Economic inequality
and
ITS POTENTIAL IMPACTS ON INDONESIA
Savira Auliyah
Economic inequality can be defined as the disparity between the wealth and income of individuals living in a society (Fontinelle, 2020), further exacerbating the existing social gap. This undoubtedly brings much uncertainty to the people - and those of Indonesia are no exception. Data published by Credit Suisse in 2014 showed that the distribution of wealth in Indonesia is one of the most highly skewed, indicating the presence of a significant gap between the top 1% and other members of society, being surpassed only by Thailand and Russia in this regard. Furthermore, the gap between the rich and the less privileged in Indonesia has been said to be growing at a higher rate compared to any other Southeast Asian country (Booth, 2020).
The root cause behind the severity of economic inequality is a phenomenon known as the poverty trap, also known as the cycle of poverty. Although hard work is undoubtedly a key factor to success, there is a common misconception that it is the sole determinant to success. This could spread the harmful narrative that those who are living within underprivileged conditions simply do not work hard enough. The truth is, those who are born into less privileged backgrounds have an inherent disadvantage, as they may be unable to afford high-level education. As a result, it is not uncommon for children from low-income families to be unable to complete their education, starting to work before they get their degree to support their families financially. This situation would then result in aggravating effects for the people - both within the short term and the long term. The direct impact of this inequality is the rise in cases of health and social issues, which could potentially lead to political instability as well.
Aggravated Health
& Social Issues
British researchers Kate Pickett and Richard Wilkinson (Pickett & Wilkinson, 2015) have discovered a correlation between higher rates of health and social problems - such as mental illness, drug use, and homicides - in countries with higher inequality. Although it may be hard to see the correlation between income inequality and health or social problems, there are examples which can be given to easily visualize such connections in a way that can be understood. For instance, to receive better healthcare, people may need to invest a significant amount of money in health insurance. This is not a major problem for those who possess a huge amount of wealth; however, those people who do not have that kind of wealth tend to be reluctant when it comes to investing or spending more money for their healthcare and wellbeing. In many cases, victims of income inequality are also forced to adjust to their financial conditions by resorting to crimes to fund their living expenses. People may commit theft or fraud in order to survive, often in areas where the effects of economic inequality are most evident.
potential political instability
Due to the fact that economic inequality brings about a significant level of hardship towards the people, this social discontent would result in dissatisfaction towards the government. The overarching result of this would be political unrest - and the emergence of violent riots and protests would not be the only devastating impact of such instability. In some cases, even if action is taken to resolve the ongoing issue of inequality, the lack of trust towards the government could lead to failure of government programs. Furthermore, as proven in a study of 70 countries (Alesina & Perotti, 1996) such political instability would reduce foreign investments, an important aspect to stimulate the growth of the economy. This lack of investments would further exacerbate the issue of a weak socioeconomic landscape.
Considering the fact that this issue needs to be resolved promptly, both the government and the people should bring the problem of economic inequality to the center of their attention. Government actions that can be done include but are not limited to improvements in the progressive tax system, investments in education and job training, as well as the provision of additional social aid. Furthermore, we can contribute to the change by recognizing our privilege and contributing to charitable movements that aim to assist those in need.
Street Smart Society is a nonprofit organization dedicated to resolving income inequality by teaching lessons on financial literacy and entrepreneurship skills to underserved communities. Donations can be made to BCA 7105103361 (Marianne Charleen Sabini). All proceeds will be allocated to donations for the communities that we partner with.
References
​
Alesina, A., & Perotti, R. (1996). Income Distribution, Political Stability, and Investment. European Economic Review, 40, 1203-1228. https://www.nber.org/papers/w4486
​
Booth, A. (May 15, 2020). Indonesia’s inconsistent income distribution data. Eastasiaforum. https://www.eastasiaforum.org/2020/05/15/indonesias-inconsistent-income-distribution-data/
​
Fontinelle, A. (2020, May 28). Economic inequality. Investopedia. https://www.investopedia.com/economic-inequality-4845459
Pickett, K. E., & Wilkinson, R. G. (2015). Income inequality and health: a causal review. Social science & medicine, 128, 316-326. https://doi.org/10.1016/j.socscimed.2014.12.031
​
World Bank. (2021, April 6). Indonesia overview. https://www.worldbank.org/en/country/indonesia/overview
​
Tjoe, Y. (2018, August 28). Two decades of economic growth benefited only the richest 20%. How severe is inequality in Indonesia?. The conversation. https://theconversation.com/two-decades-of-economic-growth-benefited-only-the-richest-20-how-severe-is-inequality-in-indonesia-10113