Reducing Inequalties: A Sustainable Development Challenge

Réduire les inégalités : un enjeu de développement durable
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What is the state of inequalities worldwide?

Is the world increasingly unequal? Are the rich getting richer and the poor poorer? Inequalities mobilize citizens more today than they did twenty years ago, fuelling protests by activist groups such as Occupy, the 99%, or the Indignant, to cite just a few. Such critics oppose and rebel against an unfair distribution of globalization's costs and benefits - especially as the lion's share of the latter goes first and foremost to the richest.

To truly understand how inequalities have evolved, we must first distinguish between gaps in living standards among countries and those within a country. Both inequality types have seen great reversals that mark a historic change for humanity (Pedro Ramos Pinto, Chapter 1). The first is the reversal of a secular trend that fostered ever-larger regional income gaps, which had reached extremely high levels at the end of the twentieth century. The new geography of growth has displaced the world's economic centre of gravity from the West to the East, ending what the head of the World Bank's research department, Branko Milanovic, calls the "great divergence"

Milanovic, B., 2009, "Global inequality and the global inequality extraction ratio: the story of the past two centuries." World Bank Policy Research Working Paper Series, no. 5061.

 

. The spectacular growth of emerging countries has reduced, on average, income inequality between countries. In addition, a significant reduction in absolute poverty has accompanied this growth. Twenty years ago, people lived twenty times better in Western Europe than in China; that gap has been halved. During the same period, more than 500 million people have escaped poverty. These trends fuel a guarded optimism, especially about Africa; many observers view the emergence of a middle class in Africa as a lever for inclusive and democratic development

See, for example, a 2009 report published by the African Development Bank: The Middle of the Pyramid: Dynamics of the Middle Class in Africa. Tunis: AfDB.

.

 

At the same time, a second reversal saw a major breakdown in developed countries, with inequalities increasing within many countries. In Europe and North America, a very long period of contraction in income inequality certainly helped maintain the illusion that societies had automatically moved toward reduced inequality. However, Europe has entered a protracted phase in which inequalities have increased because of slack economic growth; this greatly favours inherited capital, raising the spectre of a resurgence of a rentier society some thought had vanished (Piketty, Chapter 2). This problem has arisen in developed countries as diverse as France, the United Kingdom, Japan and Germany. An implacable arithmetic tallies the increases in income inequality as the rate of return on capital exceeds the pace of economic growth, threatening all European countries, even the most egalitarian ones, such as Sweden. In the United States, income inequality has reached heights not seen in a century.

 

Does globalization drive the inexorable rise of inequalities worldwide? A historical comparison of inter-country and intra-country inequalities shows a far more complex relationship between inequalities and globalization, one at odds with the overly-simplistic view of a world that is increasingly unequal. The entrance of nearly one billion unskilled Chinese and Indian workers into the global labour market has certainly led to changes in pay scales and the shift of production units to Asia. In addition, technological advances, growth of corporations, and the structural changes in value-chains have principally benefited capital, not labour, increasing and concentrating profits. That said, over the last ten years globalization has also helped reduce inequality levels at the international level, driving the convergence of countries' average income (Bourguignon, Chapter 4). This convergence remains fragile and unequal, particularly among the least-developed countries.

 

Inequality and unsustainable development trajectories

 

Inequalities have never achieved a central place in development cooperation strategies, despite pressure from some countries, particularly France (Tomasi, Radar 4). Poverty alleviation and human development have taken priority since the turn of the century. Can inequalities take centre stage in the development agenda today? And why consider inequalities a collective-action problem whose solution requires cooperation within and between countries?

