Financing the global sharing economy, part two: the global emergency

01 October 2012

Humanity is in the grip of a global emergency. Amidst the many crises we face - including the food, environmental and financial crises that have erupted into a global systemic crisis - hundreds of millions of people across the world are facing extreme deprivation and dying needlessly from a lack of access to the essentials, whether as a consequence of extreme poverty, climate change or natural disasters.

Even in rich countries, policies of economic austerity are inflicting unnecessary hardship on millions of families, many of whom now struggle to afford basic food or healthcare. Sharing the world's vast financial resources may not address the root causes of this escalating global emergency, but it is a critical first step that could save the lives of more than 40,000 people every day and prevent the needless suffering of countless more.

Link to main contents page of the report: Financing the Global Sharing Economy

Link to full report: Financing the global sharing economy [PDF]


A key principle that underpins the sharing economy is progressive redistribution, which governments facilitate in numerous ways including through taxes on wealth, income, inheritance and corporate profits, and even by setting minimum and maximum wage levels. Without redistributing a small proportion of the financial wealth that people and businesses own and create, it would be impossible to fuel the sharing economy and provide a host of important social protections - such as small financial allowances for those unable to earn sufficient income, or universal education and medical care.

For a period after the Second World War redistribution played an important role in policymaking, especially in those countries that were reinforcing the sharing economy by improving the welfare services available to their citizens. Since the 1980s, however, governments have been rolling back policies that shared the proceeds of growth more fairly across society in favour of promoting unregulated wealth creation by the few. Economic policy in most parts of the world still largely relies on the ‘trickle-down effect' to raise standards of living, even though strong evidence demonstrates that relying on economic growth without redistribution is both economically and ecologically inefficient. For example, research by the New Economics Foundation suggested that economic growth benefits the richest 1% of the world's population 120 times more than it benefits the poorest 10%, while levels of inequality in wealth, income and opportunities have rocketed across the world.[1] This perverse distribution works against the sharing economy and - just like policies of economic austerity - it neglects the needs of the most vulnerable in society.   

In late 2011 the Occupy Movement vividly captured the extreme inequality that persists across Europe and North America in their slogan 'We are the 99%', which has since refocused public debate on this perennial issue. The evidence is indisputable: since the 1970s, the top 1% of earners have witnessed their incomes rise many times faster than the rest of society. For example, data from the Organisation for Economic Co-operation and Development (OECD) shows that income inequality has grown more rapidly in the UK than any other rich nation since the 1970s. This has led to the creation of the ‘0.1%' super-rich who account for 5% of the country's total income, a level of wealth hoarding not seen since the Second World War.[2] Similar trends apply to the accumulation of wealth and assets. In the US, for example, the richest 1% now control more than 40% of the country's financial wealth,  whereas the bottom 80% of the population own only 15% of all privately-held wealth.[3]

The starkest comparisons of all between the rich and poor are those that apply to global levels of inequality. When the world is considered as a whole, the top 1% of earners also comprises the vast majority of people living in developed countries - including most of the protestors that occupied Wall Street, St Paul's in London and other city squares across Europe.[4] In terms of assets, the top 1% of the world's population owns 40% of the world's wealth. In comparison, 40% of the world's population - almost three billion people - share a mere 1% of the world's combined wealth.[5] At the current rate of change, it would take more than 800 years for the ‘bottom billion' of the world's population to achieve 10% of global income.[6]

A world of hunger, poverty and life-threatening deprivation

When nations neglect the sharing economy and fail to reduce inequalities, the poorest in society are always the ones who pay most dearly. Even in the richest and most powerful countries, governments are disregarding the basic needs and rights of a large proportion of citizens. The number of people living in poverty in even the most affluent countries is now reaching alarmingly high levels as unemployment hits record heights and social spending cuts amplify the effects of the economic crisis. Across OECD countries as a whole, poverty rates have been rising for a decade and took a sharp turn for the worse after the financial crisis of 2008. [7] Analysts expect poverty to continue to rise as countries move deeper into recession and the impacts of austerity measures become more apparent, with nearly a quarter of Europeans who formerly had a decent standard of living now at risk of sliding into social exclusion.[8]


Box 6: Poverty among the ‘richest' countries

  • In the United States, almost 50 million people - around 16% of the population - are officially living in poverty.

