Equality key to a strong economy, say WEF 2015 Davos speakers

Inequality leads to stagnation, according to speakers at the World Economic Forum (WEF) 2015 in Davos.

The advanced economies of the West have seemingly failed to shake off the effects of the financial crisis, leading to much speculation over the root cause of this secular stagnation. Some draw parallels to the economic situation in Japan, where low growth, low inflation and low productivity runs rampant.

After six years of low interest rates and monetary stimulus, we could conclude that the threat of secular stagnation will not be swept away by only changing macro-economic policies – more is required.

Instead, the remedy to the ailing global economy is being cited as structural reforms. Following the financial crisis, the measures that were put in place to spark a return to growth has seen a rise in economic activity, but at the cost of equality.

Household debt hit record highs in 2014

Household debt levels rose to 150 per cent by 2013 and this was followed by a quick jump up to 170 per cent by 2014, where household debt reached record highs according to figures from the Bank of England.

The data speaks for itself as the UK was the only G7 country to record rising wealth inequality between 2000 and 2014, according to a report on global wealth from Credit Suisse. Furthermore, wealth inequality rose four times faster in the seven years after the financial crash when compared with the seven years before.

Structural reforms required

A few changes were effected following the financial crisis, largely aimed at changing regulations in the banking industry to increase the capital requirement. However, nothing yet aimed at reducing the levels of inequality.

It’s not a problem that can fix itself as the current system will merely encourage this trend, which is why speakers at the World Economic Forum (WEF) 2015 in Davos are beginning to draw attention to it. Despite the renewed attention, there is likely to be little outcome from the discussions except a period of coverage in the press. If the UK wishes to break away from the current cycle of a boom and crash economy, the government needs to seriously look at strong structural reforms coupled with monetary policy changes.

Top image: World Economic Forum