Why We Can’t Have Our Cake and Eat It: Economic Growth and Inequality

By Sebaggala Richard

 

In my previous article, "Growth without Equity: Why Uganda Must Tackle Inequality for Sustainable Happiness," I received a thoughtful comment suggesting that I had "left some meat on the bones." This was a telling metaphor, implying that while I attempted to highlight the issue of inequality, there is more to uncover—more depth, more questions, and more solutions to explore.

As I reflected on this feedback, I realized that I needed to emphasize the need to tackle the issue of inequality more deeply. Indeed, the heart of the matter lies in a complex web of economic forces, social dynamics, and policy choices. Without a comprehensive approach to these interlocking elements, even the best-intentioned growth policies cannot lead to sustainable and inclusive prosperity.

In this follow-up article, I will take a closer look at the tension between economic growth and inequality and try to answer an even more pressing question: Can we really have robust economic growth while ensuring fairness and equity for all? As we will see, this balance remains elusive, and if we do not address it, the promise of growth will continue to leave many behind.

The Illusion of Wealth: Growth Without Fairness

It is tempting to believe that economic growth automatically leads to prosperity for all. But as recent global developments have shown, growth alone is no guarantee of equitable outcomes. In fact, the traditional narrative of the rising tide lifting all boats is increasingly being debunked. Empirical evidence from both advanced and developing economies shows that growth without equitable distribution widens the gap between rich and poor and economically disenfranchises large sections of society. This phenomenon can be observed in Uganda, where despite years of growth, the Gini coefficient still stands at a worrying 0.42, indicating significant income inequality. While some sectors of the economy are thriving, the benefits of this growth are not reaching the majority. This reality emphasizes a structural imbalance in economic systems— - an imbalance where growth is occurring but only a small section of society is reaping the rewards.

The widening gap between the affluent and the economically disadvantaged also poses an ethical and practical challenge to sustainable development. The situation reflects a larger global problem: the pursuit of growth without tackling inequality only widens the gap between the rich and the poor.

Why Wealth Doesn’t Necessarily Equal Happiness

In my last article, I touched on the idea that higher income does not always equate to greater happiness. This concept, known as the Easterlin paradox, illustrates that above a certain level of income, additional wealth hardly increases well-being. Instead, what really brings satisfaction is the ability to fulfil basic needs, maintain social relationships and live in a just society.

Imagine a scenario where a handful of people own multiple businesses or juggle multiple jobs and make vast amounts of money, while the majority of their family, neighbours and community members remain financially grounded. Yes, these few may have more money, but what happiness can this wealth bring if their immediate social environment is characterized by poverty and injustice? In this scenario, collective well-being is further impaired by relative deprivation — the psychological burden of knowing that others are much better off—. On the other hand, a society in which incomes are more evenly distributed tends to promote greater collective well-being as people share in the benefits of growth. While a certain level of inequality can incentivise investment and growth, excessive inequality can hinder economic development (Berg & Ostry, 2013),the overall effect of inequality on growth is destructive.

The trade-off: economic growth vs. equity

The well-known saying "You can’t have your cake and eat it too" perfectly describes the trade-off between unregulated economic growth and the pursuit of fairness. Rapid economic growth is possible, but often comes at the cost of increasing inequality. For example, measures to promote business growth — such as tax cuts for companies or reduced labour protections — may increase profits but disproportionately benefit the wealthy. Meanwhile, ordinary workers have to live with stagnating wages and a rising cost of living.

This trade-off is clearly visible in Uganda’s urban centres, where the cost of housing, education and essential goods has outstripped wage growth. The impact of this unequal growth is not only economic — it also undermines social cohesion and increases discontent among marginalized communities. The pressure on two-income households to keep up with these rising costs creates a cycle of stress and dissatisfaction. Uganda’s economy may be growing, but this growth is not delivering the equitable benefits that most citizens need to improve their quality of life. This trade-off between growth and equity is symptomatic of a broader challenge facing many nations in a globalized economy: Prioritising profit maximization without considering the social consequences can undermine long-term stability.

The social cost of inequality

The long-term costs of inequality are significant and far-reaching. Inequality fuels social unrest, creates discontent, and divides communities. It undermines social cohesion and creates deep divides between the rich and the poor. In the current political climate, this discontent has fuelled populist movements and opposition to globalization, complicating efforts to tackle inequality at a global level. As we have seen in many parts of the world, extreme income inequality often leads to political instability and protests as citizens demand a fairer distribution of resources.

