Wednesday, 17 September 2014

Good news on Inequality in Latin America – Highlights from the UNU-WIDER Inequality Conference 5-6 September, Helsinki

Something ought to be done on inequality…..

I have just got back from a major UNU-WIDER conference on Inequality (5-6 September). Inequality is big news.

Something ought to be done.

It’s not just me that says so. Even the World Economic Forum has realized – and they should know about inequality. They live it. (Although Oxfam turned up this year and spoilt the fun with a report arguing that 85 people own as much as half the world population – quite brave really in a gathering which is reputed to attract 70 billionaires.)

It reminds me of the joke during the Yugoslav wars, when the international community was going through one of its all too frequents bouts of not knowing what to do. The cartoon showed an international general instructing peacekeeping troops – “On the command ‘do something’, do something”.

Something ought to be done ….. but what? Brazilian experience

The keynote address was by Marcelo Cortes Neri, Minister for Strategic Affairs in the Brazilian government. In an intellectual tour de force, he deployed a bewildering array of indicators to show how Brazil is doing on inequality and poverty reduction. See Inequality in Brazil: measurement, trends, impacts and policies (pdf)

Perhaps the most dramatic figure presented by Neri is the 69% fall in absolute poverty (US$ 1.25 per day PPP) in only 10 years from 2002-12. Half of this is accounted for by income growth and half by decreased inequality. So the good news is not restricted to cash transfers (Bolsa Familia) but is indicative of a much deeper social transformation. Declining inequality is illustrated by progress in the Gini coefficient from 0.607 in 1990 to 0.526 in 2012. The chart illustrating the trend in the Gini coefficient showed 30 years of increasing inequality to 1990, followed by over 20 years if decrease to a level below that of 50 years ago.

Per capita income for the poorest 5% (where the contribution of the Bolsa Familia is primarily felt) of the population has grown 138% in the period 2001-12, compared with 26% for the top 5% . Bolsa Familia is good value for money.
The Minister noted the contribution of education, but showed that there is much more to be done on quality (using the low maths ranking in the Pisa/OECD comparative chart, despite recent improvements).

Using the UNDP Human Development Index (HDI), 41% of municipalities showed a very low HDI in 2000. Ten years later, this figure was only 0.6%.Neri also argued that citizens seem determined to take matters into their own hands rather than wait for the authorities to help them. Improvement of housing conditions and acquisition of household durables serve as indicators, but so do studies of perceptions which show that people are more positive about improvement in their own living conditions than they are about the general society. In the Gallup World Poll rankings, Brazil’s score (averaging 8.69 out of 10) has been the highest in the world every year from 2006-14 (measuring self-perceptions of “highest future life satisfaction”). Bolsa Familia recipients showed the greatest increase in present happiness compared to past happiness. It is a scheme which covers 25% of the population at a cost of 0.5% of GPD and has a higher multiplier effect than other social transfers. Without Bolsa Familia, the numbers in extreme poverty would rise by 36%.

Income inequality remains high, but Brazil has the second lowest inequality of expected future life satisfaction (a Gini of expected life satisfaction in five years) – after Belgium.
The Minister used a telling image – that there is much to be done on inequality so that many of these snapshots represent a good frame in a bad movie. Inequality in 2011 was still 18th highest of 155 countries (calculations based on data from Milanovic and Neri). The presentation was  remarkably un-complacent – and he spent some time explaining the profile of those involved in the recent demonstrations (younger, better educated, mobilized through social networking).      

Although growth has slowed, Neri concluded that continued progress was achievable and sustainable because of the rising indicators for education, labour, HDI and housing.

Brazil is in many ways a microcosm of the world. As Neri showed the poorest in Brazil would be poor by Indian standards, and the rich are rich like rich Americans. Brazil’s growth in GDP per capita was similar to change in the world average (3.5% to 3.6% from 2002-12).

The conclusion which I feel one must draw is that policies matter. I first visited Brazil in 1983 and visited Diadema where Lula’s PT had just taken control locally and I saw early housing projects. I also saw some of the slum conditions and the work being done by progressive sectors of the Catholic church. The work of the social movements over the past thirty years has been the foundation for changed social attitudes – and has provided the bedrock of support which makes policies of this kind sustainable. It is a remarkable achievement – but not so remarkable that it cannot be replicated in different ways in different contexts. Policies matter. Redistribution is easier to finance in a growing economy.

Not just Brazil

Brazil is special – but also part of a continental trend. This is suggested by detailed work conducted in a UNU-WIDER project led by Giovanni Andrea Cornia which analysed Falling Inequality in Latin America since 2000. See Falling Inequality in Latin America: Policy Changes and Lessons.

Inequality, as measured by the Gini coefficient, has fallen in almost all of the 18 countries studied (exceptions being Nicaragua and Costa Rica) returning the region to pre-liberalization levels (early 1980s) of inequality. It seems that the impact is lasting, not cyclical as inequality (unlike in other world regions) continued to decline during the crisis of 2009-12.

This is not only a story about social transfers. Accumulation of human capital by workers (education and training) has led to a decrease in the skilled-unskilled wage ratio, rising demand for less skilled workers and increasing minimum wages. Cornia and colleagues argue for a comprehensive understanding of the decline in inequality pointing to a range of factors: a shift towards left-of-centre governments committed to reversing inequality; prudent macro-economic policies; careful fiscal and monetary policies; commitment to using redistribution decrease net inequality (after taxes and transfers); avoiding financial crises, reducing dependence on foreign borrowing and increasing trade (intra-regional – and with Asia).

In this context, social expenditure and labour policies also play their role. A better protected and better educated work force, as well as policies designed to address inherited problems of the past including unemployment, informality and weakened collective bargaining institutions.

An even fuller picture can be gained by putting these results alongside the Commitment to Equity project coordinated by Nora Lustig. When I spoke with her at the UNU-WIDER conference, she explained that its purpose is to assess the readiness of governments to use the tax system and social transfers to address poverty and inequality. 

Other insights: Databases and beyond

Lustig was also the opening speaker in a significant panel on the evaluation of international databases on inequality, put together by the Journal of Economic Inequality. The timing was good as it coincides with an update of the World Income Inequality Database (WIID) which was developed and is maintained as the only fully global source. Stephen Jenkins (London School of Economics) expressed a clear preference for WIID (, albeit with some caveats on data ) over SWIID – the Standardized World Income Inequality Database devised by Frederick Solt which is entirely based on imputational methodology. 
There was much more to praise and think about at the UNU-WIDER inequality conference, including:

Material presented at the UNU-WIDER Inequality Conference can be accessed here (see presentations, papers, and video)

by Roger Williamson