Introduction
Income inequality is the difference found in the measure of economic well-being of individuals in the class, among categories of a given population or countries. Economists focus on the income inequality in three aspects that include wealth, income, and consumption. Besides, it is relevant to the concept of equity, equality of result and equality of opportunities. Inequality is a rising social problem considering that too much inequality can be-be disparaging (Piketty 2015). Income inequality, as well as wealth concentration, hinders continuing economic growth. It decreases the incentives for productivity and discourages entrepreneurs from taking risks and creating wealth. The transition from the agrarian society to the industrial revolution was the beginning of inequality contributed to competitiveness. Inequality is encouraged by capitalism.
Causes of Income Inequality
Kuznet’s U-shaped curve demonstrates th
...e relationship between economic development and inequality of income distribution. The early stages of growth characterize equality of income distribution as most people solely practice Agriculture exhibiting similar levels of revenue. In the agrarian period, the only threat to inequality at this age was a technological disruption or the extra effort employed by farmers to yield more returns than others with similar modes of production did.
Capitalism is an economic system where people are free to make their economic decisions. Capitalism is the driver of modern-day inequality as it motivates the widespread ownership of property by wealthy minority individuals. In such an economy, the consumers or customers are free to choose what to purchase and can make demand decisions. Similarly, suppliers are free to decide what to sell, the method of production to use as well as make supply decisions. The demand and supply decisions made by the customer
and suppliers have a rippling effect to each other via their impact on price in a process known as price mechanism (Piketty 2015). Under price mechanism, prices react to shortages and excess supplies of commodities. Deficiencies result in rising prices while surpluses lead to falling of the prices. If consumers decide they want to buy more of a commodity, the demand exceeds the supply and the shortage created causes the price of the good to go up. In turn, the firms are encouraged to provide more to benefit with the increase in price and discourages consumers from buying more of that commodity. Prices continue to rise until the shortage is satisfied.
On the other hand, the consumers may choose to buy less of a commodity if firms decide to produce more thereby resulting in a surplus. The excess causes the prices to fall, discourages the companies from producing more, and encourages consumers to buy more and benefit with the fall in price. The price continues to go down until the excess meets satisfaction. The point at which the demand equals the supply result to equilibrium price (Piketty 2015).
Structural change in economic dynamics is a solid precursor for income inequality. An example to illustrate the relationship is the shift from agriculture to the industrial revolution that comes with new jobs, mechanization which tilts the process of income generation strategically. The people who utilize the opportunities provided by applying technology and effort ultimately will redistribute the income equality.
Technology advancement potentially redistributes incomes among same owners of the factors of production. Technology mechanizes processes and these consequently reduce the time, ease of revenue generation as compared to another traditional
way of income generation that is expensive, and time-consuming. Technology also makes human capital redundant with the advent of machines hence people lose their jobs and revenues by extension. Technology will create a competitive advantage to economic dominance for countries, organizations, and individuals.
Government policies and strategic goals can destabilize the income equilibrium as the political, social, and economic decisions of the state affect the income demography of the citizens. When governments adopt discriminative programs to develop certain areas at the expense of others, then income disparity among the citizenry is inevitable. Governments that practice skewed development programs favoring certain perceived politically correct regions and discrimination elsewhere creates an imbalance in the levels of economic activity.
The quality of the human capital causes income inequality on the education levels and healthcare. The differences in the education levels enable the ones with a high-quality education to acquire skills to secure employment and enhance revenue generation. Some governments invest in other regions healthcare concerns and ignore other areas that suffer neglecting to depend on inadequate health services (Gornick, & Ja?ntii, 2013). People in good health can generate income as compared to those who experience challenges in health. Health is wealth, and lack of it is poverty.
Rapid population growth with a limited portion of the population engaged in productive income generation venture only serves to increase dependency ratio and inequality. The community exerts undue strain on limited resources and consequently those who will not be able to access the limited opportunities will suffer inequality. The uncontrolled exponential increase in population will de-stabilize development as authorities will concentrate on the densely populated areas and offer little or no attention to sparsely
populated regions.
On the international front, the global geopolitics and the endowed resources among other countries spark inequality. The countries with mineral deposits and significant factors of production exploit the Less Developed Countries to dominate international trade at the expense of other nations (Gornick, & Ja?ntii, 2013).
