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Australian International School Model United Nations, 2016 | VII Annual Session
Forum:
The Economic and Social Council
Issue:
Managing the growing wealth gap and economic divide in MEDC’s
Student Officer: Kristina Zeng
Position:
Deputy President
Introduction
As More Economically Developed Countries (MEDC’s) strive to advance and flourish, the wealth
gap within their countries concurrently grows to to become an increasingly, alarming issue. While
civilians in upper classes are receiving more and more opportunities, civilians in middle classes and
lower income classes do not share the same access to these opportunities. According to the 2014
Oxfam International briefing paper titled Working for the Few, “85 people in the upper strata of the world
economy have a net worth equal to the combined wealth of the 3.5 billion people of the lower end.” The
data collector for this report, Credit Suisse, inferred from trends that in 12 months, the previous number
of 85 people in the upper strata will decrease by 5 people. If this trend is applied, it is currently estimated
that the number has dropped from 85 in 2014 to now a shocking 70 in 2017. However, the predicted
trend was contradicted, as the 2016 Oxfam International briefing paper titled An Economy for the 1%
found that the predicted number of 75 people in 2016 was instead drastically lowered to the realistic 62.
In addition, a mere amount of nine out of the 62 people were female.
An increasingly prevalent wealth gap in MEDC’s takes an extreme toll on a nation, and common,
detrimental effects on population include social dysfunction, economic instability, and political unrest.
Though this issue is commonly perceived to be recently emerging, wealth disparity has sharply widened
and grown over the past 30 years. With urbanization constantly advancing, the economic division
between rural and urban areas will only grow to become extremely severe – ultimately challenging the
hopes to manage the ever-growing wealth disparity.
Definition of Key Terms
More Economically Developed Countries (MEDC’s)
MEDC’s are countries with high gross domestic products (GDP), which is an annual measure
depicting the monetary value of a country’s goods and services produced during a certain year, which is
comprised of consumption spending, investment spending, government spending, and net exports.
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In addition to high GDP’s,
MEDC’s can also be classified or
determined by health, education,
and industry. As an example, an
economically developed country
would typically show indicators of
strong social institutions and
infrastructures, including a welldeveloped health sector and an
advanced education system
accessible to everyone.
As a set list of official
countries classified as MEDC’s is
nonexistent due to constant
fluctuation, MEDC’s can typically
be recognized through the North
South Divide. The North South Divide is a socio-economic and political division between countries, which
is displayed in the image. Countries in the North are typically classified as MEDC’s, while countries in the
South are typically classified as Less Economically Developed Countries (LEDC’s) with the exception of
Australasia.
Wealth Gap
A wealth gap is the divide between the richest and the poorest people. This term can be used
interchangeably with economic divide. It is determined by the wealth of residents in each country
respectively, where wealth incorporates the values of homes, automobiles, personal valuables,
businesses, savings, and investments. Wealth can also be defined as the difference between the value
of a family’s assets – such as financial assets as well as home, car, and businesses – and debts.
Wealth gaps are significantly prevalent in mostly developed countries such as the USA, Russia,
and China. GDP per capita is typically very high in these countries, yet income distribution is also
significantly unbalanced. In several cases, developed countries have the probability to profit from income
or economic inequality. According to the Seven Pillars Institute, “rising levels of economic inequality
often correlate to economic growth.” This notion has been applied in both China and the USA. In China,
though increased inflow of foreign capital, dismantling of unproductive collective farms, and free trade
zones in the 1980’s after the Cultural Revolution led to rapid economic growth, a surge in economic
inequality was also noticeably prevalent. In the US, economic recessions in 2008 led to a diminishing
wealth disparity. However, economic growth stagnated as well during the economic recession.
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Organization of Economic Cooperation and (OECD)
Founded in 1948, the OECD is an inter-governmental economic organization striving to aid
governments in tackling economic, social, and governance challenges in a globalized economy.
Currently, 35 countries working towards democracy and market economy. The OECD has consistently
supported countries in combating economic inequality of various forms: racial, gender, income, and
wealth amongst many more.
Income Distribution
Income distribution is defined as how the income is split between the people and can be
measured by the GINI Index or coefficient. The Gini coefficient measures how much an economy
deviates from perfect equality — where everyone has the same income. A score of zero indicates perfect
equality, and a score of one indicates extreme inequality. Typically, a Gini coefficient of 0.4 is generally
regarded by the World Bank as an international warning for dangerous levels of inequality.
