Why Does Wealth Not Defeat Poverty?

SIMILARLY TO WHAT HAPPENED DURING THE DAWN OF CAPITALISM, WE ARE WITNESSING A WIDENING OF THE GAP BETWEEN THE ONEPERCENTERS AND THE LESS WELLOFF. BUT SINCE INEQUALITY REFLECTS THE POLITICAL ORGANIZATION OF SOCIETY, WE MUST ASK OURSELVES WHERE WE ARE GOING AND WHAT DIRECTION OUR SOCIETIES SHOULD TAKE

by Guido Alfani, Full Professor at the Department of Social and Political Sciences

Today rich societies are, from the point of view of the availability of material resources, way richer than any other society in the past. Unfortunately, however, this statement makes sense only if it is referred to the average of the population (that is, to measures such as per capita GDP). If we look at the most recent statistics about the prevalence of poverty in OECD countries, almost everywhere in 2022 the poverty rate was over 10%. The Unites States, one of the richest countries in the OECD club, stood out for a poverty rate of 18%.
 
How can great wealth and widespread poverty coexist, in the United States and elsewhere? The answer lies in the distribution of income and wealth – in fact, it must be clarified that the poverty rate is an intrinsically distributive concept, as it consists of the share of population with an income which is less than half than median income. This characteristic can sometimes lead to paradoxical results, but for today’s societies there is no doubt about the proper interpretation of this indicator, since other measures, such as absolute poverty, confirm the persistence of poverty in rich societies. In recent years, in many countries the situation has even worsened, for example in Italy, where the National Institute of Statistics (ISTAT) estimated that in 2022 8.3% of families were in a condition of absolute poverty (that is, they did not earn an income sufficient to purchase a minimally acceptable basket of goods and services), with a marked increase compared to 7.7% in 2021. At the other extreme, in the same period most OECD countries saw the income share of the richest grow, or at most remain stable.
 
The combination of increase in the income and/or wealth share going to the most affluent with increase in poverty (absolute and/or relative) is not at all rare in the history of the West. On the contrary, during the early modern period we have evidence that this might have been the norm, so that on the eve of the French Revolution of 1789, in many areas of Continental Europe a large part of the population could not have survived poverty without receiving regular support, in the form of public or private charity, while an even larger part of the population risked falling into a condition of absolute poverty at each and every crisis, thus experiencing a situation of constant incertitude carrying heavy human and psychological consequences. Simultaneously, income and wealth inequality increased to unprecedented levels, without any signs of stopping.
 
Another aspect to be highlighted is that during the early modern period, these tendencies were found both in the regions of Continental Europe (especially in the North) which were enjoying a phase of relatively quick economic growth, and in the regions (especially in the South) that instead were facing a long phase of stagnation. In other words, the historical evidence does not in any way suggest that the improvement in the average conditions of the population – that is, an increase in per capita GDP – automatically leads to a reduction in the incidence of poverty. Similarly, history does not in any way suggest that the increase in inequality is simply a collateral effect of economic growth.
 
The point, then, is that in any human society, today as in the past, the distribution of economic resources mirrors, first of all, the way in which society is organized. At the end of the early modern period, the high polarization between a large number of poor on one side, and a small economic élite able to concentrate a large share of total wealth in their hands on the other (the one-percenters of the time probably owned more than half the overall wealth) reflected a structurally unequal society, formally divided into orders with different rights and juridical status, where the humblest strata basically depended upon the goodwill of the rich. It is still a matter of discussion whether the French Revolution was triggered by growing economic inequality, but what is certain is that, from the very beginning, it was a revolt against the established social order. The égalité demanded by revolutionaries was, first of all, an equality of rights, not a demand for economic equality. Nevertheless, in the situation that today characterizes many among the richest countries in the world, with persistent, widespread and even growing poverty, a large share of the population in need of public help (a percentage regularly expanded by the succession of crises of various kind), growing concentration of income and wealth, and the suspicion that economic and political power are steadily intertwined – so that there is suspicion that the actual access of citizens to government institutions has become somewhat unequal – it is worth asking: what kind of social organization are we heading towards? And what will the medium- and long-term consequences be?