Inequality is a multifaceted structural problem that exists within as well as between states. National inequality has been increasing in most countries, particularly since the 2007–2009 global financial crisis, and the ongoing COVID-19 pandemic has further reinforced this trend. At the same time, we have been witnessing a dramatic decrease in absolute poverty for many countries around the world (see Figure 1), and a convergence between countries in terms of inequality levels (Figure 2). However, there is a high risk of these developments reversing.

Figure 1: Poverty Headcount Ratio at $1.90 a Day (2011 PPP; Percentage of the Population)

Addressing inequality is crucial because it is an underlying factor and multiplier for a myriad of other political issues, including education, healthcare, climate change mitigation, urban planning, and more. Thus, managing inequality requires a multidimensional, long-term approach, as the foundations of inequality are usually deeply rooted in social and political systems. There are different dimensions of inequality. In addition to the economic dimension (income and wealth), social inequalities manifest themselves in access to public goods and services (like health and education) and discrimination in opportunities (such as by gender or race). We understand the “politics of inequality” as those interests, power relations and political processes that shape the conditions leading to greater or lesser social inequity. This report explores what could be accomplished today so as to avoid a further increase in inequality within and between states amidst uncertain developments that are influenced by many forces, including digitization, climate change, populism, and geopolitical competition.

Figure 2: The Development of Global Inequality

The following, deliberately extreme scenarios present two alternative future developments so as to allow us to draw some initial implications that can inform policymaking today.

To construct two very different scenarios, we identified six factors – or key uncertainties (KUs) – that we foresee having a strong influence on the future development of the global “politics of inequality” and that are simultaneously characterized by high unpredictability. These are:

1. Future Global Shocks
2. The Future of Work
3. The Arrangement of Digital Platforms
4. Systemic Gender and Racial Inequality
5. Global Narratives on Inequality
6. Tax and Transfer Policies

We devised alternative assumptions and projections for each key factor’s state in the year 2035 before creating one rather positive and one quite negative scenario, each a consistent combination of projections that were connected in a facilitated group process (see Table 1). Upon iterating these ‘raw scenarios’, they were expanded into comprehensive thought experiments about the future. The positive – or pleasant – scenario explores various crises that drive social and political change, including a new global economic consensus on international taxation and platform regulation. The negative – or unpleasant – scenario delineates a growing fragmentation of societies, a loss of trust in multilateralism, the rise of nationalism, a growing digital divide, as well as a fundamental reframing of inequality itself.

Still, we encourage our readers to extend their imaginations beyond these two extreme scenarios, which do not predict but rather explore how the politics of inequality could potentially develop over the coming decade.

Table 1: Key Uncertainties and Respective Projections for a Pleasant (Green) and Unpleasant (Red) Future of the Politics of Inequality

Scenario I: The End of Solidarity Between and Within Countries

The negative – or unpleasant – scenario for 2035 essentially envisions higher levels of inequality within and between countries, more severe discrimination based on race and gender, less international cooperation, and an intensified trend toward nationalism. Rather than laying out a concrete timeline of events over the next 15 years, let us consider the following overarching dynamic, based on interconnected developments that would lead into an almost dystopian world through 2035: The COVID-19 pandemic’s aftermath, coupled with demographic shifts in the industrialized world, has caused ballooning national debts. These mounting financial constraints have meant that the room for governments to maneuver has further shrunk. Cost-intensive welfare state reforms have become almost impossible. However, reform pressures have been simultaneously exacerbated by familiar and long-established trends, such as aging societies, climate change impacts, and the necessity to transition to a more sustainable economy. Greater automation of labor and knowledge work are partially driving the ‘meltdown of the middle class’, which has further increased the need for a – potentially fundamental – re-organization of transfer systems. As digitization has advanced, the digital divide has also widened, assuming that education systems adapt very slowly. One can also plausibly assume that the digital divide is reflected in algorithms, too – thus reinforcing programmers’ biases through digital services.

