Why do the rich get richer — even during global crises?

Death and devastation are not the only calling cards COVID-19 will be remembered by. The pandemic has also drastically widened inequalities across the globe over the past three years.

According to the Bloomberg Billionaires Index, 131 billionaires more than doubled their net worth during the pandemic. The world’s richest person, Louis Vuitton chief Bernard Arnault, was worth $159bn on December 27, 2022, up by around $60bn compared with early 2020. Elon Musk, the planet’s second-wealthiest man, boasted a $139bn fortune — it was less than $50bn before the pandemic. And India’s Gautam Adani, third on the index, has seen his wealth increase more than tenfold in this period, from approximately $10bn at the start of 2020 to $110bn at the end of 2022.

At the same time, close to 97 million people — more than the population of any European nation — were pushed into extreme poverty in just 2020, earning less than $1.90 a day (the World Bank-defined poverty line). The global poverty rate is estimated to have gone up from 7.8 percent to 9.1 percent by late 2021. Now, skyrocketing inflation is affecting real wage growth, eating into the disposable incomes of people around the world.

To curb rising prices, central banks are reducing the flow of money into the economy by increasing interest rates and withdrawing excess liquidity. But that has again boomeranged on workers, with companies — from tech firms like Amazon, Twitter and Meta to banks like Goldman Sachs — announcing layoffs at the end of an already tumultuous 2022.

Al Jazeera spoke to economists to understand why the rich keep getting richer even amid crises and whether that is inevitable each time there is an economic slowdown.

The short answer: Many countries adopt policies such as tax breaks and financial incentives for businesses to boost economies amid crises like the pandemic. Central banks flood the economy with money to make it easier to lend and spend. This helps the wealthy grow their money through financial market investments. But widening inequality is not unavoidable.

Stock market boom

When the pandemic began, central banks across the world swung into action to protect financial markets that took a severe beating as governments started imposing lockdown restrictions.

To save the economy from collapsing, central banks slashed interest rates, thereby lowering borrowing costs and increasing the supply of money. They also pumped trillions of dollars into financial markets with the aim of encouraging companies to invest in the economy. Major central banks have infused more than $11 trillion into the global economy since 2020.

These interventions triggered a boom in the value of stocks, bonds and other financial instruments — but the rise in asset prices wasn’t accompanied by an increase in economic production.

“Instead of leading to more economic output, a bulk of the sudden infusion of money into the financial system led to a dramatic rise in asset prices, including stocks, which benefitted the rich,” Francisco Ferreira, director of the International Inequalities Institute at the London School of Economics (LSE), told Al Jazeera.

A year into the pandemic, capital markets had risen $14 trillion, with 25 companies — mostly in the technology, electric vehicles and semiconductors segment — accounting for 40 percent of the total gains, according to an analysis of stock performance of 5,000 companies by consulting firm McKinsey.

“The result is that this pandemic period has seen the biggest surge in billionaire wealth since the records began,” Oxfam America’s Director of Economic Justice Nabil Ahmed told Al Jazeera. “And we are still coming to terms about how extraordinary that rise has been.”

Billionaires saw their fortunes increase as much in 24 months as they did in 23 years, according to Oxfam’s “Profiting from Pain” report released in May this year. Every 30 hours, while COVID-19 and rising food prices are pushing nearly one million more people into extreme poverty, the global economy is also spawning a new billionaire.

Pre-pandemic factors

To be sure, both income and wealth inequalities have been on the rise since the 1980s when governments across the world began deregulating and liberalising the economy to allow more private sector participation. Income inequality refers to the gulf in the disposable income of the rich and the poor whereas wealth inequality deals with the distribution of financial and real assets, such as stocks or housing, between the two groups.

Among other things, the post-liberalisation period also resulted in declining bargaining power of workers. At the same time, companies increasingly started turning to financial markets to borrow money for their investments, Yannis Dafermos, a senior lecturer in economics at SOAS University of London, told Al Jazeera.

“It is the financialisation of the economy in particular that generated a lot of income for the rich, who invest in financial assets,” Dafermos said. “And whenever an economic crisis strikes, the central banks’ response is to save the financial market from collapsing because it is so much interlinked with the real economy. This helps stock and bond markets to thrive creating more wealth and inequality.”

This is what major central banks did during the global financial crisis in 2008-09 — injecting liquidity into the market through various tools and lowering interest rates to encourage companies to borrow and invest.

“The easy money policy that began after the global financial crisis led to really low to negative interest rates and big liquidity in the financial system,” Jayati Ghosh, professor of economics at the University of Massachusetts Amherst, told Al Jazeera. “So, in the past 15 years, corporations chose to reinvest the money into buying more financial assets chasing high returns, rather than increasing their production.”

The pandemic accelerated those structures of inequality – be it liberalisation of the labour market, surge in monopoly power or erosion of public taxation – Oxfam’s Ahmed said. One example is that 143 of 161 countries analysed by Oxfam froze tax rates for the rich during the pandemic, and 11 countries reduced them.

Inflation hits lower-income nations worst

As countries started easing COVID-19 restrictions, a sharp rise in consumer demand coupled with supply shocks contributed to global inflation touching record levels.

That has forced central banks to wind up their policies of allowing access to easy money. They have also announced sharp interest rate rises. Their aim now is to reduce demand so that prices soften and, in advanced economies like the United States, to also cool down the jobs market.

To preserve their earnings in the wake of this policy shift, major companies have now started announcing job cuts, even as inflation bites the poor with low savings.

“Even when inflation has increased, the profit margins of firms have not declined,” Dafermos said. Large companies are retaining profits to give dividends to their shareholders rather than increasing wage incomes, even as smaller companies suffer due to a lack of investments by bigger firms, he said.

Interest rate increases have increased borrowing costs, also affecting the ability of low-income and developing countries to spend more on welfare schemes as they have high levels of public and private debt.

“Because of the way the global financial system works, there will be a lot of pressure on developing countries to implement austerity measures,” Dafermos said. “That can create more inequalities and for me, this is perhaps more significant because it limits their capacity to provide social protection to the poor.”

According to Oxfam, lower-income countries spent approximately 27 percent of their budgets in repaying their debts – twice the money spent on education and four times that on health.

Inequality is a political choice

After World War II, countries started following progressive taxation policies and took steps to address monopoly power, Ahmed said. And while many nations reversed that approach during the pandemic, a few bucked the trend. Costa Rica increased its highest tax rate by 10 percent and New Zealand by 6 percent in order to redistribute wealth.

“There are examples of countries doing the right thing. And it reminds us that inequality is not inevitable. It’s a policy and a political choice,” Ahmed said.

If left unaddressed, on the other hand, wealth inequality gives power to the rich to influence policies in their favour, which can further deepen the income divide, independent of the boom-and-bust nature of economic cycles. “Higher wealth tends to be associated with capture of government and state institutions by the elite,” Ferreira at the London School of Economics said.

This, he said, can take different forms in different democratic contexts. But the result is the same. “The bargaining power of the rich increases due to various tools they use such as lobbying,” he said. “Policies end up benefitting the wealthy and that again creates a cycle. But, this time, it’s a political cycle.”