UNITED NATIONS (Reuters) — The U.N. Development Program warned in a report on Wednesday that income disparities in countries around the world have been worsening, posing new risks for global economic and political stability.
The UNDP warning echoes remarks from U.S. President Barack Obama in his annual State of the Union address on Tuesday, in which he said there was a widening gap between rich and poor in the world's biggest economy and that while the stock market has soared, average U.S. wages have barely budged.
The UNDP report said income inequality increased by 11 per cent in developing countries over the two decades between 1990 and 2010. The majority of households in developing countries — more than 75 per cent of those nations' populations — are living today in societies where income is more unequally distributed than it was in the 1990s, the report said.
The UNDP says this is a global trend that, if left unchecked, could have dire consequences since it "can undermine the very foundations of development and social and domestic peace."
The widening income gap comes as some major developing countries — such as China and India — have seen strong economic growth and an overall increase in national wealth. But that wealth has not been evenly distributed, which has contributed to greater inequality in those societies.
"The sharpest increases in income inequality have occurred in those developing countries that were especially successful in pursuing vigorous growth and managed, as a result, to graduate into higher income brackets," the UNDP report said.
"Economic progress in these countries has not alleviated disparities, but rather exacerbated them," it said.
In an interview with Reuters, UNDP chief Helen Clark made clear that this negative trend is reversible and that one of the key components is creating quality employment opportunities.
"The key thing is the focus on jobs — jobs, jobs, jobs," Clark said, adding that it was important for governments to pay attention to ways of improving the skills of its labour force.
She also touched on the subject of the widening income disparities in countries like China and India, which have seen significant levels of economic growth in recent decades.
"It's the nature of the growth," she said. "If it's uneven growth... it does create tensions within society because people can see that others are doing much better than them."
"The China example shows that you get fast growth and poverty reduction, but you also get the growing inequalities," Clark said. "And this is of concern to China's leadership."
The report said there was evidence that increases in inequality over the last two decades were mainly due to trade and financial globalization processes that weakened the bargaining position of labour.
Clark said one of the problems with globalization is that it "has proceeded in a very deregulated world." She advocates more regulation of international trade and financial flows but without eliminating risk and the ability of companies to generate profits.
"It's a balance," she said. "You have to leave room for risk."