Collectively, these developments have further driven societal fragmentation in multiple dimensions, and have led to an unraveling of the social fabric – a context in which populism is thriving. The effects of such domestic-level developments have carried over into the international domain, only to ‘rebound’ back at the national level. The digital divide between global innovation leaders (such as the US and China) and “innovation-takers” has increased, as has competition in different digital ecospheres (e.g., infrastructure, standards, regulatory principles, education systems, access to research funding, and risk capital). The erosion of social contracts within states has encouraged further economic competition between them. A combination of rising geopolitical tensions (fueled, for instance, by hybrid and cyber warfare tools) and inaction from international organizations, such as the UN or the WTO, has resulted not only in mistrust between states but also driven a further decline in multilateral cooperation. This has particularly affected the collective response to inherently global problems (such as tax evasion, climate change, migration, and many more) that cannot be handled – let alone solved – by individual states alone. Overall, the situation is fertile ground for nationalism: domestic societal fragmentation has led to a reciprocal effect internationally and vice versa.

Inequality has profited those with the means to shape the narrative and the corresponding policies that favor the interests of the wealthy.

The development logic in this scenario eventually results in a shift in the dominant inequality narrative, a change that is driven by the emerging belief that a relative loss (in income or status, be it real or perceived) must at least partially be the result of political attempts to foster greater equality. As it has become increasingly difficult for political parties to explain the escalating inequalities in income, access to opportunities, etc., some of them have exploited the underlying confusion between correlation and causation. Inequality, according to this new alternative narrative, is inherent to societies and cannot be fundamentally altered; however, one can strategically leverage inequity for the public good by vesting power in individuals according to their tested (through standardized IQ tests, for instance) competencies (meritocracy), based on supposedly objective assessment tools that are powered by new technologies. This essentially neglects the fact that merit also depends on (unequal) social structures. Thus, inequality has profited those with the means to shape the narrative and the corresponding policies that favor the interests of the wealthy.

Imagine it is the year 2035 and the dynamic described above has shaped the global trajectory leading up to this point: within countries, we see huge income inequality; in countries offering minimum wage, it is too low to be effective. Manual labor and knowledge work automation have pushed increasing numbers of workers out of their jobs, thus further expanding the income gap.

Stark inequality is also evident in access to education, health and other public goods. One reason is that the “segment of one” has made collectivized approaches to life risks, such as diseases or accidents, obsolete. Every person receives an individual risk assessment and must pay an individual premium for insurance. Moreover, AI-driven, cognitive and performance-based assessments, along with increased demands for highly skilled labor, have advanced meritocracy as a prevailing global narrative that justifies inequality. College admissions, for example, are determined solely by IQ tests rather than contextual assessments, thus providing greater opportunities for people with higher merits, which in turn usually correlate with individuals’ socio-economic backgrounds.

Racial and gender discrimination has also worsened. The widespread use of algorithms in daily life – for activities like calculating credit scores, matchmaking in the gig economy labor market, and establishing contact between landlords and tenants – has been reinforcing existing gender and racial biases, rather than exposing them. Social credit scores are now embedded in Chinese digital passports and this system is used by other states as well, thus creating additional structural barriers for individuals from less privileged socio-economic backgrounds as well as minority groups who do not have access to the same levels of social capital and resources. Furthermore, people displaced in the algorithm-based system, particularly those who belong to traditional majority groups (for example, in terms of race and gender), have sparked several anti-liberal or anti-equality movements like the “men matter too” movement in Japanese IT firms.

In 2035, nationalism is a widespread and persistent phenomenon as nationalist movements exploit inequalities to deliberately pit local populations against migrants and other ‘foreigners’. Nationalism also thrives on higher levels of distrust between states, which is fueled in part by ambiguity and asymmetry relating to, for instance, growing concerns about cyber security. A widened economic gap can also be observed between countries: Google and Alibaba have effectively divided the African continent into market zones, which has spurred the emergence of ‘technology spheres’ and impeded cooperation between African countries in the realm of digital policy.

Populist narratives thrive as a result of the middle class’s disintegration – a hotbed for agitated discussions – and due to the widening digital divide, which is reinforcing inequality. Tax havens have tripled in number, enabling more tax evasion, draining public budgets, and ultimately enriching the wealthy and impoverishing the poor. Even more important than the gap between rich and poor countries, however, is the decline of multilateral cooperation and international institutions. The UN has suspended its General Assembly due to a lack of funding from member states, and the WTO has suffered such severe losses in legitimacy that it may dissolve. Another key indicator of the excesses of global competition: different countries have been engaged in a global race to the bottom for corporate taxes to attract businesses.

Compared to ten years ago, the global narrative about inequality has fundamentally shifted. In 2035, inequality is regarded as an inevitable fact. The idea that equal opportunities would lead to greater equality has been effectively abandoned. Even with equal opportunities, so the dominant view, merit will be primarily defined by inherent and unchangeable identities, not individuals’ efforts. Governments use this meritocratic agenda to justify both extreme inequality and the lack of policies aimed at reducing it.

