Inequality: A Challenge for Capitalism and Democracy

Inequality is the greatest social and economic challenge faced by advanced industrial nations today. Left […]


Inequality is the greatest social and economic challenge faced by advanced industrial nations today. Left unchecked, inequality slows economic growth and makes business cycles more volatile. The ensuing human collateral damage is costly to both citizens and states. Left unchecked, inequality erodes democratic institutions, as the growing concentration of corporate and personal income leads to greater influence over lawmaking by powerful moneyed interests. A key driver of inequality is the pursuit of ‘trickle down’ economics, whereby tax cuts for corporations and high-income earners supposedly generate more investment and job creation. Thirty years of data reveal a failed theory and social experiment.

How to reduce inequality
There are three ways to tackle inequality. The first uses the job market itself to minimize income disparities through high minimum and/or living wages, robust trade union density, full employment of human resources, cultural constraints on excessive CEO compensation and limited use of migrant workers. The second redistributes income by governments, with progressive taxation that sets higher rates on higher incomes while providing transfers and supports to lower-income, unemployed, disabled and elderly citizens. Finally, inequality can be reduced by promoting meritocracy and mobility through investments in healthcare and education, affordable housing and transit.

How not to reduce inequality
Markets don’t just happen. Governments shape them by writing the rules of the game. The rules are gradually being rewritten to favour ownership and those with power. Trade agreements, such as the Trans-Pacific Partnership and the Canada-Europe Comprehensive Economic and Trade Agreement are poised to deepen the reach of existing trade deals, further liberalizing capital while constraining labour and sovereign decision-making.

Europe’s long-standing pursuit of greater equality has emphasized generous childcare provisions and educational spending, not tax cuts and credits. But since the 2008 crisis, Europe’s focus on equality has been undermined. As youth unemployment soars, governments have focused on balancing their books via spending cuts. The cure has proven worse than the disease. Austerity’s government cutbacks drag already weak private-sector growth towards recession and strain political consensus. In Europe, as in Canada, inter-generational solidarity is at risk. Recent policy reforms favour those with wealth (older people) over those starting out (the young).

We know how to reduce inequality, but five emerging trends undermine progress. The first: tax cuts that treat income from capital more preferentially than income from work. The second: systematic undermining of unions and collective bargaining, which has historically offered a negotiated path for sharing prosperity. The third: devotion to balanced budgets and austerity, a perverse focus in an era of historically low interest rates which could spur state investment in infrastructure, boosting current growth and future potential. Fourth: accelerating use and abuse of migrant workers, as industrialized nations face the twin challenges of slow growth and aging populations. Finally: trade agreements that further shift bargaining power towards corporations, ultimately eroding the prosperity of most citizens. Sold as ways to put more money in our pockets, these false economies pit us as consumers against ourselves as workers and citizens, and make inequality worse.


Find all related publications

A European Health Union

A blueprint for generations

Making trade work for prosperity, people and planet

FEPS Primers series - Arancha González and Yanis Bourgeois

SDGs for all: Strategic scenarios

Earth4All system dynamics modelling of SDG progress

European perceptions of public programmes for zero unemployment

Online survey and qualitative interviews: The results
Find all related news

FEPS is recruiting 1 project officer

Notice of vacancy

FEPS President at the SDG Summit and United Nations General Assembly in New York

FEPS President Maria João Rodrigues is in New York this week on the occasion of […]

Call for tender – Researcher on inflation

Basic Information Project    The profits-prices spiral: measures to avoid inflation  Partners   TASC (Ireland), Pietro Nenni Foundation (Italy)  […]

Call for tender – Research and analysis for the project “Progressive paths to rebuild Ukraine”

Basic Information Project Research “In search of a ‘lost generation’. Harnessing youth potential for post-war […]
Find all related in the media
In the media

‘SDG funding gap swells to $137trn’ New Policy Study from FEPS, together with Earth4All, to deliver a five-point plan for the SDGs.

by Edie 19/09/2023
The “SDGs for All” report emphasises that policymakers have the potential to significantly advance SDG implementation by the original 2030 deadline and beyond by enacting five “extraordinary turnarounds” that break away from current trends.

“Trade doesn’t work in isolation from good domestic policies” Interview to Arancha González

by Borderlex 19/09/2023
Interview to Arancha González, former Spanish foreign minister, who released together with FEPS the new book entitled 'The Trade Handbook: Making Trade Work for Prosperity, People and Planet'

AI to ‘determine course of global trade, jobs’ in near future

by The Financial Express 14/09/2023
The Financial Express's article focuses on the publication of FEPS Primer on Trade written by Arancha González Laya and Yanis Bourgeois

Un nuevo informe de prospectiva identifica las medidas políticas urgentes necesarias para volver a encarrilar los ODS

by Cope 14/09/2023
'New foresight report identifies urgent policy measures needed to get the SDGs back on track' Cope's article on the policy study 'SDGs for all: Strategic scenarios', published in collaboration with Earth4All