 

First of all, despite the reduction in national income gaps worldwide - particularly between emerging and developed countries - large gaps remain; growth rates will not easily erase these gaps for several decades. Taken globally, the measurable decrease in inequalities between countries, and their increase within countries, stems from China's population share and the high concentration of wealth among its rich (Pinto, Chapter 1). Much of humanity remains trapped in poverty. Emerging countries have become more unequal over time. Brazil and Indonesia have escaped this trend, but their levels of inequality nevertheless remain very high, as do those in China (Cook and Dong, Radar 11), in India (Bouver, Radar 12) and South Africa (Giordano, Radar 10). Countering the oft-expressed enthusiasm about the African middle class, Pierre Jacquemot's meta-analysis on studies on sub-Saharan Africa (Radar 9) notes that social inequalities generally deepen despite the emergence of middle classes; traditional social ties disintegrate without public action to reshape or "modernize" them.

 

Second, a growing number of economists and institutions also see a positive link between reducing inequalities and increasing the capacity for sustained and stable long-term growth. Equality may well be an important ingredient in promoting and sustaining growth, particularly over the medium and long term, making economies more resilient (Berg, Ostry, Radar 4bis). By contrast, the growth of inequalities contributes to economic crises; two economists from the International Monetary Fund, Andrew Berg and Jonathan Ostry (Radar 4bis) highlight the role that American inequalities played in igniting the global financial crisis five years ago

In recent decades, the growth of inequalities in the United States resembles that of the 1920s, marked then as now by a boom in the financial sector, heavy borrowing by the poor and relatively insolvent, and the devastating financial crisis that followed.

. We now see social cohesion emerging as a critical objective for governments, as expressed in the 2012 OECD World Development Perspective: Social Cohesion in a Shifting World report. In and of themselves, improvements to living standards, health and education do not necessarily translate into greater satisfaction among the populace. The 2010 anti-government protests in Thailand and the 2011 overthrow of Ben Ali in Tunisia demanded more fairness, and not just income distribution. Unequal access to productive resources, education, credit, justice, employment and policy making play a critical role, combining and reinforcing each other, segregating social groups and regions.

 

Inequalities and development: a changing paradigm

 

In Chapter 4, François Bourguignon, former World Bank chief economist and a major scholar of the relationship between growth and equality, describes how in academic circles from the 1950s to present, debates about inequality, growth and poverty and their interconnections have shaped national policies and development organization strategies. His history of economic ideas reveals that the growth paradigm has changed over the past twenty years, with a progressively greater focus on a key issue for sustainable growth: how can the most disadvantaged accumulate productive assets. The World Bank's 2006 World Development Report proved a crucial turning point; it established inequality's impact on growth as development's central problem, thus bridging the divide between the academic sphere and the operational world of development.

 

This report signalled the acceptance of a multidimensional approach to inequalities, based in part on Amartya Sen's concept of "capacity"

Sen, A., 1985, Commodities and Capabilities. New York: Oxford University Press.

. The report draws on the major breakthroughs made by scholars in the 1990s who empirically demonstrated that high levels of inequality interfere with the allocation of investment capital; only entrepreneurs holding collateral or investible cash can complete projects using loans, even if their projects perform at a suboptimal level. Meanwhile, more potentially profitable entrepreneurs and investment projects are sidelined (Bourguignon, Chapter 4).

 

Since the middle of the 2000s - in the wake of these studies and the 2006 World Bank report - we have seen a certain proliferation of econometric analyses exploring the impact of inequalities on other aspects of development, particularly environmental conservation and human health. In 2007, Gregory Mikkelson (Chapter 5) demonstrated a strong positive empirical relationship between increased inequality and decreasing biodiversity: his key findings are presented in this volume. In 2009, Richard Wilkinson and Kate Pickett published their groundbreaking book, The Sprit Level: Why More Equal Societies Almost Always Do Better, shedding light on correlations between equality and health; Sridhar Venkatapuram discusses that book's conclusions (Chapter 6). In all these ways, inequalities impact on the three pillars of sustainable development: economic, social and environmental.

 

The recognition of a positive relationship between sustainable development and inequality reduction has imbued public and development policies. Serge Tomasi (Radar 4) recalls how a multidimensional view of inequalities and poverty gradually gained a foothold in international organizations, as seen through the refinements of their programmes, measurements and indicators. Vincent Bonnecase (Chapter 3) and Benoît Martin (Radar 3) analyse the history of this current of thought.