Background Information
The income redistribution structure of each country, which includes taxes, as well as transfers
like welfare, social security, and unemployment insurance, can make a big difference in how severe the
gap between rich and poor is.
Causes
There are multiple major factors behind the widening wealth gap, causing it to worsen in many
developed countries. First, globalization has led to better opportunities for the rich. However, though the
rich are benefiting from abundant opportunities, the lower strata are not able to access these
opportunities. Therefore, the division between the two strata continuously widen. Other factors
contributing to the wealth disparity includes regulatory reforms that benefit the rich and tax cuts.
Ultimately, these two factors will lead to concentrated wealth and the worsening of the wealth gap.
As seen previously in China, free market economies can thwart the diminishment of a wealth
gap. This is due to low tax rates and high property prices. In addition, free market economies give
incentives and very well paid rewards to successful entrepreneurs, turning them into billionaires
instantaneously. This contrasts with the lower strata working relatively low paying jobs compared to the
successful entrepreneurs. Without entrepreneurial opportunities, the lower strata struggle to receive a
shot at instantaneous success. Thus, further widening the wealth gap.
Effects
A severe wealth gap can ultimately lead to many detrimental effects, which include the
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weakening of the economy, increased crime, and the triggering of more people needing help from the
safety net. In addition, social problems such as poverty and lack of access to education and healthcare
will arise out of a widened wealth disparity.
In the short term, a wealth gap will stifle economic growth. In the Economic Inequality and Its
Socioeconomic Impact, the author, Emeritus Professor Erik Thorbecke, discovered that “empirical
evidence of a negative correlation of about 0.5-0.8 percentage points between long-term growth rates
and sustained economic inequality.” As aforementioned in the previous paragraph, poverty is a
significant effect of economic inequality. The many social and economic effects poverty causes can
ultimately put a heavy strain as well as burden on a country’s economy.
An increasingly severe effect of the wealth disparity is the development of ineffective taxations
that are skewed in favor of the upper strata. According to the Seven Pillars Institute, “unequal income
distribution increases political instability, which threatens property rights, increases the risk of state
repudiated contracts, and discourages capital accumulation.” As a result of infeasible human capital
demands, economic growth stagnates.
Key Issues
Inequality
Inequality is a major issue stemming out of a wealth gap in developed countries. Whether in the
form of racial inequality or gender discrimination, inequality is becoming increasingly prevalent in the
labor scheme. As an example, in the United States, a recent study shows a growing wealth gap between
ethnic groups. According to the Pew Research Center, “from 2005 to 2009, inflation adjusted median
wealth fell by 66% among Hispanic households and 53% among African American households,
compared with just 16% among white households.” Common causations of inequality include:
educational background, social class, and dual-income households. Taking education as an example,
education plays a major role in income inequality. Often, better paying jobs require a specific
achievement in university degrees. For some, achieving that specific level of university degree can be
virtually impossible due to lack of funds to cover for the education. This results in future income
inequality and an ever-growing wealth gap.
How wealth gap affects the 99%
During financial crises and economic recessions, the bottom of the lower income ladder is
affected the most. Upper classes cumulate more wealth exponentially and though their assets
significantly shrink, there are able to rely on their accumulated wealth to safeguard portions of their
wealth. Therefore, the wealthy are more capable of and better equipped at combatting the financial
repercussions caused and can provide themselves with financial cushions to prevent mass damage. Yet,
many people of the 99% lack even a small cushion of this sort to save themselves and often fall into
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greater debt or complete bankruptcy in several cases. When these financial crises strike for the 99%, the
snowball effect continues to increase, as they often find themselves stuck in poverty, lack of education,
and other means needed in order to flourish in society.
Major Parties Involved and Their Views
USA
As stated by US Senator Bernie Sanders, “America now has more wealth and income
inequality than any major developed country on earth, and the gap between the very rich and everyone
else is wider than at any time since the 1920s.” This is further credited by Pope Francis, who added that:
“Just as the commandment ‘Thou shalt not kill’ sets a clear limit in order to safeguard the value of human
life, today we also have to say ‘thou shalt not’ to an economy of exclusion and inequality. Such an
economy kills. How can it be that it is not a news item when an elderly homeless person dies of
exposure, but it is news
when the stock market
loses two points?”
