Should investors care about inequality? “Yes” is the answer the G20 is hearing. A report released this week in advance of the G20 summit points out that 90% of the world’s population lives in countries with high inequality and that it is a bad thing.

It was commissioned by President Cyril Ramaphosa from a committee of experts led by Nobel laureate Joseph Stiglitz.

The specific mechanism that makes inequality bad for financial markets is not clearly spelt out. “Inequality causes people’s lives to be more fragile, leading to perceptions of unfairness that spark frustration and resentment,” says the report. It goes on that the consequences are political instability, enhanced conflicts, loss of confidence in democracy and so on.

Yet the report acknowledges that inequality has been improving at a global level, with the rise of China bringing hundreds of millions of people out of poverty. However, within regions and many nations it has deteriorated.

The badness the report focuses on is not inequality per se, but rather the consequences of poverty, including the loss in human capital from many people being unable to afford good nutrition, healthcare and education.

These can be resolved by a focus on minimum levels of income, which seems a different policy consideration than inequality itself, which requires simultaneously tackling maximum levels of income.

Of course, it seems inevitable that tackling poverty would simultaneously reduce inequality, but it foregrounds a different problem. The report does discuss the badness of the concentration of wealth in a few hands, including that corporate owners can distort resource allocations, causing inefficiencies, while natural resource companies extract riches at the expense of the rest of society.

Wealth can also undermine democracy as those with great wealth can have a disproportionate influence. The report claims that redistribution would not be at the expense of economic performance but would in fact contribute to enhancing it.

However, the authors describe this claim as a “belief”, acknowledging that the direct evidence (of the relationship between economic growth and inequality) is “not completely conclusive”.

The problem is that inequality is a simple measure with complex generating conditions. What causes inequality in California differs from what causes it in the Democratic Republic of Congo (DRC). We try to measure it through a simple concept such as the Gini coefficient, but this obscures how different the types of inequality are.

California creates billionaires as a rapid reward for disruptive innovation, with a ruthless incentive structure to drive it. In the DRC, wealth is captured by elites who can control mineral resources, often through force at considerable expense to communities.

According to the US Census Bureau, California’s income Gini coefficient is about 49, while the DRC’s is about 44.7. Some local studies using a different absolute Gini or wealth inequality measure report figures in the ’80s for Silicon Valley, but these are not directly comparable to national income Ginis. Yet few would argue that the DRC represents a better policy outcome than California.

Financial markets will reward some types of inequality, but not others. It is mystifying that Tesla shareholders are so willing to transfer their wealth to Elon Musk, but based on their votes for remuneration that is what they are doing, handing him huge rewards if he achieves certain goals.

The extremely high values financial markets put on other tech titans are one of the main drivers of more wealth finding its way into the hands of the top 1%, rather than the bottom half of the income pyramid. The Stiglitz report notes that in 2000-24 the richest 1% captured 41% of all new wealth while the bottom half captured 1%.

It may be that these distributions arise for proximate reasons but are not in the interests of investors overall. Political instability and elite control of resources might well be bad for economies. The US offers a compelling case study. President Donald Trump’s election was driven by anti-establishment sentiment, fanned by right-wing billionaires and vast campaign funding. Yet US markets have rallied to record highs.

Arguably two effects are at play: the huge benefits of AI, which will translate to enormous corporate profits and economic performance; and the Trump administration’s economically mixed policies ― tax breaks boost corporate profits even as other policies may prove destructive.

Perhaps the technological disruption of AI simply happened to coincide with his administration, swamping any negative effects. We don’t have the counterfactual. Perhaps if Kamala Harris had won the US presidential election the markets would have shot the lights out even more.

This brings us to a broader historical pattern: inequality’s tendency to generate conflict. Stiglitz and his team are not wrong that eventually inequality ends in tears. In any society where economic resources concentrate too heavily in elite hands, the rest of the population has a constant incentive to force redistribution. The elite can use its power to defend its position, and may well succeed for a time, but they will forever have to look over their shoulders.

History shows wars always appear to be galvanised by social resentment, even if it is misdirected (such as at immigrants in the US). Wars are generally bad for investors (defence stocks aside) though markets do not seem especially good at pricing such risks. The Dow Jones collapsed during the Great Depression but moved sideways through both world wars. The 2008 global financial crisis hit markets far harder than Russia’s invasion of Ukraine. It seems that major political instability is not obviously priced into markets compared with systemic economic shocks.

Of course, investors’ interests are not the only thing that matters. Advocates for reform often frame their case in terms of economic and market impacts, as the Stiglitz team does, because it sounds pragmatic. But the deeper argument, that inequality is bad in itself, not merely because of its side effects, is ultimately a moral one. And that, to me, is the most persuasive case of all.

• Dr Stuart Theobald is chair of research-led consultancy Krutham. This article first appeared in Business Day.