Equality, Inequality, and Equity: Where do these fit in the poverty agenda? | Economic Inequality

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There is growing recognition amongst development policy makers that extreme inequality is bad for healthy economic growth and social stability, as well as being inter-generational in its effects. This paper reviews the state of global inequalities, and analyses the forces that drive them. Shifts towards manufacturing and service-based economies are biased in favour of educated labour, and away from the poorest countries and workers. Simultaneously, global agricultural trade liberalisation is undermining small-scale farmers in the poorest countries. These processes exacerbate inequalities both between and within countries. The author argues that methods to combat inequality skirt around the underlying politics that give rise to such injustices, and tend to focus on technocratic approaches and minor adjustments rather than more radical political solutions. At national level these would include land redistribution, access to basic services, tax reform, and reforms to political participation. At international level, action to reduce inequality must include pro-poor trade reform.
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    Equality, inequality, and equity: where do these fit in the poverty agenda? Duncan Green There is growing recognition amongst development policy makers that extreme inequality is bad for healthy economic growth and social stability, as well as being inter-generational in its effects. This paper reviews the state of global inequalities, and analyses the forces that drive them. Shifts towards manufacturing and service-based economies are biased in favour of educated labour, and away from the  poorest countries and workers. Simultaneously, global agricultural trade liberalisation is undermining small-scale farmers in the poorest countries. These processes exacerbate inequalities both between and within countries. The author argues that methods to combat inequality skirt around the underlying politics that give rise to such injustices, and tend to focus on technocratic approaches and minor adjustments rather than more radical political solutions. At national level, these would include land redistribution, access to basic services, tax reform, and reforms to political participation. At international level, action to reduce inequality must include pro-poor trade reform. This background paper was written as a contribution to the development of From Poverty to Power: How Active Citizens and Effective States Can Change the World , Oxfam International 2008. It is published in order to share widely the results of commissioned research and programme experience. The views it expresses are those of the author and do not necessarily reflect those of Oxfam International or its affiliate organisations.    Equality, inequality, and equity: where do these fit in the poverty agenda? From Poverty to Power – www.fp2p.org   1   When pressed for his views on inequality and redistribution in the 2001 election campaign, the British Prime Minister, Tony Blair, famously ducked the question by replying ‘It's not a burning ambition for me to make sure that David Beckham earns less money.’ 1  Inequality and redistribution have been out of fashion among rich-country decision-makers for many years and warrant barely a mention in the Millennium Development Goals (MDGs). 2  However, this is now changing as 2005 saw a rash of high-profile World Bank (WDR 2006) and UN publications (Human Development Report (HDR), 2005; Report on the World Social Situation, (RWSS) (2005), arguing that tackling inequality is one of the most urgent tasks of our time. This renewed interest in inequality stems from several causes, including the manifest failure of the Washington Consensus view that ‘a rising tide lifts all boats’ to reduce poverty fast enough to meet the MDGs, new evidence that high levels of inequality impede economic growth, and renewed attention to the sources of political tension arising from the ‘war on terror’. In the words of President Bush, ‘This growing divide between wealth and poverty, between opportunity and misery, is both a challenge to our compassion and a source of instability’ (quoted in HDR 2005:75). This is not to suggest that the multilateral agencies have suddenly become red-blooded redistributive socialists. The core of their concern with inequality is not that it is intrinsically unfair, but that it is bad for economic growth and poverty reduction. The World Bank argues for equality of opportunity (e.g. access to education, freedom from discrimination, equality before the law), with only a minor role for greater equality of outcome, namely, avoiding absolute destitution. The role of redistribution, whether through progressive taxation or land reform, is treated with great caution and its risks emphasised. The Bank’s analysis certainly emphasises that inequality is about much more than income – almost every aspect of the life chances of the poor, from access to clean drinking water to vulnerability to crime, conflict, and natural catastrophes, is plagued by inequality between the weak and the strong. In practice, however, much of the policy debate comes down to inequality of income, and a small number of essential services, namely health, education, clean water and sanitation. Whereas the academic literature used to stress the positive role of income inequality in rewarding ‘wealth creators’ as a way to encourage innovation and growth, there is now gathering momentum for the economic arguments that inequality is bad for growth and, therefore, poverty reduction. In essence, the arguments are that: ã Inequality wastes talent.  