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How Sweden and Colombia Deal with Economic Inequality

3538 words (14 pages) Essay in Politics

08/02/20 Politics Reference this

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 Inequality has been a major problem around the world throughout history, from the age of slavery to modern times. Many countries still deal with different kind of inequalities like gender inequality, wealth inequality, or income inequality. The big gap between rich people and poor people cannot be ignored anymore and we need to find a solution for it. Along the years, there are some countries that have been succeeding in the journey of finding and correcting inequality, so why is it that the other countries are not following along? Although there are some specific ideas that can help to reduce inequality, every country has a different journey and a specific process to reduce inequality based on its circumstances and history.

By looking at states like Sweden or the United States, it seems clear, and most obvious, what politicians and the government should do to lower the rate of inequality in the countries with higher inequality rate. So why is it that countries like Colombia or Brazil are not doing the same that is working for nations like Sweden or the USA? This essay will be focused on economic inequality, what is means, different ways to resolve it, how Colombia and Sweden deal with it, and why they choose those methods over other methods. Finally, it will discuss why some methods work for some countries and not for others.

According to Simon Marginson, “Economic inequality is defined as the unequal distribution of income and opportunities between different groups in society” [1] Often, people that are in poverty see themselves unable to get out of it and climb up the ladder because of the lack of basic opportunities. The scenario of inequality, worldwide, is as follows: the richest 1 percent, who are the individuals that own more than $1 million, also are the owners of 45 percent of the wealth of the whole world. People that own $10,000 in wealth composed 64 percent of the whole populace, but composed less than the 2 percent of the world´s wealth. The wealthiest people, who own more than $100,000 in assets, are 10 percent of the world´s inhabitants, but own the 84 percent of the world´s wealth [2]. Inequality is still a crisis many countries are dealing with, but there are different factors that can help to reduce this phenomenon.

Investing in Human Capital is a way to decrease inequality. Education is one of the ways to invest in human capital which potentially would help to increase equality. Günther Rehme, the author of Education, Economic Growth, and Income Inequality, during his empirical research, states that “Education simultaneously affects growth and income inequality” People are considered to work in the high-skill labor force only if they have degrees. The origin of income inequality lies in the production procedure due to the fact that high and low-skilled are not perfect replaces in production [3].

Another policy that can reduce economic inequality may be increasing the minimum wage. According to Thomas MaCurdy, author of “How effective is the minimum wage at supporting the poor”, raising minimum wage appeals that as an anti-poverty policy[4]. This statement relies on two beliefs: increasing the minimum salary will raise the income of the poor population, and the minimum wage enforces tiniest to no public or social cost. Researchers have shown that an increase in the wages for the lowest-paid employees can support about 4.6 million lead them out of poverty. Moreover, it also can increase the countries overall real income.  

According to John Powell, the director of Hass Institute for a fair and inclusive society, building assets for working families also can help countries face inequality. Policies that cheer greater savings rates and also lower the charge of building assets for working- and middle-class families can offer better economic security for struggling families. Moreover, new programs that automatically enroll workers in retirement plans and offer a savings credit or a federal match for retirement savings accounts can help lower-income households build wealth. Access to fair, low-cost financial services and home ownership are also important to build up wealth. [5]

There are other ways to face inequality like expanding the earned income tax. Doing this helps to get kids out of poverty and provides more economic support to the poor labor force, mainly single parents. Another way is to make the tax code more progressive. If the taxes that the high-class pays are decreasing while their wealth, income, and assets are increasing then we know that bad policies are being created by giving capital gains. It is necessary to aligned capital gain tax rates with income tax. Savings incentives structured as refundable tax credits, something that manages every dollar saved correspondingly, can give the same benefits for lower-income families.

Lastly, ending residential segregation plays a big role in reducing inequality. There is a strong relationship between high rates of racial residential segregation within a city and meaningful reduction levels of intergenerational upward mobility for all inhabitants of that region. Segregation based on pay, mostly the separation of low-income households, also associates with meaningfully reduced levels of upward mobility. Removing residential segregation by salary and race can improve economic mobility for everybody, especially low-income class.

We all desire a community that can offer a level of comfort, safety, and liberty, an immense decrease in racial, income, and gender wealth gaps, and a healthier democracy [6] And although there are many ways to face inequality, not every country follows the same path or engages in the same process. Every country based their programs in their situations and resources. For example, although both, Sweden and Colombia have the same goal to raise equality, they also have very different ways to resolve inequality and different results.

