Equity (economics) - Overview

Overview

Inequality and inequities have significantly increased in recent decades, possibly driven by the worldwide economic processes of globalisation, economic liberalisation and integration. This has led to states ‘lagging behind’ on headline goals such as the Millennium Development Goals (MDGs) and different levels of inequity between states have been argued to have played a role in the impact of the global economic crisis of 2008-2009.

Equity is based on the idea of moral equality. Equity looks at the distribution of capital, goods and access to services throughout an economy and is often measured using tools such as the Gini index. Equity may be distinguished from economic efficiency in overall evaluation of social welfare. Although 'equity' has broader uses, it may be posed as a counterpart to economic inequality in yielding a "good" distribution of wealth. It has been studied in experimental economics as inequity aversion. Low levels of equity are associated with life chances based on inherited wealth, social exclusion and the resulting poor access to basic services and intergenerational poverty resulting in a negative effect on growth, financial instability, crime and increasing political instability.

The state often plays a central role in the necessary redistribution required for equity between all citizens, but applying this in practise is highly complex and involves contentious choices. However, considerable consensus can often be found on three particular issues:

1. Equal life chances: life outcomes should be determined by individual choices and not conditions beyond an individual's control.
2. Equal concern for people’s needs: those goods and services understood as necessities should be distributed to those otherwise unable to access them.
3. Meritocracy: positions in society and rewards should reflect differences in effort and ability, based on fair competition.