high levels of inequality affect trust in political powers and social cohesion, leading to instability.
  • Intergenerational consequences - wealth inequality is transmitted across generations, due to the purchasing power of wealth and socio-economic security playing a role in educational attainment.
  • Mental health risk - people who face socio-economic disadvantages are more likely to suffer from poor mental health. 

Wealth maldistribution and radicalisation of socio-political factors turn our economic system more exclusive for certain social categories. Many blame our capitalist system for this, calling for important centralised actions to mitigate the macro and micro consequences of such disadvantages. While many causes are in the hands of governments to be solved, many others are strictly linked to the contemporary globalised production model.

Honestly speaking, socio-economic inequality will likely always exist. Interventions should avoid it by becoming ‘dynastic’ and raise the minimum standard of living, to ensure everyone has dignified lives. What is currently missing is equal opportunities and access, as well as tailored solutions for minorities, which might unlikely come from centralised decisions - as centralised territorial structures are more associated with inequality. Therefore, changing scales at which policies are, not only implemented but also decided, might open up a new path of inclusive, shared wealth.

Evelyne recently graduated in International Politics and Diplomacy at the University of Padua. She has a background in awareness campaigns and joined the dGen team as Marketing & Content Writer Intern.