New Buffett fortune debate

30 November, 2006 at 5:35 pm | Posted in Uncategorized | Leave a comment

Huge gifts to charity from US billionaire Warren Buffett and others have won widespread praise, but some say the same economic process that helped earn those fortunes is leaving billions more in dire poverty.
Buffett pledged to give away a mammoth $37 billion (R259 billion) of his fortune – more than most African countries’ gross domestic product estimates for this year. The bulk will go to the Bill and Melinda Gates Foundation.

But the size of the gift highlights growing inequality in the distribution of wealth, even as world economic output doubled in the past 10 years.

“The way we have proceeded with globalisation has exacerbated the inequalities because it has been very asymmetric,” said Joseph Stiglitz, a Nobel prize-winning economist and professor at Columbia University in New York.

“Capital moves more freely than labour and that means that the bargaining position of workers is disadvantaged relative to capital.”

Analysts say the huge numbers of workers coming into the market through globalisation in China and India have driven down wages in rich countries by making their workforce compete with much cheaper labour elsewhere.

At the same time, the upside for wages in poor countries is capped by an infinite pool of labour to choose from.

This helps explain the numbers in the 2005 UN Human Development Report, which show that the richest 50 individuals in the world have a combined income greater than that of the poorest 416 million and that the unequal distribution of income worsened within many countries in the last 20 years. But unfettered economic growth is not solely to blame for growing inequality.

Corrupt national governments help to keep nearly half Africa’s people below the poverty line and inequality is rampant in Latin America.

Yet even emerging economic powerhouses such as India and China are still haunted by widening wealth gaps.

While China’s economy expanded nearly 10 percent a year from 2001 to 2003, the average income for the poorest 10 percent of the country’s households fell 2.5 percent, according to an analysis by the World Bank.

Meanwhile, the Gini index, a measure of wealth inequality, was 63 in rural India and 66 in urban India in 2002.

The closer the index is to 100, the greater is the inequality. The corresponding figures for China were 39 and 47, respectively.

Advanced economies too are plagued by inequalities that make parts of their population vulnerable to external shocks and natural disasters, as shown by the aftermath of Hurricane Katrina in the US.

Although a 2005 EU report concluded that Europe was pretty equitable, it said earnings inequalities had risen in the 1990s in countries such as Britain, Poland and Denmark.

The average US chief executive earned 821 times as much as a minimum wage worker, the highest gap in history, according to a study published by the Economic Policy Institute think tank in June.



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