 

François Bourguignon (Chapter 4) also finds that governments have changed their attitude toward inequality. Tellingly, for example, the Chinese government currently recognizes that their large inequality problem threatens the viability of their growth model: Chinese households' excessive savings rate may be due, in part, to the uncertain and limited nature of health insurance and pension coverage. Previously, a country's growth was measured by its GDP growth rate; today, governments and international organizations analyse GDP growth along with the pattern of income growth distribution. Many chapters and varied case studies in the book illustrate how governments strive to ensure more equitable access to productive resources, health care, education, credit, justice, natural resources and public policy.

 

Inequality reduction, a collaborative and innovative process

 

Authors in this volume share their analyses of national experiments, such as the collective management of natural resources in Namibia (Radar 5), health insurance systems in Cambodia (Radar 6), social policies in Brazil (Chapter 10), inequality reduction policies in municipalities in low- and medium-income countries (Chapter 7), carbon tax implementations in Sweden (Radar 8) and France (Chapter 8), and so-called bottom-of-the-pyramid initiatives of private companies (Chapter 11).

 

It is no simple matter to implement effective inequality reduction policies. Chapter 10 illustrates this particularly well in its analysis of social policy systems in Brazil, one of the only emerging countries to achieve inequality reductions in the last ten years: the country serves as a real-life "laboratory." The authors Barbosa and Oliveira, note that multiple technical, institutional, organizational, financial, fiscal and legal elements must coexist to stimulate a virtuous circle of inequality reduction. This virtuous circle also needs clear, socially accepted rules that will foster individual responsibility; equally, it requires capable human resource managers who can train competent civil servants. All the stakeholders - policymakers, development professionals, academics and other actors like local communities and the private sector - must work together synergistically and horizontally to address the problem of inequality. The natural resource management programmes in Namibia (Lapeyre, Corbier-Barthaux, Radar 5) and health care services in Cambodia (Radar 6) are other good examples of collaboration between stakeholders.

 

These networks and systems do not get established overnight or in a linear fashion. Trial and error is inevitable. Reading through these chapters, we see that many emerging and developing economies strive to strengthen their institutional capacities through decentralization and stronger local tax collection and disbursement. However, these efforts frequently disappoint. South Africa provides a good example (Giordano, Radar 11). Typically, the central government may give impetus to socially inclusive programmes, but corruption and conflicts of interest could undermine the programmes and service quality, as could local governments stymied by a lack of capacity and resources.

 

Inequality reduction involves real social and policy innovation that often collides with vested interests and with political and economic forces. In Cambodia (Radar 6), organizations setting up a universal health insurance system are required to work alongside a for-profit private sector over which they have no control. The challenge for Cambodia and other governments lies in making suitable arrangements with the private sector and moving unregulated, informal activities into the formal and regulated market. The system's sustainability (in the sense of duration) will depend on maintaining a coalition of actors even though they may have different (sometimes contradictory) interests and values.

 

Some of the national experiments described in the book display a naive vision of economic growth or of fiscal policies leading by themselves to a reduction of inequalities. Brazilian authors Barbosa and Oliveira argue that, on the contrary, a social security system must be articulated within a clear, well-understood, growth- and job-generating development strategy (Chapter 10). Fiscal policy may then finance the system, but only if it does not call for "equalizing down" incomes to achieve absolute equality. Even if it still seems possible, on paper, to redistribute wealth and prevent inequalities from worsening, we must recognize that redistribution comes with economic costs and political constraints that cannot be ignored (Bourguignon 2012). The state must explain its goals and promote the public good; this means expressing a vision and involving stakeholders. We saw this process work in Sweden; everyone understood that the carbon tax would go together with a wealth-and-job-generating industrial policy, and adopted it (Sterner, Focus 7). The episode of the Sarkozy carbon tax in France is a perfect example to the contrary (Hourcade, Chapter 8).