  • Almost one in four children in the United States grows up in a poor household - the second highest rate in the developed world.

  • Across OECD countries as a whole, the number of children living in poor households has been rising for a decade, reaching almost 13% today.

  • Approximately 50 million Americans go without healthcare insurance.

  • The number of Americans now seeking emergency food assistance through food banks each year has almost doubled since 2006.

  • In the UK - the fifth richest country in the world - one in five people are living in poverty.

  • Across the European Union, over 115 million people, 23% of the entire EU population, officially live below the poverty line.


Nothing describes the dangerous shift away from the practice of sharing within societies more than the growing levels of hunger, poverty and needless deprivation in rich nations. But it doesn't have to be this way; governments can make different policy choices and preserve the state's important role in redistributing financial resources and providing universal social protection. Scandinavian countries are among those that maintain strong welfare systems and yet they have some of the lowest rates of inequality and poverty in the world.[9] For example, Iceland has a child poverty rate of less than 5% - the lowest in the world and almost five times less than the US - despite experiencing a severe financial crisis in 2008.[10]

It is inexcusable that in some of the world's wealthiest and most developed nations policymakers are undermining the sharing economy by failing to safeguard the poor and vulnerable. In light of the growth in poverty and inequality in many rich countries, reinforcing systems of public spending and social welfare should constitute a major priority for governments throughout the Global North.     

However, there is no escaping the fact that the impact of extreme poverty and deprivation in the Global South is generally far more severe than in Northern countries. For instance, many will be familiar with the hunger crisis gripping the Sahel region of Africa, where around 18 million people currently face starvation and food insecurity.[11] Yet the true extent to which life-threatening deprivation devastates the lives of tens of thousands of families in poorer countries is often unknown among affluent society and commonly ignored by the mainstream media.

Altogether, 95% of people who live in developing countries survive on the equivalent of less than $10 a day (comparable to what $10 would buy in the United States) - an almost impossible task for someone living anywhere else in the world.[12] As a consequence of extreme poverty and inadequate welfare provision, around 15 million people die every year - equivalent to more than 40,000 people every single day.[13] This loss of life occurs almost entirely in developing countries and far outweighs the fatalities from any other single event in history since the Second World War.[14] Yet these deaths would be almost entirely preventable if people simply had access to sufficient food, clean water, adequate shelter and medical assistance - the basic essentials that most people in affluent countries have long taken for granted.


Box 7: Poverty and deprivation in the developing world

  • Just under a billion people in the world - one person in every seven - is officially classified as hungry, despite record global harvests reaped in recent years.

  • According to the World Bank's latest poverty data in 2012, almost a quarter of the developing world (22%) cannot meet their basic needs for survival, while not far from half the population (43%) is trying to survive on less than $2 a day.

  • An estimated 7.6 million children (under 5) died of preventable causes in 2010 alone, equivalent to one child mortality every four seconds (the vast majority in sub-Saharan Africa and South Asia).

  • A third of all child deaths occur because of under-nutrition.

  • Two and a half billion people - one in three people - do not have access to adequate sanitation, and almost a billion people do not even have safe water to drink.

  • Every year, about 100 million people are pushed into poverty as a result of paying for healthcare services.

  • Around 1.4 billion people are expected to be living in urban slums by 2020.


Financial austerity: eroding the sharing economy

Today, many governments are eroding the very basis of the sharing economy by implementing programs of austerity that dramatically cut public spending on social welfare and essential services. These unjust economic policies are reversing the social protections that people have fought for over many generations - a process that is undermining human rights and threatening to unravel the basic fabric of society and community.

The current era of austerity has its roots in the financial crises of late 2008, soon after which governments across the world spent an estimated $11.9 trillion of public money bailing out the banking industry - and they have since spent trillions more.[15] Rather than placing the onus on the financial sector to repay the massive debts that accrued largely because of their high-risk lending, borrowing and speculative activities, policymakers are cutting spending on essential public services in a bid to save money and reduce government debt. These cuts have already been dramatic, but in many countries they have only just begun and are set to escalate further in the coming years. Unsurprisingly, the impact of austerity measures is likely to be particularly severe on poorer families as they target key social areas such as healthcare and public sector salaries, as well as financial assistance for students, the elderly and the unemployed.


