The consequences of the corona pandemic and the Ukraine war are far more bearable for rich countries than for poorer countries. This is now also confirmed by figures from the Allianz Global Wealth Report. Accordingly, global inequality is growing again – with unpleasant consequences.
The past two and a half years have been a turning point in terms of wealth. For the first time since the global financial crisis of 13 years ago, global financial wealth will shrink this year. According to Allianz in its new “Global Wealth Report 2022”, it should fall by around two percent. While this remains an exception, future growth will be lower than in the past decade. Their enormous wealth growth was primarily characterized by the low interest rates of the central banks.
But decline and growth are not the same all over the world. There is also a paradigm shift here. In the boom years between the financial and corona crises, emerging and developing countries benefited more than developed nations like Germany. But the tide has been turning since 2017. The two current crises – first Corona, now the Ukraine war – are reinforcing the trend. Although wealth in non-developed countries grew slightly faster in 2021 at 11.8 percent than in developed countries (10.1 percent), the difference is becoming smaller and will probably reverse this year or next.
The consequences of this development are not only reflected in asset growth. The World Bank reported a week ago that for the first time in 30 years the number of people living in extreme poverty has risen again. While it has been possible to free around a billion people from this lowest wealth class since 1992, according to the report “Poverty and Shared Prosperity” their number grew by around 70 to 700 million people in 2020. “Extreme poverty” is defined as living on less than $2.15 a day.
The causes of this development lie primarily in dealing with the corona pandemic and the current energy crisis. In such emergency situations, it is easier for wealthy people and states to help themselves. Developed nations such as Germany or the USA have the financial and structural means to get vaccines more quickly, to launch economic stimulus packages worth billions, to buy energy and food themselves at the currently high prices and to support private households and companies affected by crises. These opportunities are lacking in developing countries.
In addition, the crises lead to a shift in wealth around the world and to a kind of de-globalization. This can be seen, for example, in the fact that the USA and the EU are now working on locating important key industries – semiconductors, batteries and hydrogen are examples – at home. There are no more risky investments in developing countries. Investors are again preferring to put their money in safe investments from developed nations, especially given the current rise in interest rates.
Between March and July of this year alone, funds and investment bankers withdrew more than 68 billion US dollars from emerging and developing countries. The lack of money there leads to problems. Sri Lanka and Bangladesh, for example, had to go bankrupt this year. Experts are not only worried about smaller countries like Ghana in Africa, but also about Turkey’s finances, for example.
This has long-term negative consequences. The authors of the World Bank report believe that the UN’s Millennium Goal of eradicating extreme poverty by 2030 is no longer achievable. Instead, at the end of this decade, around 500 million people worldwide will still have to live on less than 2.15 US dollars a day. Ultimately, this also harms the heavily export-oriented German economy. The more global wealth is concentrated in a few nations and people, the fewer potential customers there are who can afford German products. In addition, there are possible new streams of refugees when people want to escape from extreme poverty.
Lower economic growth in poorer countries also slows down our own development. This is also confirmed by warnings from the World Trade Organization and the United Nations. The WTO had recently declared that world trade would stagnate. This would hit poorer countries harder than rich countries because they are more dependent on exports. The interest rate increases in almost all industrialized countries are also at the expense of the poorer countries, because this means that capital is withdrawn from them and their financing options worsen even further.
As a solution to the problem, the World Bank advocates, among other things, taxing wealthier people more heavily. She is thinking, for example, of higher taxes on the generation of greenhouse gases or on land. The background to these proposals is that richer people emit more CO2 and own most of the land in the world.
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