 

Charismatic political leaders, deeply committed to equality and social justice, work at various levels to reduce inequality: Nelson Mandela (Giordano, Radar 10), Lula da Silva (Chapter 10), some leaders of informal urban settlements (Satterthwaite, Chapter 7), and social activist groups, like Ekta Parishad in India (Bouver, Radar 12) are inspiring examples. These steel-willed social entrepreneurs orchestrate collective action through a legitimacy earned by changing citizens' daily lives and their relationship to the political, economic, social and even natural environment.

 

Measurement promotes collaboration

 

"Comparing nobles to commoners foreshadows the night of 4 August;

In France, during the night of 4 August 1789, members of the National Constituent Assembly, formed from the National Assembly during the first stage of French Revolution, vowed to end feudalism and abandon their privileges.

comparing Blacks to Whites calls for the abolition of slavery; comparing men to women calls for truly universal suffrage, one that includes women," Alain Derosières writes in his book, The Politics of Large Numbers, cited in Chapter 3. He explains that measuring things is as much a technical as a political act: measuring changes the world.

 

The emergence of new measurement tools underpins the change in governmental attitudes toward inequalities and their interest in combining GDP growth with the pattern of income distribution. Governments analyse trends in so-called "growth incidence curves" to see how much different income levels have increased over time. These measures have come into wide use (Chapter 4) because approaches to development and public affairs management are now more multidimensional, and especially because a "statistical revolution" (and the widening accessibility of computers) has now made the data available for analysis. This statistical revolution occurred in the 1980s and 1990s in a few pioneering countries, followed by others as USAID, the World Bank and the United Nations Development Program funded universities and national or local statistical agencies to conduct large-scale household surveys. Statisticians must transform the surveys and databases to "capture poverty" - to measure it in a granular fashion. This allows information to escape the confines of administrative statistics that are "structured by the formal sector, when poverty and hunger most affect families living outside the formal system" (Chapter 10). This re-working of household surveys and other new data allows decision-makers to go beyond the formal versus informal dichotomy - too often used in some countries to justify the difficulty if not the impossibility of implementing social policies.

 

Moreover, this new knowledge promotes platforms for collaboration between actors who do not a priori share the same interests and values. Cambodia's health insurance initiative best illustrates this point (Radar 6). Insurers cannot set premiums or carry out actuarial analyses in the absence of reliable data and risk analyses. A similar situation occurs in the field of natural resources management (Radar 5), or in the field of GHG emission reduction initiatives (Radar 8).

 

Historically, researchers have been the first to undertake the risky business of quantifying inequalities, as Chapter 2 clearly points out. Thomas Piketty reminds us how often researchers have preceded institutions and politicians, furnishing the latter with the conceptual apparatus and statistics needed to comprehend the problem and devise solutions. For example, the World Top Incomes database contributes to scientific initiatives with policy implications: President Obama cited two of its authors in his 2009 inauguration speech, paying homage to science and showing gratitude for the researchers' statistical work. Availability of data by itself is not adequate. Data must be intelligently used by governments to reduce inequalities. Since the advent of databases like the World Top Incomes, many governments have agreed to take inequalities firmly into account and have changed their measurement procedures accordingly (Martin, Radar 3). Other, more hermetic governments have not used the information; these countries show the highest levels of inequalities.

 

Given the new certainties found in empirical measures, it is striking to see how many issues remain poorly understood. The authors of Radar 6 suggest this is true for micro-insurance: insurance system impact studies remain scarce, especially in developing countries. In 2007, the French development agency AFD, Domrei Research and Consulting, and the University of California, Berkeley conducted the first rigorous evaluation of micro-insurance in Cambodia. This highlights how many solutions for some international problems rest on incomplete empirical bases.

 

Policy challenges to reduce inequalities

 

Various chapters of this volume highlight the increase in inequalities within countries. Without minimizing the problem of unequal living standards and access to opportunities between countries, we find that internal inequality presents the primary obstacle to even-handed, sustainable environmental, social and economic development. This raises a question: can such an apparently common problem find a jointly developed solution, one based on consensus and shared efforts between countries? Several sections of this volume, especially Radars 1 and 4, demonstrate the usefulness of international collective action in reducing (for instance) economic inequalities. Addressing unequal pay and the (low) share of wages compared to profits in an economy may boost employment and growth, and skirt the non-negligible risk of "free riders". The first challenge, an enormous one, lies in coordinating fiscal and social policies.

