Rising income inequality and the polarisation of societies pose a risk to the global economy in 2017 and could result in the rolling back of globalisation unless urgent action is taken, according to the World Economic Forum .
Geographically, inequality is a global, national and local issue. Outliers in mature economies include the US and the UK - which have some of the highest GINI coefficients and accompanying manifestations of socio economic disparity. Similar patterns can be seen in the share of income distribution.
The share of the global population defined as “poor” — those making less than $2/day — has fallen since 2001 by nearly half, to 15 percent. Notably, those in the middle-income bracket making between $10 and $20/day have nearly doubled their global presence, from 7 to 13 percent. However, after falling for much of the 20th century, inequality is worsening in rich countries today. The top one percent is not only capturing larger shares of national income, but tax rates on the highest incomes have also dropped.
The OECD notes that high inequality makes for a less efficient and less productive economy, and it has used this fundamental starting point for a variety of its studies. The IMF also finds that countries with greater inequality tend to be “marked by lower growth and greater instability”.
Business policies and practices can impact inequality in society. More and more businesses are realising they have a role to play and are reviewing their practices and strategies accordingly. There are a wide range of common practices through which businesses can exacerbate or reduce inequality from executive pay, to average and low pay, to tax, the emergence of the ‘gig economy’, to the types of goods and services sold, to terms of payment for suppliers, and more.
Payment terms provide a good example of both how business practices have changed in recent years, and how increased inequality can often be a result - and be an unintended consequence - of such changes. Only a decade or so ago, payment terms between businesses in the UK were almost always 30 days. However, in recent years, larger firms have begun to force much longer payment terms on smaller firms, in some cases 100 days or more. While cash flow and operating margins are improved for larger businesses, this comes at the expense of small suppliers, which are often SME and family owned and run businesses. Such firms are frequently relied upon for income from employees and other dependants from lower income groups and geographies. As a result of larger firms extending payment terms, SMEs and family firms are more financially vulnerable, less able to invest and grow, and in some cases their very existence is thrown into jeopardy.