Inequality needs to move up the development agenda
Despite rising inequality, addressing the issue never seems to reach the top of the policy agenda. But addressing inequality is essential if we are to tackle poverty and conflict
Posted byLawrence HaddadMonday 27 June 2011
We live in a time of unprecedented inequality. A new report from Unicef notes that global income inequality, as measured by the Gini coefficient, is 64% higher than it was 200 years ago. The report notes that the poorest 20% of the world's population holds 2% of its income. At the rate of change posted in the past 20 years, it will take more than 250 years for the bottom 20% to go from 2% to 10%. And yet, despite peak inequality, it never seems to attain the policy peak. Why?
First, there is a difference of opinion on the optimal levels of inequality. In her new book, Carol Graham neatly summarises inequality as both a signal of future opportunity and a sign of injustice. This duality takes inequality of outcomes out of the "unambiguously bad" category (where poverty resides) and lays it open to value judgments that tend to align along political lines – and hence make consensus difficult to achieve.
Second, there is confusion around whether we are talking about inequality of opportunity or of outcome. There is a lack of consensus about optimal levels of outcome inequality, but the inequality of opportunity is denounced as a bad thing by the left and the right. In reality, a series of lotteries determine opportunities: passport lottery for the country of birth, postcode for within country location, and parental/household of nature and nurture. Some new research from China provides striking evidence of how context determines opportunity. Work on the income of pairs of brothers in China estimates that the two income streams are highly correlated and the analysis assigns most of the reason for that to family background and circumstance.
Third, there is a conflation of vertical and horizontal inequalities. Vertical inequality looks at an outcome for the entire population (ie what percent of income does the top 1% capture?), whereas horizontal inequality looks at inequalities in outcomes across ethnic, political and spatial groups. As Frances Stewart, of Oxford University, first noted, these are the inequalities most likely to spark disquiet and conflict.
Fourth, the non-income dimensions of inequality are the ones that seem more difficult to adapt to. For example, Graham's book summarises wellbeing research that concludes we can better adjust happiness levels to income losses than we can to health losses.
Finally, the inequality policy space is more overtly political than most other policy areas. The scope for technocratic solutions is narrower. The potential winners and losers are clear. The potential losers are powerful. Policy implementation in such areas requires resoluteness and fortitude, something that is often in conflict with the courting of popularity, as well as political nous.
So, why should inequality move higher up the development agenda now?
First, income inequality is the X-factor that makes growth actually generate poverty reduction. Without lower inequality, growth will never get out of first gear in its attempts to reduce deprivation. Second, some inequalities, and the injustices that generate them, can be addressed without fundamental changes in structural factors. As work by Mickey Chopra and his team at Unicef is showing, a focus on the most deprived in their first two years of life can nip a lifetime of inequality in the bud.
Third, as the latest World Development Report notes, new forms of organised violence and conflict thrive on inequalities. There is no chance of dealing with one without dealing with the other. Fourth, inequality is likely on the rise again. Shocks and crises usually stretch out the gaps between haves and have-nots, as the rich can find shelter from the storm. My IDS colleague Naomi Hossain's work with Duncan Green, of Oxfam, Living on a Spike, provides vivid testimony to this view.
Finally, inequality is rising on the domestic agenda in the US and in the UK (see Ed Miliband's evolving agenda for the Labour party). And as public policies in richer and poorer countries converge, we may even find policy answers to our inequality worries from Asia, Latin America and Africa.
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