Sweden has an impressive history on reducing inequality and eradicating poverty. The living standards of the poor are alike to the living standards of median citizens in other advanced countries. Even during the recession, Sweden could maintain a low proportion of poverty and prevent the rise of a low class that did get to develop in countries like the United States and the United Kingdom. The first reason why Sweden achieved egalitarian income distribution and diminishing poverty is because of its system of income and earnings distribution.

In Sweden, the narrow income distribution is not accredited to a homogenous population. People of foreign ancestry in Sweden have an income distribution comparable to persons of Swedish percentage. The narrow income distribution also cannot be accredited to an exceptional low return to skills due to market forces: Sweden has a less educated labor force than the United States which should give higher income to labor skill, but the reality is the actually the opposite. Besides that, Sweden is known by a comparative equal number of hours of work among employees, and by a compressed wage structure. Certainly, the equal supply of hours of labor influences positively Sweden´s egalitarian incomes distribution as does its compressed distribution hourly pay. The connotation of comparatively egalitarian distributions of wages and hours of work may be interconnected and also necessary mechanisms of the traditional Swedish economic system.

Tax and transfer policies also play a crucial role in the Sweden´s general distribution record. According to Anders Bjorklund and Richard B. Freeman in Generating equality and eliminating poverty, the Swedish way “Factor income inequality is much greater than earnings inequality” [7]. Because some citizens do not belong to the job market, capital revenue is unevenly distributed, and because Sweden´s income maintenance system supplies significant economic support to people that have worked but are currently not employed or not working full time. Contrary to many social welfare systems, Sweden´s welfare system is principally a workfare system, with uncommon poverty trick programs: instead, variations in earnings inequality in Sweden over time reflects changes in salary which faces the struggle of making work pay more than welfare for those eligible for benefits.

Another reason why Sweden has succeeded in maintaining jobs for low paid employees while increasing their salary is the result from policies that reinforce the request for low-income workforces. Even though the public area does not hire a disproportionate quantity of low skill labors, it significantly enlarged its share of those workers from 1968 to 1991. Moreover, civic subsidization of employment for the 2 percent of the inhabitants that are considered disabled also increased the demand for low skill workers. Moreover, Sweden supports the salary of the low skill workers through high charges in non-traded goods and services in the private and public sector.

Sweden supplies a system of welfare that is institutional and redistributive, offering higher and universal minima to every person. Moreover, Sweden provides social welfare programs such as health care, public pensions, and education. These social programs guarantee rights to everybody in the community, not just the poor. The distribution of wage and hours of labor, and the support of the employment for low skilled workers play an important role in the decrease of inequality. Through the years, Sweden has for sure done a good job increase equality. Colombia, on the other hand, although it has achieved significant results on reducing inequality, is still among the most unequal countries.

According to El Expectador, based on the report “Panorama Social de America” which translates to “Social panorama of America”, made by The Economic Commission for Latin America and the Caribbean (CEPAL), in Latin America, 30.2 percent of the population, 184 million habitants, live in poverty and 10.2 percent -62 million- live is extreme poverty. In Colombia, even though the inequality for income has stopped growing, as it happened between 2015 and 2016, the discouraging note is the increase of extreme poverty and that has increased 9,9 percent. [8]

The inequality rate, measured between 0 and 1, 1 being more unequal, is 0,46 in average for the region. Colombia and Brasil are considered the highest of inequality with number around 0.50, while Argentina, El Salvador, and Uruguay scored a 0.40. However, the CEPAL does recognize Colombia as one of the countries that has achieved superior reduction higher than 1 percent pet year. The increase of the laboral income of the poor class and the decrease of the richest ones are the reasons CEPAL found as responsible of this behave.

CEPAL dedicated a whole research about gender as well. There is a stagnation of the Laboral participation of women: 50,2 percent of women are in the market, while there is 74.4 percent of man. This can be translated to the impossibility of accessing to own incomes and to an independent economy. Through unpaid work, that is to say in the work of the home and the care of children, elderly or sick, women have experienced in first hand the impact of fiscal adjustments that the government has made as a result of the economic decrease of the last years and that have reduced the provision of public services. The excess load of unpaid work works as an impediment of the total inclusion of women in decent jobs and deeps in the existing gaps, and of course this has impacts on the overall economic performance.