Box 8: The social impacts of financial austerity

  • Out of 128 developing countries surveyed by the United Nations Children's Fund (UNICEF), more than 90 had introduced austerity measures that affected their social sectors in 2011 or were planning to do so in 2012.

  • The cost of planned cuts to public spending in the UK between 2010 and 2015 (focused on schools, training programs and family social services) is: £95bn ($148bn).

  • Estimates for government budgets cuts in 2012 are: €27bn in Spain, €4.2bn in Italy, and €2.2bn in Ireland.

  • In the UK, one of the richest countries in the world, an additional 500,000 children may be pushed below the poverty line by 2014 as a consequence of economic austerity, while a million children are already undernourished and facing food insecurity.

  • Public sector pay in Greece has been slashed by as much as 40%, and the cost of water and medicine has rocketed in Spain.

  • The negative effects of austerity are concentrated among the young, with youth unemployment over 21% in the UK, and at 44% and 46% in Greece and Spain respectively.

  • Research shows that austerity measures lower personal incomes and increase long-term unemployment. Since 2008, unemployment levels have increased by 50% across Europe as a whole.


As it becomes increasingly more difficult for people to meet their basic needs, governments across the European Union and beyond are facing widespread popular protests that look set to continue as long as policymakers put deficit reduction before human rights. But the practice of financial austerity is nothing new. Developing countries burdened with illegitimate and unjust debts have been reeling under the harsh impacts of austerity measures for many decades, and still maintain an unsustainably high debt burden of over $4,076 billion [see section on cancelling unjust debt in this report].

A spate of reckless lending, an oil crisis and a series of unprecedented hikes in interest rates combined to push many developing countries into a debt crisis in the 1970s and 80s.[16] When these countries found they were unable to repay the huge debts they had accrued, the International Monetary Fund (IMF) and World Bank stepped in to bail them out. In order to qualify for the loans, governments had to agree to enact Structural Adjustment Programs (SAPs) which forced them to dramatically cut public spending, privatise formerly state-run enterprises, and deregulate and liberalise their economies. The overriding intention was to prioritise debt repayments to the financial sector, heighten the role of free markets, and open up the economy to multinational corporate interests. In many ways, these extreme reforms parallel the IMF government bailout packages being imposed more recently across Europe.[17]

However, the impact of the austerity measures attached to SAPs in many low-income countries during the 1980s and 90s remains more severe than the experience of even the most debt-stricken European nations of today, which at least have broad-based systems of social welfare already in place. The introduction of SAPs in more than 150 developing countries decimated systems of social protection - that were often very weak to begin with - by further reducing spending on healthcare, education and other public services and social programmes. The result was a widespread and drastic reduction in living standards, a devastating impact on health outcomes, and a massive increase in extreme deprivation in some of the poorest regions of the world - which continues to thwart poverty reduction efforts and economic development in the Global South to this day.[18]

Wherever they have been administered, austerity measures have systematically undermined the sharing economy and disproportionately affected the poor and vulnerable. At the same time, policies of austerity have cut taxes for big businesses and the ultra-rich in the vain hope that the private sector might be able to generate economic growth and increase government revenues. Yet the experience of countries in both the Global North and South tells us that fiscal austerity does not work, even on its own terms. By prolonging economic recession and reducing government income, austerity has made it harder - not easier - to repay national debt. Instead of employing the tried and tested approach of increasing public spending in order to stimulate the economy, create jobs and increase government revenues, austerity measures are depressing economic activity, rolling back essential social protections and dismantling the sharing economy.[19]      

Mitigating the human impacts of climate change

Sharing the world's financial resources is not only necessary to prevent deprivation and poverty, but it can also help to significantly reduce the increasingly severe impact of climate change on people and communities around the world. Contrary to popular opinion, climate-related disasters and changing weather patterns are already exacting widespread devastation today. Global warming is also exacerbating the vast majority of the world's natural disasters including floods and droughts, most of which occur in developing countries where people often lack the resources needed to protect themselves against climate shocks. According to the most comprehensive study to date on the human impacts of climate change, 300 million people are currently affected by global warming and 300,000 people lose their lives every year as a consequence - making it one of the greatest humanitarian challenges the world faces.[20]