Furthermore, inequality inhibits economic growth in the long term. This is not only an ethical issue, but also an economic one. Research has repeatedly shown that economies with high levels of inequality are less able to achieve long-term growth because a larger proportion of the population lacks the resources to invest in their education, healthcare or entrepreneurial activities. A recent study by Adeleye et al. (2020) provides further evidence that the interaction between income inequality and economic growth significantly weakens the poverty-reducing effects of growth. Their comparative analysis of 58 countries in sub-Saharan Africa and Latin America found that while economic growth has poverty-reducing tendencies, income inequality exacerbates poverty and undermines the inclusiveness of this growth. In Uganda, if we continue to allow inequality to worsen, as these results show, the benefits of future economic growth will remain out of reach for the majority, trapping the country in a cycle of poverty and limited development.

 

Inclusive growth: the way forward

So how can Uganda pursue economic growth while ensuring that it benefits all and not just the wealthy few? The answer lies in the pursuit of inclusive growth. Inclusive growth refers to economic expansion that provides opportunities to all segments of society, especially the most disadvantaged. This approach emphasises equality and social justice and ensures that economic gains are distributed more evenly across the population. The United Nations Sustainable Development Goals (SDGs) also emphasise this need for inclusion. Goal 10 explicitly calls for the reduction of inequality within and between countries.

Norway offers an impressive example of how growth can be managed with equity. Despite the discovery of vast oil reserves, the country has taken measures to ensure an equitable distribution of wealth. Through progressive taxation, strong social safety nets, and public investment in health, education, and infrastructure, while controlling population growth, Norway has successfully used its economic growth to improve the well-being of all its citizens. Uganda, with its recent oil discoveries, could follow a similar path by adopting policies that prevent over-concentration of wealth and ensure that all citizens share in the benefits of growth.

To achieve this, Uganda needs to prioritize policy reforms aimed at reducing inequality while promoting growth. Closing tax loopholes and preventing tax evasion by large corporations must be high on the agenda if Uganda is to maximize its revenue and invest in social programs. Progressive taxation can ensure that the wealthiest individuals and companies make a fair contribution to the economy. Tax revenues can be reinvested in social programmes, education and healthcare, helping to level the playing field for lower-income households.

 

Secondly, investment in education and training is essential to equip Ugandans with the skills they need to participate in the economy. According to the 2024 census report, Uganda's population currently stands at 45.9 million people, the majority of whom are young and dependent. The country’s dependency ratio is 89%, with a significant proportion of young people under the age of 18, highlighting the urgent need for targeted investment in education. By promoting vocational training and improving access to quality education, Uganda can reduce unemployment and underemployment and enable more people to benefit from economic opportunities. This is particularly important as the unemployment rate in the 18-30 age group is over 50% and a large proportion of this population is not in education.

Third, supporting small businesses and co-operatives can promote economic growth at the grassroots level. The census report indicates that a significant portion of Uganda’s population lives in rural areas and that small businesses serve as important economic engines for these communities. By providing access to credit and creating a favorable business environment, Uganda can empower local entrepreneurs and help them create jobs and drive sustainable development in their communities. The importance of promoting financial inclusion should not be underestimated as 45% of Ugandans still lack access to financial services. Expanding lending and supporting co-operatives, microfinance institutions and informal intermediaries such as savings groups will be critical to reducing poverty and inequality.

In conclusion, while economic growth is critical to Uganda’s development, it must not come at the expense of fairness and equity. We cannot have our cake and eat it too—pursuing unchecked growth while ignoring the growing inequality in our society. Instead, we must strive for an economic system that promotes both prosperity and fairness and ensures that the benefits of growth are shared by all. True prosperity must not only be measured by GDP but also by social inclusion and equitable distribution of resources.

If Uganda pursues a policy of inclusive growth and tackles the root causes of inequality, it can embark on a path to sustainable development. In this way, we can create a society in which economic progress leads not only to greater prosperity, but also to greater happiness and social harmony. Without this balance, Uganda runs the risk of entrenching the very inequalities that undermine its potential. The future of Uganda’s growth depends on our ability to balance ambition with equity and ensure that everyone can share in the country’s success.