This scenario is just one highly unpleasant – but plausible – option for what the future may look like in 2035. However, it is not inevitable. To offer a contrast and explore a positive alternative that is equally plausible, we developed a second, more pleasant scenario.

Scenario II: That Was Close

Imagine it is the year 2035 and there is more equality both within and between countries. By this time, a cultural shift has transpired in the economy: with a new generation of leaders in management positions, particularly in the digital and tech sectors, the means of organizing work and the definition of work itself have altered. Productivity, for instance, is no longer measured in working hours. More jobs require and encourage creativity, and routine work, while necessary, has been reduced. Financial markets and institutional investors direct increased capital flows to companies with business models that generate social and ecological – and thus long-term economic – value.

Inequality in income and wealth still exists; however, in most countries, it is not as pronounced as in previous years. Equipped with solid budgets, some countries have introduced universal basic income systems, while others have set effective minimum wages and implemented an overall reduction in work hours per week in certain sectors that had been hit especially hard by automatization in manual labor and knowledge work.

Discrimination has also been reduced. In a growing number of economies, the gender pay gap has narrowed to virtually zero, and in high-level management positions, one can find equal representation of women and men. Discrimination on grounds of nationality or race has also gone down, and the realms of education, business and politics are more international than ever before. Another factor contributing to this is a higher awareness of the severity of many global challenges.

Of course, this world in 2035 is not free of antagonisms. People with a commitment to maintaining old paradigms of growth and development still exist, as do the filter bubbles around them. Populist politics are also far from defeated; however, they simmer at a low and manageable level as political elites haven risen to the task of fighting against populism.

Inequalities between countries have also decreased, as a new economic consensus has emerged that essentially reinforces the old consensus – under digital conditions. By 2035, an international tax agreement has been implemented that not only served to avoid a global race to the bottom on corporate taxation but also effectively squelched tax havens. The respective funds have boosted public budgets and equipped governments with a considerable amount of additional revenue. A key impetus for this trend stemmed from social upheavals across both industrialized economies and emerging markets, where people protested against spiraling inequality, which resulted in governments passing domestic tax reforms to ensure that the super wealthy would contribute their fair share. Domestically, more equitable wealth and inheritance taxes have become a reality in most economies, which has laid the groundwork for increased international cooperation and resolve regarding corporate tax evasion.

Domestically, more equitable wealth and inheritance taxes have become a reality in most economies, which has laid the groundwork for increased international cooperation and resolve regarding corporate tax evasion.

The second pillar of this renewed economic consensus is a coherent regulation of (digital platform) monopolies. In order to create a level playing field for incumbents, platforms now have to base their services on protocols. Like the 1990s SMTP protocol for enabling email, regulations in 2035 require protocols for social networks, messaging apps and other services. Through international regulations, social networks are responsible for their widely shared content and can face fines for, for instance, not identifying and removing (deep) fakes. This has curbed the proliferation of filter bubbles and ‘alternative facts’ online.

The third pillar is regional integration. Most notably, the successful implementation of the African Continental Free Trade Area (AfCFTA) by 2035 has resulted in a more dynamic agricultural sector, a boom in small-scale farming, and more favorable trade terms vis-à-vis developed countries. All three pillars of the international economic consensus have contributed positive effects on the national level.

In addition, a strong consensus on climate change targets has spurred innovation worldwide. This has positively impacted human, animal and planetary health. Due to ambitious climate targets and binding implementation mechanisms, carbon neutrality regulations for housing construction are common in 2035. Consumption patterns have altered such that animal- and climate-friendly self-regulations even benefit the big fast-food chains. There is also a global ban on single-use plastics.

How Did We Arrive Here by 2035?

As this scenario’s title indicates, positive change was triggered by multiple global crises on the one hand, and grass roots-level activism and social change on the other.

Three key developments drive the logic of this scenario. First, demands from younger generations for equal pay and representation intensify. Equal pay day is coordinated internationally so that on the same day, hundreds of millions occupy the streets and demand that governments and institutions create more equality at work. Labor Day sees more demonstrations for non-financial reforms. The calls for non-monotonous work, fewer and more flexible working hours, as well as greater workplace flexibility for office employees also increase. Moreover, in the US and elsewhere, the economic and social fallout from the COVID-19 pandemic led to low-paid workers demanding better wages and social benefits. A new generation of managers meets these requirements, which are congruent with their own values. They hire differently, run innovative businesses, and prioritize the development of non-economic values.