According to Fernando Cepeda Ulloa, when asked What should be attacked first, poverty or inequality? He answered that poverty was the priority because to generate equality it is necessary to generate wealth. The government has also implemented public politics that are a good step in the right direction. These policies are able to give a huge aid to the poor class, for example, the free housing program can alleviate the situation of households living in extreme poverty. Moreover, Colombia has been focusing a lot on financing education. Educating people from low incomes gives them a higher chance to have a profitable work life and high income which potentially would decrease inequality.

Colombia created these programs where the government is going to sponsor the education of the kid whom ICFES scores, what is considered to be the ACT, are higher than certain score set by the government. The program is called “ser pilo paga” which translates to: being smart pays off. Just in the semester of 2015 about 10.000 “pilos” students of low income have how to finance their studies in universities of quality which has the potential to generate the social mobility that today Colombia is lacking. It is a good new to see Colombia worry about high concentration of income as has been seen in recent years. [9]

Besides that, conditional transfer programs such as Families in action, a non-profit, non-governmental organization dedicated to the upliftment and healing of families and individuals ravaged by drug addiction and social abuses through counseling and group support, constitutes one of the most powerful redistributive tools the state has. Not only because the transfers are focused on the neediest households, but also because they improve the health and education of these households, which reduces inequality. Among the various observers, there is consensus on the key role of these subsidies in the progress against poverty, combined with economic growth, which allows for more employment and, consequently, to improve income.

Although Colombia is really trying to decrease inequality through financing education for low-class citizens and through social programs, it cannot get any near result to Sweden. There are two main reasons why Colombia has been unable to make such a big progress. These two reasons are corruption and an inside war that has been going for over 50 years. These two elements have affected the country for decades and still do. The wealth that has been

We may be confident that the concentration of capital in the hands of a tiny minority represents both the primary obstacle to economic equality. However, that is exactly what is happening in Colombia. The explanation of this situation has to do with the distortions created by a centralized economy in the hands of the state, controlled by bureaucrats who distributed personal favors, which coexisted with black markets where people exchanged goods and Services outside the legal circuits. In this way, corruption became a relatively normal way of doing things whose influence is still felt today. Of course, the extent of corruption has much to do with the referral of powerful oligarchies for which the rule of law is an expression that does not mean much. Just as the left has to be convinced that redistributive policies require the rule of law and the strengthening of personal trust, the right should be convinced that reducing corruption necessarily implies a decrease in the concentration of wealth and political power. [10]

 The inside war also plays an important role in preventing Colombia from making progress. The inside conflict of Colombia has brought many effects to the country. The first economic result that war has had in the country is the steep decline in the standard of living. When illegal military groups had control over rural areas, farmers were obligated to pay a periodical tax, so many people had to survive which led them to leave their farms losing their commercial value.  The second outcome was the increase of prices on basic necessities like food. The main effect of this internal conflict was a radical decrease in agricultural production. Moreover, the illegal groups often bombarded the oil pipelines the structure for electric energy transmission. The price of these repairs and the loss of oil and energy influenced negatively the most elemental products of the family basket, too.[11]

In Colombia, monetary speaking, 27 out of 100 Colombians are poor, while 7 or 8 out of 100 are accountable as in extreme poverty. Colombia has still a long way to go to eliminate poverty in all of its ways. To achieve this, Colombia needs to develop and strengthen the public policies of social protection and Covering fundamentally social and labor inclusion measures and redistributive income policies. Quality jobs, as well as the construction and expansion of comprehensive and effective social protection systems, are among the recommendations. Besides that, Colombia needs with urgency to reduce corruption and heal the scars of its war.

Education, at all levels, enhancing skills, and training policies can be used alongside social assistance programs to help people out of poverty and to reduce inequality. Several countries are also now exploring whether a universal basic income could be the answer. However, countries have different ways to face inequality because their conditions and tools are very different. The government has to adapt to its situation and figure out a way to overcome inequality and form other issues.  Although inequality may always exist, what it is true in that inequality requires the most immense efforts to be overcome and we all need to make a huge effort to achieve this common goal.