 

Creating a political consensus to address inequalities worldwide poses an equally large challenge. Are all governments ready to follow the recommendation of the International Labour Organisation presented in Radar 4. Are they all committed to reducing inequalities within their own countries? Inequality reduction, as such, does not seem to hold universal appeal within all countries - indeed, inequalities continue to grow within many. In his contribution to this volume (Chapter 9), Peter Utting stresses that the game is not over yet; changes in power relations between countries affect collective action paradigms, forcing them to evolve. A real opportunity exists to restructure cooperation, in the broadest sense of the word, through shared analysis of the underlying causes of capitalism's current crisis.

 

What about inequality between countries? The international community regularly includes inequality in its negotiating agenda, so often that inequality has become a refrain; countries seem to pay little attention to it, because they are not politically committed to reducing inequalities. The international community constantly seems pulled in two directions: toward creating effective but ultimately unfair agreements, or producing fair but probably ineffective ones. We might recall that the United Nation's principle of common but differentiated responsibility grants developing countries the privilege of exoneration from absolute and quantifiable reductions in greenhouse gas emissions, given that these countries have emitted fewer greenhouse gases than developed countries have since 1950. The Kyoto Protocol and the United Nations Framework Convention on Climate Change may be considered equitable from this perspective, although some countries may argue this is at the cost of efficiency.

 

It seems, however, that the United Nations Millennium Development Goals (MDGs) have aimed to circumvent such trade-offs between fairness and effectiveness. Building on successes on the MDG front, the United Nations has begun to extend them to Sustainable Development Goals (SDGs) in all countries. Mark Halle notes that this aim remains programme-based (Radar 13); fast-forwarding to 2015 - the official MDGs end-date, announced in 2000 - Halle predicts a bout of international self-congratulation, although "it would be an exaggeration to think that China's and India's relative success results from measures taken to respond to the MDGs". Furthermore, the lack or near-absence of substantive decisions in Rio in 2012 on the twentieth anniversary of the Earth Summit highlights how little appetite countries have for negotiations. Might the international community successfully negotiate SDGs in the next two years? That was the question asked in Rio.

 

The last chapter of this volume is dedicated to the SDGs and their universal reach and specific targets for each country (Chapter 13). Such a tailored approach to inequalities has real merit. Serge Tomasi (Radar 4) believes it necessary to define goals and indicators that go beyond general goals and comparable measures for all countries. His proposals include national goals in indicators, to follow each country's progress vis-à-vis its specific situation. Sustainable development rests on trial and error more than on a conceptualization or a prescription; the SDGs may help guide and measure the effects of these experiments in each country.

 

The SDGs borrow important characteristics from the MDGs, even while offering distinct ones. Like the MDGs, the SDGs must be simple to state, measurable and attainable. However, their underlying concept differs. The MDGs answered a demand for results and remobilized exhausted donors. They provided goals related to a world we know is possible - a world free of its greatest scourges, poverty first and foremost among them. The SDGs are transformative..

 

As the international community prepares the SDGs, it must capitalize on the experience of various countries and regions. As David Satterthwaite and Diana Mitlin (Chapter 7) emphasize, the international community must also be receptive to social innovations; these must take centre stage in political discussions to increase their visibility and impact, according to Bruno Frère (Chapter 12). Capitalizing on experience also requires increasing experimentation; this is the focus of the Sustainable Development Solution Network, presented in the last chapter of this volume (Chapter 13).

 

Sustainable development continues to be a collective experiment, composed of trials and errors. To what extent do these experiments require inequality reductions in order to succeed and be replicated? This is the key political question that has to be addressed in the pursuit of a sustainable development agenda. The various chapters in this volume, written by eminent authors from across the world, offer some guidance.