The co-director of the World Inequality Lab on reconciling economic development and sustainability, the resource revolution, and why Europe needs to do better than the status quo.
Lucas Chancel is a social scientist with expertise in the economics of inequality and environmental policy. He is the co-director of theWorld Inequality Lab and of the World Wealth and Income Database (WID.world) at the Paris School of Economics and co-author of the first World Inequality Report published in 2018. At the 2018 Global Media Forum, Chancel will be speaking on the delicate balance between stimulating economic development and fostering environmental sustainability.
Can environmental sustainability and economic development flourish side by side? Or does one always come at the cost of the other?
Let’s face it: economic development has so far occurred at the expense of environmental sustainability. Since the industrial revolution the world has seen unprecedented rises in its income, but at the same time, an unprecedented destruction of the environment as well. The concentration of Green House Gas emissions has increased by 150% since the 1800s and this figure continues to grow year after year. This winter has been the warmest ever recorded in the Arctic. And climate is not all: water and soil pollution are alarming in many areas, biodiversity is degrading at an alarming rate, with a 75% fall in insects over nearly 30 years in Germany.
Recognizing our current inability to decouple economic growth from environmental destruction on a global level doesn’t mean we cannot reconcile economic development and sustainability. Examples around the world show that it is possible to reconcile both objectives. Investing in renewable energy is a necessary condition to reach environmental sustainability. It is also an opportunity to stimulate economic activity, create new jobs and reduce country dependency on fossil fuels--thus improving their trade balance. It can stimulate economic growth.
But true development is not about maximizing growth, it is about improving capabilities and the quality of life for the vast majority of the population. This does not necessarily mean increasing the quantity of material inputs that go into an economy. Rich countries can make substantial improvements in terms of quality of life without increasing their impact on the environment. For instance, it is possible to improve the quality of our health systems without increasing our use of chemicals, thanks to reduced pollution and more prevention. We can improve transportation services with more public or shared transport. We can also improve our experience of IT technology thanks to reduced planned obsolescence. The resource revolution (a revolution which will place the sharing, the re-using, and the recycling of resources at its center) is still ahead of us, and this can generate important improvements in the quality of life.
Europe is the most equal region in the world today. What does it need to do to continue this trend, and broadly speaking, what best practices can other regions adopt?
Since 1980, Europe has done much better than other large regions or countries in keeping economic inequality in check. The top 1% income share in Europe increased from 10% of national income in 1980 to about 12% to today whereas in the USA, it increased from 10% to 20%.
This can be explained by the fact that is that Europeans have been much better than Americans at providing access to quality health, education and well-paying jobs to the lower and the middle-income groups. This is thanks to free university education in many European countries, to universal access to health, and to minimum wage in certain countries.
EU countries were also better able to prevent the explosion of inequality at the top of the social ladder, thanks to a lesser decline in tax progressivity in the EU. In addition, CEO pay scales are much less exuberant in Europe, and in Germany than in the US (without any impact on the productivity of these firms, as is sometimes claimed by certain economists).
In order to remain a low inequality region, the EU cannot opt for the status quo. Inequality has been increasing, even if less rapidly than elsewhere, and citizens can feel this evolution. Important investments are now needed in education, health, and ecological transition so as to limit future rises in inequality. It is often said that EU countries cannot afford any more such investments. One must realize here that governments have become poor, but countries have become much richer over past decades. In order to invest in welfare systems, governments must then find ways to recover wealth and room for maneuver. In the past, this was largely done via debt relief (which Germany is one of the largest beneficiary in recent history) or progressive taxes.
What can countries like India and China do to achieve a more equitable distribution of income?
These countries are characterized by growing levels of inequality. Inequality is becoming extreme in India, with the top 1% income share rising from 6% in 1980 to 22% today. At the same time, it is striking to see that both countries do not have an inheritance tax. As a result, economic inequality can persist, and is amplified from a generation to the next. One of the first policy to implement is important tax reforms.
Investments in infrastructure (transport, health, education) for lower income groups are essential in these countries. These investments have been more important in China than in India, and this helped China contain its level of inequality since the mid-2000, at a significantly lower level than India.
Looking at this year’s World Inequality Report, if current trends continue, what can we expect to see in the future with regards to inequality?
If the trends continue, inequality will further rise, within countries and at the level of the world, despite the catch up of emerging countries’ average incomes to that of rich countries. To put it differently, the diverging force of rising inequality within countries will be stronger than the converging force of reduced inequality between countries. No one knows up to what point these trends are sustainable, but a growing number of studies in different fields show the negative impacts of inequality on economic efficiency, democratic institutions, health systems and the environment. In order to avoid major political or environmental catastrophes, it is important to move from debate to action.