If women are excluded from top jobs, this squanders half the nation’s talent, which has a negative impact on the economy. If banks refuse to lend to poor people, then good economic opportunities are lost. ã Inequality undermines society and its institutions.  In an unequal society, elites find it easier to ‘capture’ governments and other institutions, and use them to further their own narrow interests, rather than the overall economic good. ã Inequality undermines social cohesion.  ‘Vertical inequality’ between individuals is linked to rises in crime, while ‘horizontal inequality’, for example between different ethnic groups, increases the likelihood of conflicts that can set countries back decades and cause enormous suffering. ã Inequality prevents growth from reducing poverty.  By determining the size of the crumbs that the poor receive from the economic table, inequality prevents growth from reducing poverty: a one percentage point increase in growth will benefit the poor proportionately more in an equal than in an unequal society. ã Inequality transmits poverty between generations.  The poverty of a mother can blight the entire life of her child. Some 30 million babies are born each year with impaired growth due to poor nutrition during foetal life. Low birth-weight babies are much more likely to die, and to be stunted and underweight in early life, increasing their chances of ill-health and death   in childhood and, should 1   Guardian  23 December 2005, available at http://politics.guardian.co.uk/conservatives/story/0,9061,1673455,00.html. 2  Gender parity in education is the only aspect of inequality overtly addressed in the MDGs.    they survive, condemning them to a lifetime of sickness and poverty (The Chronic Poverty Report (CPR), 2005:21). Although at first glance the World Bank’s emphasis on equality of opportunity looks timid – little more than the American Dream plus a safety net – it allows for some pretty radical interpretations. First, the distinction between opportunity and outcomes is artificial, since today’s outcomes shape tomorrow’s opportunities. Even if they go to the same school or live in the same barrio , children of the better off and/or better educated are also more likely to do better. In order to achieve genuine equality of opportunity, public action is needed to ensure that a village girl from a poor lower caste in India can achieve the same educational outcome as a boy from a rich family in Delhi, for the same effort. Achieving this would require an extraordinary state effort to break the cycle of inequality by compensating for the multiple initial disadvantages faced by the girl. This interpretation bears little resemblance to the traditional criticism that equality of opportunity is tantamount to saying ‘we are all equal because all of us have the right to dine at the Ritz’. Power and rights – the missing piece Inequality is much more than a technical barrier to growth or poverty reduction. Writing in 500 BC, Plato reminded Athenian legislators of the moral abhorrence provoked by extreme inequality. ‘ There should exist among the citizens neither extreme poverty nor again excessive wealth’ , he wrote, ‘  for both are  productive of great evil’  (quoted in HDR 2005:51). Extreme inequality provokes outrage and condemnation, and is intimately bound up with notions of human rights. The idea that all people, wherever they are, enjoy certain basic rights has become increasingly influential, not least through the international human rights framework established by the UN. This commits states to guarantee equal civil and political rights, to ensure minimum standards, and to the progressive realisation of economic, social, and cultural rights. 3  Moving the focus from poverty to inequality makes it impossible to avoid politics. Inequality is about some people having more than others. So is politics. And the two interact – powerful people use their political control over institutions, individuals, or they use force - to benefit themselves, often at the expense of others. For the multilateral agencies that dominate thinking on development, this poses a dilemma. These agencies are, in theory, supposed to be impartial, technocratic bodies. Yet, their own analysis is leading them inexorably into the minefields of politics. In its 2006 World Development Report , the Bank recognised as much, saying: The analysis of development experience clearly shows the centrality of overall political conditions—supporting the emphasis on governance and empowerment in recent years. However, it is neither the mandate nor the comparative advantage of the World Bank to engage in advice on issues of political design. (WDR 2006:10) As this excerpt implies, the Bank and others have tried to skirt around  politics  by talking instead about ‘  governance ’ (sometimes caricatured as ‘government with the politics taken out’) and ‘ empowerment ’. These concepts cover areas such as the separation of powers between governments, parliaments, and the judiciary, the rule of law, government transparency and accountability, and strengthening the role of civil society organisations, but steer clear of politics  per se . Critics argue that trying to deal with these issues without taking politics head-on leads up an intellectual and developmental blind alley (see, for example, Lockwood 2005). Political elites that benefit from the current levels of inequality and injustice will always do their best to frustrate reforms, until their power itself is challenged. 