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Poverty

How might we reach a broad political consensus against inequality?

(This is the original English version of my oped in Le Monde, 12/15/2017.)

Probably more than any time in history, we have a broad political consensus today on the desirability of eliminating the worst forms of poverty in the world. We see this consensus in many places, including the UN’s Sustainable Development Goals. There is no such consensus against inequality.

From a global perspective, we are making progress against poverty. Higher rates of economic growth in the developing world during the current period of globalization (though not just due to globalization) have come with success in reducing the numbers of very poor people. In the world as a whole, the number of people living below the frugal poverty lines found in low-income countries has fallen, from around 1,800 million in 1990 to just under 800 million in 2013 living under the World Bank’s international line of $1.90 a day (2011 prices). China has played a major role in this success. But since 2000 we are seeing progress in reducing the numbers of very poor people in all regions of the developing world. We are also seeing progress in human development, with rising literacy rates and falling infant mortality rates.

Growth in the developing world has also helped attenuate global inequality. This is typically measured by pooling all household incomes in the world (ignoring country of residence and) and measuring relative inequality—a summary statistic of the proportionate differences in incomes—in this anonymous global distribution.  By this measure, inequality has been falling over the last 30 years or so.

But when we look more closely at the data, there are some troubling features, pointing to serious policy challenges going forward. Relative inequality within countries is trending upwards on average, and markedly so in many countries, now famously so in the US. And absolute inequality—the absolute income and wealth gaps between rich and poor—is probably rising within all growing economies.

We have also learnt that growth processes in all countries have had both winners and losers. Some people have been pushed into poverty, while others escape it. This creates social tensions despite overall progress. We are also seeing rising numbers of relatively poor people, meaning that they are poor by the standards of what “poverty” means in their own countries, even though they live above $1.90 a day.

Nor are we seeing much progress in raising the level of living of the poorest—the world’s consumption floor. Despite higher growth rates in most developing countries since 2000, the consumption floor is still somewhere near the biological minimum in many countries, at around $1 per day. The developing world has been far more successful in reducing the numbers of people living near the floor than in raising the floor.

Before we can expect to see public effort to address these distributional concerns, there needs to be a political consensus that effort is called for. The lack of consensus for inequality is stalling public action. Granted we will never want to eliminate inequality, as that would surely leave too little incentive for innovation and growth. The consensus we need is about reducing high inequality. To some eyes, such inequality is morally objectionable, but not to other eyes.

Broader public support for redistributive effort may well emerge from the body of research that has indicated that high inequality undermines the scope for sustained economic growth, which makes it harder to maintain progress in reducing poverty. Also, the higher the initial level of inequality, the less poor people tend to share in the gains from economic growth. In short, high-inequality countries tend to see less growth and less of it helps those who need it the most. Inequality is thus a policy concern even if we think poverty reduction is the far more important goal.

Not all inequalities matter equally. There is scope for greater consensus about reducing those aspects of high inequality that matter most to growth and poverty reduction. These are the specific inequalities that constrain economic opportunities for poor and middle-class people. Inadequacies in schooling, health care and social protection are socially and economically disabling—creating a loss of freedom to fulfill people’s aspirations in life. So too do the many imperfections in markets for credit and land—creating inequalities in access to production inputs and technologies. All such inequalities limit employment opportunities, impede physical and social mobility, weaken democracy, and render people vulnerable to subordination to the will of others and exploitation in all domains of life. This represents lost economic opportunities, such that poor people have little hope of sharing in the new sources of wealth and in helping to generate that wealth. We then see an inequitable growth process going forward, perpetuating poverty across generations.

This can be the basis for developing a broad consensus against high inequality, as we now have for poverty.

 

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