THE BLOG

Income Inequality Tops Davos Agenda

27/01/2014 11:20 GMT | Updated 26/03/2014 09:59 GMT

The atmosphere at Davos this year has been extremely positive and optimistic in comparison to previous sessions of the World Economic Forum.

However, one key topic of conversation that is increasingly concerning world leaders is the growing wealth gap which is having a significantly negative effect on the stability of economic growth in countries throughout the globe.

In particular, talk at Davos is turning to what impact this income gap is having on the younger generation, who have already suffered in the global economic downturn in terms of finding jobs in a constrained market.

For the youth of today, the negative legacy of the financial crisis which has plagued us for over six years now, is youth unemployment. This is creating an atmosphere of inequality which is a key focus for many senior business figures and politicians.

Yesterday, I was fortunate enough to interview Christine Lagarde at a WEF organised event here. We spoke at length about the 'haves and have not's' and what steps companies should be taking to ensure this inequality issue is tackled head on, especially in developing countries such as Brazil and China. Lagarde's view was that if big business and politicians don't do anything, there will continue to be this self-fulfilling situation, where the more inequality, the less sustainable the economic situation in these countries, which will ultimately lead to less growth, less jobs and the bad cycle will go on.

Little in the way of concrete research has been conducted to show that less inequality leads to better societies and more sustainable growth and this is something Lagarde is pushing for. But she did point to the work of the Nordic countries, which in her view have demonstrated a more sustainable platform for growth than that of other advanced countries, by introducing progressive taxation to help redistribute wealth and counter the gap.

Other business leaders like Barclays Chief Executive, Antony Jenkins, have suggested that we need to find ways to address not just the structure of how we do business globally, but how our education systems are organised, to ensure a more even and fair playing field for all looking to get into paid work.

We are currently losing a generation to high unemployment, most notably in Europe where Spain, Italy and Greece are struggling as graduates are unable to find employment, leading to loss of confidence and loss of earning power. In the UK, research from the Office for National Statistics out this month indicated that a total of 3.3 million 20- to 34-year-olds lived with their parents in 2013, the highest number since it started keeping records in 1996. Over that same period, the number of young adults sharing a home with their parents rose by 25%, despite the proportion of the population aged between 20 and 34 remaining broadly the same. While you might argue that this shows that children just want to be closer to their mum and dad, what it actually reflects are the lack of options and heavy financial constraints facing a large proportion of the youth of today.

Tony Blair yesterday argued that today's politicians need to acknowledge this inequality gap and move fast to counteract it. And I'm certainly with him there. If tangible steps aren't taken soon, then politicians are going to be faced with an increasingly disgruntled electorate. As we emerge from recession, world leaders need to learn to adopt an increasingly more flexible and inclusive approach to economic development.

Francine is reporting live from Davos on Bloomberg Television. Watch coverage via:

• Bloomberg Television in the UK: Sky 502; Virgin Media 609; Freesat 208

• Bloomberg.com/Davos

• Bloomberg TV+ app for Apple iPad

• Apple TV

Embeddable video will be available here: Bloomberg.com/video/davos-videos/

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