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:
- Good presentations from IMF specialists Andrew Berg and Michael Keen – Berg addressing some of the issues taken up in the paper Redistribution, Inequality and Growth favourably reviewed by Carlos Fortin; Keen presented a compelling case to show that general subsidies are unlikely to be an efficient way of helping the poorest. For those who wish to follow the BRICS track, there were two sessions on South Africa which provide important insights into the stubbornness of inequality 20 years into democratic government.
- Finally, it is essential to be informed not only on income inequality, but also wealth inequality. Tony Shorrocks and Jim Davies returned to share the work that they initiated at WIDER which is now presented annually as the Credit Suisse Research Institute’s Global Wealth Report.
Material presented at the UNU-WIDER Inequality Conference
can be accessed here (see presentations, papers, and video)
by Roger Williamson
