The way a country addresses income equality suggests how prepared it is for change. Nations that prioritize the fair distribution of wealth tend to see higher overall change readiness scores. The Change Readiness Index factors the importance of income equality through its “inclusiveness of growth” sub pillar.
In Capital in the Twenty-First Century, Thomas Piketty argued that neither wealth redistribution nor progressive taxation have managed to halt the blight of rising inequality.1 Although the rapid growth of the likes of China and India may have reduced the income gap with developed nations and significantly reduced absolute poverty2, inequality continues to rise within many countries, and between the very richest states (which have become wealthier over time) and the poorest (which have not).
The CRI recognizes the importance of equality for change readiness through its “inclusiveness of growth” sub pillar, which includes several indicators that measure, or are influenced by inequality3. An inclusive society has lower risk of unrest, with more unified and empowered groups of people and institutions that can adapt to change. If low inequality promotes inclusive growth, and inclusive growth promotes change readiness, high levels of inequality will, by the definition and design of the index, hinder change readiness.
Source: KPMG International, 2015
1Capital in the Twenty First Century, Thomas Piketty, 2013.
2Inequality in Focus, World Bank, April 2012.
3The sub pillar is comprised of indicators for Gini coefficient, income share of the top 20 percent, poverty headcount ratio at national poverty line, the loss due to in equality of income, uneven economic development and a survey question about the extent to which economic growth is inclusive.