Simon Kuznets was right, but no one listened

 

Since the Bretton Woods Agreement in 1944, which led to the creation of the World Bank and the International Monetary Fund, we have measured the evolution and health of our economies based on their Gross Domestic Product. This unit of measurement is often represented as follows:

 

GDP = consumption + investment + government spending + exports – imports

 

Its ideologue, Simon Kuznets, made it clear that this tool was not optimal. The welfare of a nation cannot be perceived solely through its national income. In fact, the data considered by Kuznets in his initial studies responded precisely to the post-war period, which, despite experiencing an economic boom, did not start from a normal baseline.

 

The importance that society, as a whole, places on GDP is well known. When it falls, governments take steps to halt the decline and bolster its growth. Unfortunately, this unit of measurement does not consider the use of natural resources, pollution, or the distribution of the wealth generated. It does not measure the well-being of a society. This unit of measurement, if updated, or the unit that replaces it in the future, must also reflect the value created by the digital economy, along with the value created by unpaid work, the concentration of wealth, its geographic distribution, and our relationship with the environment.

 

Today, inequality within countries has accelerated, and this is not accounted for in the equation. While income distribution has improved globally, within national borders, it has deteriorated over the last three decades, and numerous studies demonstrate this. French economist Thomas Piketty has effectively illustrated in his book “Capital in the Twenty-First Century” how the proportion of income received by the richest 10% of society has evolved. The data collected shows that in the 1970s, the richest 10% in the United States received one-third of the national income, while in 2010, this group captured nearly 50% of that income. This means that the remaining 90% of society had only the other 50% of the pie to divide among themselves. If that already grabs your attention, I invite you to take a deep breath before reading the next statistic. What happens with the richest 1%? According to the World Inequality Report[201], between 1971 and 2015, their incomes more than doubled. In simple terms, this means that in recent times, almost 19% of the national income of the United States went to the pockets of 1% of society[202]. With these numbers in hand, the emergence of the Occupy Wall Street movement in 2011 is not surprising. Inequality is not the same in all countries, but similar figures can be seen in different geographical locations. However, in areas with better redistributive systems, such as in European countries, the richest 10% only take 37% of the income. Just as we saw the rise of the Occupy Wall Street movement, I have no doubt that in a few years we will see anti-automation movements led by nationalist proposals strongly opposed to globalization and the technological paradigm shift that challenges us today.

 

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[201] World Inequality Report. (2018). World Inequality Database. Viewed on December 18, 2021, at https://wir2018.wid.world.

[202] Chancel, L. (2019). The elephant curve of global inequality and growth. International Monetary Fund. Viewed on May 28, 2023, at https://www.imf.org/-/media/Files/Conferences/2018/6th-stats-forum/presentations/session-1-lucas-chancel-the-elephant-curve-of-global-inequality-and-growth-presentation.ashx.