Works Cited

  1.  Marginson, Simon. “Economic and Social Inequality.” In The Dream Is Over: The Crisis of Clark Kerr’s California Idea of Higher Education, 143-51. Oakland, California: University of California Press, 2016. http://www.jstor.org/stable/10.1525/j.ctt1kc6k1p.23.
  2. “Global Inequality.” Inequality.org. Accessed May 05, 2019. https://inequality.org/facts/global-inequality/.
  3. Günther Rehme. “Education, Economic Growth and Measured Income Inequality.” Economica, New Series, 74, no. 295 (2007): 493-514. http://www.jstor.org/stable/4541548.
  4. Thomas MaCurdy, 2015. “How Effective Is the Minimum Wage at Supporting the Poor?,” Journal of Political Economy, University of Chicago Press, vol. 123(2), pages 497-545.
  5. “John A. Powell.” John A. Powell | Haas Institute. Accessed May 07, 2019. https://haasinstitute.berkeley.edu/johnpowell.
  6. “Tackling Wealth Inequality Like A Swede.” People’s Policy Project. Accessed May 07, 2019. https://www.peoplespolicyproject.org/2017/08/21/tackling-wealth-inequality-like-a-swede/.
  7. Bjorklund, Anders, Freeman, and Richard B. “Generating Equality and Eliminating Poverty, The Swedish Way.” NBER. December 01, 1994. Accessed May 07, 2019. https://www.nber.org/papers/w4945.
  8. Maria Alejandra Medina,”Desigualdad en Colombia: El Avance No Es Suficiente”. Economics. January 16, 2019. Accessed May 9, 2019.  https://www.elespectador.com/economia/desigualdad-en-colombia-el-avance-no-es-suficiente-articulo-834409
  9. Mauricio Galindo and Alejandro Ramirez Peña, “¿Qué hay detrás de la rápida disminución de la pobreza en Colombia?” March 25, 2019. Accesed May 7, 2019. https://www.eltiempo.com/archivo/documento/CMS-15482137
  10. Juan Alababello, “La Desigualdad incide fuertemente en la corrupción” Periodico.  Politics. January 20, 2018. Accessed May 8, 2019. http://unperiodico.unal.edu.co/pages/detail/la-desigualdad-incide-fuertemente-en-la-corrupcion/
  11. Nelson Vanegas. ECONOMIC EFFECTS OF WAR IN MY CO. Accessed May 10, 2019. http://eslstation.net/Lab_Information/Our_Lives/Culture_Homeland/Colombia.htm.

[1] Simon Marginson, Economic and Social (Oakland, California: University of California, 2016), Pag 145.

[2] “Global Inequality.” Inequality.org. Accessed May 05, 2019. https://inequality.org/facts/global-inequality/.

[3]  Rehme Günther. Education, Economic Growth and Measured Income Inequality. (Economica, New Series, 74, no. 295, 2007), pag 494.

[4] Thomas MaCurdy. “How Effective Is the Minimum Wage at Supporting the Poor?” (Journal of Political Economy, University of Chicago Press, 2015) pages 497-545.

[5] John A. Powell. Haas Institute. Accessed May 07, 2019. https://haasinstitute.berkeley.edu/johnpowell.

[6] “Tackling Wealth Inequality Like A Swede.” People’s Policy Project. Accessed May 07, 2019. https://www.peoplespolicyproject.org/2017/08/21/tackling-wealth-inequality-like-a-swede/

[7] Bjorklund, Anders, Freeman, and Richard B. Generating Equality and Eliminating Poverty, The Swedish Way. NBER. December 01, 1994.) Accessed May 07, 2019, Pag 5.

[8] Maria Alejandra Medina,”Desigualdad en Colombia: El Avance No Es Suficiente”. Economics. January 16, 2019. Accessed May 9, 2019.  https://www.elespectador.com/economia/desigualdad-en-colombia-el-avance-no-es-suficiente-articulo-834409

[9] Mauricio Galindo and Alejandro Ramirez Peña, “¿Qué hay detrás de la rápida disminución de la pobreza en Colombia?” March 25, 2019. Accesed May 7, 2019. https://www.eltiempo.com/archivo/documento/CMS-15482137

[10] Juan Alababello, “La Desigualdad incide fuertemente en la corrupción” Periodico. Politics. January 20, 2018. Accessed May 8, 2019. http://unperiodico.unal.edu.co/pages/detail/la-desigualdad-incide-fuertemente-en-la-corrupcion/

[11] Nelson Vanegas. ECONOMIC EFFECTS OF WAR IN MY CO. Accessed May 10, 2019. http://eslstation.net/Lab_Information/Our_Lives/Culture_Homeland/Colombia.htm.

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