Despite intensive international climate change discussions that have taken place as part of the United Nations Framework Convention on Climate Change (UNFCCC), governments have failed abysmally to negotiate effective reductions in global CO2 emissions. Pledges to reduce carbon emissions stem back to the first Rio ‘Earth Summit' in 1992, but global emissions have increased by 50% since then, reaching record highs in 2011 and putting hopes of holding global warming at safe levels all but out of reach.[21]

On the current trajectory, we are likely to witness global average temperatures increase by three to six degrees Celsius by the end of the century, far exceeding the original targets set by the UNFCCC. The impacts of a temperature rise on this scale will be severe, exacerbating today's extreme weather conditions and causing rising sea levels and diminishing crop yields, as well as potentially doubling premature deaths from pollution exposure to 3.6 million a year.[22] Nearly a tenth of the world's population already live in coastal areas that are at risk of flooding, and by 2050 there could be up to 200 million domestic or international migrants as a result of climate change.[23]

Of course, global warming is only one aspect of a much wider ecological crisis that threatens life on earth. Studies have calculated that humanity as a whole currently consumes 50% more natural resources than the earth can sustainably produce, while high-income countries have an ‘ecological footprint' that is five times greater than low-income countries.[24] The consequences of this excessive demand on planetary resources include: the pollution and degradation of land, water sources and the atmosphere; the widespread loss of forests; the rapid extinction of plant and animal species; ‘peak oil' and other peak energy scenarios; as well as the conflict and war that already takes place over the world's dwindling natural resources.

We have to act now

The causes of climate change and the broader ecological crises are complex and addressing them will require reconceptualising existing notions of prosperity and wholesale economic reorganisation. Creating a sustainable and just world is clearly impossible unless we change patterns of production and consumption that deplete natural resources, erode biodiversity and lead to climate change, and until we place the rights of Mother Nature before commercial interests.[25] However, it is not necessary to wait for these transformations to occur before acting decisively on climate change; it is possible to make a difference to human lives within a relatively short space of time, and this could pave the way for more fundamental reforms to the world's political and economic systems.

For many decades, the international community has recognised the need for ‘climate finance' to be provided to the developing world where the consequences of global warming are most severe. By investing in low carbon development initiatives, disaster early warning systems and other mechanisms that already exist, developing countries would be better able to adapt to and mitigate the worst impacts of climate change. There is also an urgent need for governments across the world to invest heavily in renewable energy and green infrastructure projects, as these are some of the simplest ways to reduce emissions and facilitate a transition to a low carbon economy.[26] Campaigners and organisations have long argued the benefits of implementing these measures both nationally and globally, often as part of a ‘green new deal' that could aid the transition to a sustainable economy and create millions of ‘green' jobs in the process.[27]  

If our goal is to live in a sustainable world without needless deprivation or poverty-related deaths, then we are clearly moving in entirely the wrong direction by undermining the sharing economy and destroying our ecosystem in the process. Safeguarding human lives across the world by reversing policies of economic austerity, preventing life-threatening deprivation and ameliorating the worst impacts of climate change must become an urgent goal for the international community. And it is possible to implement these emergency measures without governments engaging in a lengthy process of economic reform or pursuing binding international agreements. In order to achieve this moral imperative within an immediate timeframe, we need to strengthen and scale up existing systems of sharing by harnessing and redistributing public finances for the common good of all humanity. The future of earth is in the balance, never has so much been at stake, but the poorest of the world cannot afford to wait for a new economy to be constructed - we have to act now!


Notes:

[1] New Economics Foundation, Growth isn't working: The unbalanced distribution of benefits and costs from economic growth, January 2006, p. 12.

[2] Randeep Ramesh ‘Income inequality growing faster in UK than any other rich country, says OECD', Guardian, 5th December 2011.

[3] E.N. Wolff, Recent trends in household wealth in the United States: Rising debt and the middle-class squeeze - an update to 2007, Working Paper No. 589, Annandale-on-Hudson, NY: The Levy Economics Institute of Bard College.

[4] Jonathan Glennie, ‘Global inequality: tackling the elite 1% problem', The Guardian, 28th November 2012.

[5] The 2008 United Nations University-WIDER report revealed that over half of all global assets were the property of the richest 2%, with 40% owned by the top 1% and 85% by the top decile (10%). Meanwhile the poorest 50% had to make do with a paltry 1% of total global wealth. See: United Nations University's World Institute for Development Economics Research (UN-WIDER), The World Distribution of Household Wealth Report, New York, February 2008.

