How does inequality hinder sustainable economic growth?

Inequality hinders sustainable economic growth by creating social instability, reducing productivity, and limiting opportunities for the disadvantaged.

Inequality can lead to social instability, which is detrimental to sustainable economic growth. When a significant portion of the population feels that they are not benefiting from the economic growth, it can lead to social unrest. This can manifest in various forms such as strikes, protests, and in extreme cases, even civil unrest or conflict. Such instability can deter investment, disrupt economic activities, and ultimately slow down economic growth. Moreover, it can also lead to policy uncertainty as governments may be forced to introduce populist measures to quell the unrest, which can further deter investment and hinder economic growth.

Inequality can also reduce productivity, which is a key driver of economic growth. When resources are concentrated in the hands of a few, it can lead to underinvestment in human capital among the disadvantaged. This is because the poor may not have access to quality education and healthcare, which are crucial for developing skills and maintaining a healthy workforce. As a result, the productivity of the workforce may be lower than its potential, which can limit economic growth. Moreover, high levels of inequality can also lead to inefficient allocation of resources as the wealthy may invest in unproductive assets such as luxury goods or speculative activities, rather than productive investments such as businesses or research and development.

Lastly, inequality can limit opportunities for the disadvantaged, which can hinder economic growth. When there is a high level of inequality, the poor may not have equal access to opportunities such as quality education, good jobs, or credit. This can limit their ability to improve their economic situation and contribute to economic growth. Moreover, it can also lead to a waste of human potential as talented individuals may not be able to fully realise their potential due to lack of opportunities. This can limit innovation and entrepreneurship, which are key drivers of economic growth.

In conclusion, inequality can hinder sustainable economic growth in various ways. Therefore, addressing inequality should be a key part of any strategy to promote sustainable economic growth.