3  Based on presentations by Edward Anderson and Tammie O’Neil at a roundtable discussion, ‘A new equity agenda?’, Overseas Development Institute, 31 March 2006. Equality, inequality, and equity: where do these fit in the poverty agenda? From Poverty to Power – www.fp2p.org   2    How extreme is inequality? Inequality exists both within and between countries. The extent of inequality between countries is breathtaking, a form of ‘postcode lottery’ where the greater part of your life chances are determined by the random circumstances of your birth – where you are born (rich or poor country, town or countryside) and who you are (boy or girl, ethnic minority, living with a disability, or your mother’s physical health, especially during pregnancy). In terms of income and quality of life, gulfs separate the haves from the have-nots. On the (conservative) assumption that the world’s 500 richest people listed by Forbes have an income equivalent to no more than five per cent of their assets, their income exceeds that of the poorest 416 million people. A woman in Nigeria is 480 times likelier to die from pregnancy-related causes than a woman living in Canada. In poor countries as many as 30 per cent of deaths among women of reproductive age may be from pregnancy-related causes, compared with rates of less than one per cent in industrialised countries (RWSS 2005: 68). Inequality of opportunities and provision between countries drives such unequal outcomes. Per capita spending on health ranges from an average of more than US$3000 in high-income countries to US$78 in low-income countries with the highest health risks and to far less in many of the poorest countries (HDR 2005:26). For the poor, inequalities can cancel out the benefits of living in a better-off society. Average income is three times higher in high-inequality and middle-income Brazil than in low-inequality and low-income Viet Nam. Yet, the incomes of the poorest ten per cent in Brazil are lower than those of the poorest ten per cent in Viet Nam. The redistribution of just five per cent of the income of the richest 20 per cent of Brazilians would cut the poverty rate from 22 per cent to seven per cent (HDR 2005: 6, 65). Regionally, Latin America is renowned for a level of inequality that is ‘extensive, pervasive and resilient’ and for the exceptional slice of national wealth owned by the very rich. Research in Africa suggests that, at least in terms of income, inequalities are as high as in Latin America, a finding that may surprise those who assume that at African levels of poverty, all are more or less equal. Asia contains countries with low levels of inequality (Taiwan, Viet Nam), and others where inequality is rapidly approaching Latin American and African levels, notably China (ODI 2006a:3). Within countries, inequalities can also be grotesque. In Brazil, the  favelas  of Rio’s (largely black) marginalised poor cling to the hillsides overlooking the luxury condominiums and beach playgrounds of the (generally white) mega-rich. In Latin American countries with large indigenous or African descended populations, such as Bolivia, Brazil, Ecuador, Guatemala, or Peru, incomes of these groups are half of that of their ‘white’ compatriots (World Bank 2003:8). Within poor countries, internal inequalities in life opportunities are just as stark as those in income. Children born into the poorest 20 per cent of households in Ghana or Senegal are two to three times more likely to die before five years of age than children born into the richest 20 per cent of households. Nowhere is the injustice of inequality more evident than in the phenomenon of ‘missing women’. Due to discrimination against girls and women, which starts even before birth, through selective abortion, the world’s female population is lower than it should be, compared to men. Recent estimates put the number at 101.3 million. Of these ‘missing women’ 80 million are Indian and Chinese – a staggering 6.7 per cent of the expected female population of China, and 7.9 per cent of the expected female population of India (CPR 2005:22; HDR 2005:153). Are equality and inequality rising or falling? Trends in inequality are widely disputed, and many thousands of hours have been spent by economists ‘proving’ that inequality is rising, falling, or staying the same. Every participant in the discussion can find academic grounding for their position. The key to the differences lies in what is Equality, inequality, and equity: where do these fit in the poverty agenda? From Poverty to Power – www.fp2p.org   3
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