Secondly, this societal change meets an ecological crisis that will only worsen over the coming years. Not only do direct climate change impacts, such as droughts, floods and extreme weather patterns, intensify in frequency and amplitude, but – and more importantly – greater numbers of people also experience these events more acutely. This spurs demand for sustainable products and services that also produce sustainable outcomes. One concrete example is the production and use of plastics: after the fishing industries are pushed to the brink of collapse due to pollution and the adverse effects of rising sea temperatures, political regulators attempt to avoid the worst outcomes by banning single-use plastics. In turn, this sparks a growing demand for ethically sourced product supplements.

Third, a massive tax evasion scandal surfaces that makes the 2016 Panama Papers appear minuscule in comparison. The “Cayman Papers” document tax evasions that amounted to over 400 billion US Dollars in tax losses – per country! All whistleblowers hold mid-level management positions in internationally operating financial institutions, and all of them are under the age of 40 – another indicator of the ongoing change in values and norms in the economy.

Implications

Neither of these extreme scenarios will become a reality. The future might fall somewhere in between or, even more plausibly, may exceed both of the extremes. The purpose of such scenarios is not to foresee what will happen. Rather, the objective of foresight tools is to develop a better radar for what transpires around us in the present, to gain a better understanding and estimation of the future as a space of uncertain developments, to anticipate surprises, and, eventually, to make better decisions on how to shape and prepare for the future.

So which implications can we draw from our two scenarios?

First, there is a way to prevent the negative – or unpleasant – scenario while simultaneously promoting the positive – or pleasant – one: In order to effectively manage future economic transformations (the most important in the context of inequality being digitalization, which, however, is only one out of many) and adapt welfare systems accordingly, the state will need massive resources. Besides political will and the ability to design and implement a forward-looking and coherent strategy, the most important resource is money. Although the old adage advises that ‘if the problem is money, consider it solved’, a sustainable implementation of redistribution projects depends on sufficient and steady public revenue. Insufficient financial resources, on the other hand, can induce social upheaval and political tensions, and leave critical vacuums that can be easily filled by political actors who jeopardize stability to advance their own agenda. Thus, governments should retain international agreements on taxes (and first and foremost on corporate taxes), especially in the digital industries, as well as the minimum tax rate and wealth (asset) and inheritance (estate) taxation.

In order to effectively manage future economic transformations and adapt welfare systems accordingly, the state will need massive resources.

Second, in order to avoid discrimination as illustrated in our negative scenario, the US, China and the EU, in cooperation with other major democracies and big tech companies, could collaborate on establishing an international institution to regulate algorithms. Creating an international organization or forum that is responsible for standard setting, monitoring and sanctioning would be desirable but is likely too ambitious initially. A code of conduct or a binding regime would qualify as constructive first steps in the right direction to avoid (often invisible) discrimination in the digital space, the results of which are greater inequality and societal divides within and between countries. In addition, social networks and other platforms must play a constructive role in mediating the world to their users. Content regulation is necessary to avoid dis- and misinformation as well as persistent filter bubbles of alternative realities that drive political fragmentation, as demonstrated in the negative scenario. At the very least, such a regulatory proposal would not hinder and, perhaps, even support a trajectory like the one outlined in the positive scenario.

Another way of proactively advancing the positive scenario is to support societal change. In order to do so, governments could increase civic education and promote youth-led political engagement and participation. After all, Fridays for Future and other social movements of younger generations belong not (only) on the streets but also into parliaments and governments.

About the Fellows

Senior Fellow

Acknowledgments

This report was co-authored with Johannes Gabriel of Foresight Intelligence.

The Global Governance Futures (GGF) program is made possible by a broad array of dedicated supporters. The program was initiated by GPPi, along with the Robert Bosch Stiftung. The program consortium is composed of academic institutions, foundations and think tanks from across the nine participating countries. The core responsibility for the design and implementation of the program lies with the GGF program team at GPPi. In addition, GGF relies on the advice and guidance of the GGF steering committee, made up of senior policymakers and academics. The program is generously supported by the Robert Bosch Stiftung.

The Global Governance Futures program (GGF 2035) off-sets participants’ carbon emissions related to carrying out and attending the program.