[6] Isabel Ortiz, Global Inequality - Beyond the Bottom Billion, UNICEF working paper, May 2011.

[7] OECD, Doing Better for Families, 27th April 2011.

[8] María Antonia Sánchez-Vallejo, ‘Poverty trap for middle classes of Europe', Presseurop, 1st February 2012.

[9] Richard Wilkinson and Kate Pickett, The Spirit Level: Why Equality is Better for Everyone, Penguin, 2010, see chapter 2.

[10] UNICEF UK, UNICEF Report Card 10: Measuring child poverty, Briefing Paper, May 2012, see chart on p. 2.

[11] Joel M Bassuk, '18 million at risk in the Sahel food crisis [infographic]', Oxfam International, 18th May 2012; Oxfam International, Food Crisis in Sahel, accessed 11th June 2012 <www.oxfam.org/en/node/4606>

[12] Contrary to popular perception, the World Bank's poverty measurement is based on what a dollar would buy in the United States, not in another country like Ethiopia, India or Peru. For the 95% on $10 a day figure, see Martin Ravallion, Shaohua Chen and Prem Sangraula, Dollar a day revisited, World Bank, May 2008. Using 2005 population numbers, this is equivalent to just under 79.7% of the world population, and does not include populations living on less than $10 a day from industrialised nations. See Anup Shah, Poverty Facts and Stats, updated 20th September 2010.

[13] Figures based on World Health Organization, Disease and injury regional estimates, Cause-specific mortality: regional estimates for 2008, <www.who.int/healthinfo/global_burden_disease/estimates_regional/en/index... Note: Only communicable, maternal, perinatal, and nutritional diseases have been considered for this analysis, referred to as ‘Group I' causes by the WHO. Ninety six percent of all deaths from these causes occur in low- and middle-income countries and are considered largely preventable.

[14] Since the Second World War, in which around 60 million people lost their lives between 1937/39-1945, there is no evidence of more than 15 million people dying as a result of any one specific event in a single year. In comparison, the ten deadliest natural disasters of the entire 20th Century led to the death of around 5 million people.

[15] According to some estimates, the cost of bailing out the financial system reached over $29 trillion in the US alone. See: James Felkerson, $29,000,000,000,000: A Detailed Look at the Fed's Bailout by Funding Facility and Recipient, University of Missouri-Kansas City, December 2011.

[16] Jubilee Debt Campaign, Unfinished business: Ten years of dropping the debt, May 2008.

[17] Jubilee Debt Campaign, Private Debt, Public Pain: What the Third World debt crisis means for Europe today, December 2010.

[18] Structural Adjustment Participatory Review International Network (SAPRIN), The Policy Roots of Economic Crisis and Poverty: A Multi-Country Participatory Assessment of Structural Adjustment, April 2002.

[19] Richard Jolly et al, Be Outraged: There are Alternatives, Oxfam, May 2012.

[20] Global Humanitarian Forum, The Anatomy of a Silent Crisis, Human Impact Report: Climate Change, Geneva: May 2009.

[21] Fiona Harvey, ‘Worst ever carbon emissions leave climate on the brink', Guardian, 29th May 2011.

[22] OECD, OECD Environmental Outlook to 2050: The Consequences of Inaction, 15th March 2012.

[23] Kirsten Gelsdorf, Global Challenges and their Impact on International Humanitarian Action, OCHA Occasional Policy Briefing Series - No. 1, January 2010. See ‘Global Challenges Fact Box' from page 16 onwards.

[24] World Wildlife Fund, Living Planet Report 2012, May 2012.

[25] The Plurinational State of Bolivia, Proposal of Bolivia to Rio+20, World People's Conference on Climate Change and the Rights of Mother Earth, 19th December 2011, <pwccc.wordpress.com/2011/12/19/proposal-of-bolivia-to-rio20>

[26] Greenpeace, Energy [R]evolution 2012: A Sustainable World Energy Outlook, June 2012. 

[27] For example, see New Economics Foundation, A Green New Deal, The first report of the Green New Deal Group, 21 July 2008; United Nations Environment Programme, Global Green New Deal, Policy Brief, March 2009.