In recent years,
the United States is
advancing to become
much more diverse,
racially and ethnically.
Concurrently, racial and
ethnic economic
inequality is growing to
become a grander issue.
According to a recent
study named The Racial Wealth Gap: Why Policy Matters by Demos – a public policy organization
promoting democracy and equality – and the Institute on Assets and Social Policy, “The typical black
household now has just 6% of the wealth of the typical white household; the typical Latino household has
just 8%.”
China
In 2012, Hong Kong had the highest level of income inequality in the developed world and a Gini
coefficient of 0.537, which by the standards of the World Bank, was alarmed as an issue to be alarmed
of. In that same year, it was reported that the 1% in Hong Kong controlled one third of nations wealth &
poorest 25% owned 1% of nations wealth.
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In China, the first stage of urbanization is the migration from rural to urban. However, with the
urbanization comes detrimental effects and ultimately leads to the widening wealth gap between rural
and urban areas. Industrialized and urbanized areas are earning more and more while rural areas are
earning the same, if not less. As China is a nominally communist country, the widening wealth gap is
becoming an alarming issue for the government, as inequality poses a threat to social stability.
Mexico
According to the 2016 Oxfam report, “extreme inequality has increased in Mexico while the
economy has stagnated, concentrating almost half of the country's wealth in the hands of its elite 1
percent. In addition, the wealth
of the Mexico's 16 billionaires
multiplies five fold each year,
while the country's GDP
increases by less than 1 percent
annually.” These alarming
statistics are displayed in the
image, where the standards of
living are drastically contrasted
between the rich and the poor.
The image also emphasizes the
fact that Mexico is among the
top 14 richest countries in the
world by GDP, yet over half its
population, or 53 million people, live in poverty (Mexico’s Economic Inequality, Telesur).
Recently, Oxfam International urged the Mexican Congress to heed the needs of the Mexican
people and to tackle inequality within the nation by providing special emphasis on education, healthcare,
and other necessities. In order to fulfill the tasks, the Oxfam report suggests the Mexican Congress to
promote “access to services with a focus on human rights, raising the minimum wage, progressive fiscal
policy, and tax transparency and accountability as key future priorities in the fight against poverty and
inequality.”
Timeline of Relevant Resolutions, Treaties and Events
Date
Description of event
May 1, 1974
A/RES/S-6/3201 (Declaration on the Establishment of a New International
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Economic Order)
Resolution adopted by the General Assembly with the mandate of eliminating
the widening gap between developed and developing countries in order to
ensure steadily accelerating economic and social development as well as peace
and justice for present/future generations
Transforming our world: the 2030 Agenda for Sustainable Development
Fourth international conference on sustainable development aimed at
reconciling the economic and environmental goals of the global community;
September 25, 2015
SDG’s created which target many key issues such as poverty, income
inequality, and education.
Evaluation of Previous Attempts to Resolve the Issue
Although governments have attempted to tackle the wealth gap prevalent in their nations, the
wealth gap still widely prevails in all countries. In the US, the A.G. Gaston Conference in 2015 sought to
ensure stability in African-American enterprises and to shrink the wealth gap prevalent in the region. In
addition, the proposal of the Buffett Rule by the US government under the Obama administration
attempted to diminish the widening wealth gap by introducing the new tax plan which heavily taxed the
rich. Initially inspired by the significantly affluent investor, Warren Buffet, the Buffett Rule tax plan
imposed a tax rate with a minimum of 30% on civilians earning more than one million USD. By
empowering the poor and balancing out the rich, the attempt in ideal circumstances was able to diminish
the wealth gap in the US. However, many issues arose over the Buffet Rule and the proposed tax plan
was ultimately not passed by the Senate.
Though the Millennium Development Goals (MDG’s) did not directly attempt to tackle the wealth
disparity, it strived to promote women’s rights, eradicate poverty, and improve social welfare as a whole.
As aforementioned in the report, suppressed rights, poverty, and social infrastructural issues are all
detrimental effects of the wealth gap. Though there have been attempts at fulfilling these goals, the
MDG’s were ultimately not met and the goals were not reached.