In capitalism, individuals are free to own means of productions such as land, capital and enjoy incomes, which accrue from the factors of production in the form of rent interest and profits. Individualism dominates such economic systems. The firms aim at maximizing the benefits; workers aim at maximizing their wages owners of land want to maximize the earnings from their lands while consumers want to maximize their satisfaction (Piketty 2015). The competition among the firms in the capitalism gives a rise to a wide variety of goods and services for sale. Therefore, there is consumer sovereignty since they have a broad spectrum or a range of products and services to choose. Besides, investment decisions are inspired on the profitability of a project. Therefore, there is no wastage of resources (Roosevelt, & Abbott, 1911).
The ability of a few individuals and firms to acquire excessive market power in capitalism economic system leads to greater inequalities in the distribution of incomes and wealth thus widening the gap between the wealthy and the have-nots. The few firms acquire super market abilities and exhibit monopolistic practices, gaining the power to control prices. They impose conditions that prohibit new businesses to enter the industry (Yates 2003). Considering the firm's objective of maximizing profit, they may end up exploiting consumers by setting prices above the competitive levels. Capitalism leads to a situation where individuals are earning more than they
possess, and others have or possess more than they earn.
Measures to mitigate the adverse effects of factors causing Inequality.
The government policies should employ affirmative action to ensure unified development across their jurisdictions. The development will provide opportunities for all to better their income generation and reduce the levels of income inequality.
Awareness of the importance of technological advancement up takes off the essence to fast track production and the ease of revenue generation. Countries will embrace the latest technology that will promote innovation and inventions to improve the abilities of income growth.
The countries upon the employment of technology should institute measures to take care of both the human capital not to negatively be replaced with machinery. The disruption caused by technology will not adversely cause unemployment among the human labor.
The governments should provide quality healthcare and education to all, as it will establish a neutral platform for people in the competitive empowerment of their skills to come up with income generating activity to spur growth. Education equality enables the utilization of untapped potential that can provide solutions and expertise to enhance economic independence.
Population growth must be controlled and converted into being productive to reduce the dependency ratio among the citizens. A productive population is an asset to an economy as it enhances local trade through consumption and production.
The people must be educated to adopt strategic approaches in providing the needed income from production. The limited resources demand competitive struggle to invent creative modes of increasing the income among individuals in the lower levels.
Governments through relevant agencies should strive to enhance stability and an enabling environment for businesses to thrive. Peace and security provide for the exploitation
of resources to full potential. A mature democracy among the people fosters stability and patriotism that inspires the citizens to conduct the political activities for the benefit of a nation. Instability is expensive to sustain and costly for a government to facilitate investments and not capital flight in fear of instability in the near future. Justice among all citizens will reduce the level of inequality, as all will be subject to a fair level playground to enhance their success (Gornick, & Ja?ntii, 2013).
International trade bodies should advocate for equality in trade and fairness to avoid the continued exploitation of Less Developed Countries. Fairness in international trade will enhance credibility and reduce the harmful inequality imposed on the LDCs for their resources. The Less Developed Countries should unite into economic blocs and practice intra-countries trade to boost their collective capacity to enhance competitiveness in the international market (Piketty, 2015). The LDCs can also orient their economy from an export economy and correct the balance of payments by concentrating on exploiting fully the local domestic market that has tremendous potential to spur economic growth.
Conclusion
Conclusively capitalism caused the three social, economic classes and according to Roosevelt, it is important to equalize opportunities, destroy privileges, and give the highest value to the life of every citizen. He did not oppose to wealth and fortune acquisition through fair means, but he firmly believed that labor and business should always contribute to the overall well-being of all American citizens rather than to generating wealth for a few people in the society (Roosevelt, & Abbott, 1911). He suggested for the federal government to be given the responsibility of regulating the terms and conditions of labor
which is the essential element of wealth accumulation.
References
- Gornick, J. C., & Ja?ntii, M. (2013). Income Inequality: Economic disparities and the middle class in affluent countries. Stanford, CA: Stanford University Press.
- Piketty, T. (2015). The economics of inequality.
- Roosevelt, T., & Abbott, E. H. (1911). The new nationalism. New York: Outlook Co.
- Yates, M. (2003). Naming the system: Inequality and work in the global economy. NYU Press.