Many attempts – taking the Buffett Rule as an example – have previously been to close the
wealth gap through the establishment of a huge middle class. Attempts have tried to achieve this by
promoting the lower strata and taking away from the upper strata. However, according to the OECD, this
method of “simply shifting large amounts of money from high-income earners to low-income earners
through the tax and transfer system” will not be effective in terms of progress in the long term. Taking
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this into account, a nation should not solely depend on and sustain with this method to mitigate the
widening wealth gap.
Possible Solutions
In order to manage the ever-growing wealth gap and economic divide in nations, it is imperative
that the effects arisen by the wealth gap is not left ignored and to be dealt with. As a result, nations
should strive to increase their social mobility. As the OECD stated, “ensuring equal access for all of the
population to high quality public services such as education, health and family care will help to reduce
inequality and provide equal opportunities of personal and professional development for all citizens.”
One way to improving social mobility can be achieved by promoting education and assessment systems.
As aforementioned, education, even at a young age, plays a major role in the future of younger
generations and can provide a pathway to better opportunities for them to flourish; thus, diminishing the
wealth gap without triggering the upper strata. The lowering of educational fees and increasing the
accessibility for civilians to receive an education are two plausible solutions to promote education.
Though this solution is a step in ultimately achieving improved social mobility, it is also critical that
stressing the importance of not merely a basic level education, but also the completion of a higher
education is accompanied with the increased accessibility. In addition to promoting education and
assessment systems, providing better working standards and conditions for laborers is also another
factor in improving social mobility. Ways to achieve this include the raising of minimum wages to at least
above international standards and enforcing regulations to ensure all individual rights – such as
appropriate working hours, health care, and salary – are met. Aside from education and improved
working standards, providing support to business managements can also improve social mobility. Such
support can be achieved by promoting Human Resources (HR) bundles in Small and Medium-sized
Enterprises (SME’s) and having relevant qualified organizations help HR managements through training
and mentoring. Lastly, dedication to eradicating and aiding poverty-stricken areas is vital in improving
social mobility, as poverty reduces productivity and economic output by 1.3% of GDP. Improving water
and sanitation conditions and having agricultural experts share effective tips and methods with farmers in
affected areas are all viable solutions at aiding poverty-stricken areas.
On the governmental scale, a way to manage the wealth gap is to impose relevant policies and
reforms in regards to taxation. Member states can provide better opportunities – with the severity of its
benefits depending on its nation’s political and economic standpoints - to its civilians when paying taxes.
To achieve such task, it is possible to bolster the earned income tax credit (EITC), 401K, IRA, and/or
college 529 account. In order to ensure the fulfillment of better taxing opportunities for the mass and to
provide a relatively equitable tax rate for all, it is crucial to combat several major issues hindering such
progress: tax evasions, potential/existing loopholes, and tax havens.
When governments are preoccupied with many other pertinent issues, the much needed
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attention need to manage the widening wealth gap is lost. However, the creation of organizations –
whether non-governmental or intergovernmental – can significantly aid governments in managing the
wealth gap and have the potential to be significantly beneficial, as they can put in undivided attention to
this issue. Similar to labor unions, these NGO’s can work towards minimizing the amount of gender and
cultural discrimination in the workplaces, and in general, provide better working conditions for laborers.
By overcoming barriers that thwart harmonious political and social participation, social mobility is also in
turn, improved. Aside from the labor scheme, NGO’s can also focus on encouraging and empowering
college students as well as young adults in their post-university endeavors. NGO and governmental
collaboration can be effective in developing macroeconomic policies to absorb new entrants into the
labor force. Lastly, NGO’s can work towards social protection programs to protect not only against sharp
declines in income due to contingencies – such as illness, old age, disasters, and market risks – but also
persistently low incomes and their structural causes.
Bibliography
http://www.un.org/millenniumgoals/pdf/10_inequalities_20July.pdf
http://www.birmingham.ac.uk/Documents/college-social-sciences/socialpolicy/CHASM/2013/Distribution-of-wealth-full-report.pdf
http://www.huffingtonpost.com/2015/05/29/countries-rich-poor-gap_n_7471214.html
http://reports.weforum.org/outlook-global-agenda-2015/wpcontent/blogs.dir/59/mp/files/pages/files/trend-1.pdf
http://www.cnbc.com/2015/05/20/wealth-gap-widens-in-developed-world.html
http://sevenpillarsinstitute.org/case-studies/causes-economic-inequality
http://sevenpillarsinstitute.org/case-studies/consequences-economic-inequality
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