INTERNATIONAL FORUM FOR SOCIAL DEVELOPMENT



United Nations Secretariat

DESA/Division for Social Policy and Development

30 September 2004

INTERNATIONAL FORUM FOR SOCIAL DEVELOPMENT

EQUITY, INEQUALITIES AND INTERDEPENDENCE

United Nations, New York, 5-6 October 2004

SUMMARY OF THE STUDIES COMMISSIONED FOR THE FORUM

At the beginning of 2004, the secretariat commissioned a number of regional studies to provide support to the preparation of the Forum on Equity, Inequalities and Interdependence. These studies are listed in the annex to this paper and their findings are summarized below. Also, their authors were assembled for a discussion with the secretariat in June 2004 and points made on this occasion are reflected in this summary, which is presented in three parts:

Part I: Assessing current trends in inequality ………………………….pages 2-12

Part II: Interpreting current trends in inequality……………………….pages 12--16

Part III: National and international policies for equity in an interdependent world

………………………………………………………………………………pages 16-19

PART I: ASSESSING CURRENT TRENDS IN INEQUALITY

1.To assess trends in inequality, the authors were invited to use as a frame of reference the comprehensive normative framework embodied in the text adopted by the World Summit for Social Development and to look at five types of inequality and their evolution, roughly since the end of the 1980s: (1) distribution of income, (2)distribution of assets, (3) distribution of opportunities for work and employment, (4) distribution of social services and benefits, particularly education and health, and (5), distribution of political power, notably access to information and participation in political processes.

Distribution of income

2. In most countries, during the last 20-25 years, income inequality has risen. This confirms the findings of the comprehensive research undertaken by the World Institute for Development Economics Research (WIDER) that were published at the beginning of this year. [i] Inequality has risen between the groups at the two extreme of the income ladder – the rich have become richer and the poor have become poorer, in relative terms and in some cases in absolute terms – and in a number of countries inequality has also risen between the richest and the middle income groups.

3. The studies provide illustrations of rising income inequality, mostly by using the Gini coefficient and the shares accruing to different percentages of the population. Examples in different regions are given below.

4. For the African continent,[ii] estimates put the Gini coefficient at 44%, the share of the top 20% of the population at 50% of total income and the share of the bottom 20% at 5% of this total income. It also seems that a larger proportion of the African population has fell into the bottom quintile of the world distribution of income during the 1990. Variations among countries are however enormous: South Africa, Kenya, Zimbabwe and Senegal being among the countries with the highest level of income inequality, and Algeria, Egypt and Ghana among those with the lowest. There is some evidence that this income inequality became more pronounced in most African countries during the last decades of the 20th century, and also some indication that this trend has perhaps started a slowing down or even a reversal during these last few years. In Africa, however, given the low level of economic development of this continent, as expressed for instance by the Gross National Product per capita, poverty, rather than inequality, tends to be the major problem and preoccupation. Estimates put at 44% the proportion of the African population living with less than a dollar a day. The average income of the poor is far below both the mean expenditure and the poverty line, indicating the severity of poverty in Africa. Poor households tend to be in rural areas, in poor regions, and of a large size. It seems that about a quarter of the people in many African countries are in a situation of long-term poverty, and that up to 60% of the population is vulnerable to a number of threats and moves in and out of poverty. However, a comparison of two surveys undertaken in 14 countries at the beginning and the end of the 1990s, suggest a trend towards poverty reduction.

5. Income inequality has risen in most countries of Asia.[iii] There is evidence of high and growing inequality in China in recent years. Inequality was relatively low and steady in the decades following 1949 and peaked three times over the past half century: during the Great Famine, at the end of the Cultural Revolution, and during the current period of globalization. The Gini coefficient was 25.6% in 1984, 33.0% in 1995, and 37.2% in 2000. This inequality has strong spatial dimensions, with growing income and consumption differentials between rural and urban areas and between regions. In India, the Gini coefficient was estimated at 32% in 1999/2000. While recognizing large differences of views among economists, the study on South Asia has the following conclusions: inequality in income/consumption has increased in India during the 1990s; the income/consumption disparity among the rich and the poor has worsened: in the 1990s, real incomes of the top 1% of income earners have increased by about 50%, and, among these, the richest 1% tripled their income; urban inequality is higher than rural inequality and has risen steadily, while rural inequality, also measured by the Gini method, has declined; and there is strong evidence of divergence in per capita consumption across states and the gap between the richest states and the poorest ones has widened. In Pakistan, the Gini coefficient is estimated to have risen from 37% to 41% during the 1990s. The income share of the highest 20% has increased and is eight times that of the lowest 20%. Rural inequality, traditionally lower, has overtaken urban inequality. With varying intensity and scope, income inequalities appear to have also risen in Bangladesh, Thailand, Indonesia, Malaysia and Sri Lanka. At the same time, most of these Asian countries experienced a reduction of absolute poverty -- measured by reference to their own standards -- which was generally initiated several decades ago, interrupted by the financial crisis of 1996-1997, and resumed after this crisis. Available data, however, suggest that Pakistan and Sri Lanka might have had an aggravation of absolute poverty during the 1990s.

6. Income distribution in Latin America,[iv] a region traditionally characterized by high levels of income inequality, became more unequal during the 1980s and the 1990s. In the 1990s, the share of total income by households in the top decile of the income ladder increased in eight countries, including in Argentina, Brazil, Chile and Venezuela, declined in five countries, although significantly only in Honduras and Uruguay, and remained stable in one country, Mexico. This share of the upper income group was on average 37% of total income, or nineteen times above the average of the bottom 40% households. Put differently, average per capita income in Latin America is between the seventh and eight deciles, which means that between 67% and 77% of the population is below that average. At the beginning of the 1980s, this percentage was smaller in most countries. As to absolute poverty, estimates based on national household surveys put it at 211 million people in the region in 1999, compared to 136 million in 1980 and 200 million in 1990. Of these 211 million, 134 million lived in urban areas and 77 million in rural areas. Among the latter, a majority were indigent. Thus, poverty in Latin America tends to become an urban phenomenon, but tends also to become more extreme in rural settings. Also, around 2000, 10% of the poor were immediately below the poverty line, having therefore, in theory, a possibility to move up, whereas 45 million people were non-poor considered most at risk of falling into absolute poverty.

7. In Eurasia,[v] the countries in the area that was the Soviet Union and in the former socialist countries of Eastern Europe, the transformation that occurred at the end of the 1980s had a number of facets, including a marked increase of income inequality often accompanied by poverty. In the Russian Federation the income share of the poorest 20% was 11.9% in 1991 and 5.9% in 2001. During this period 80% of the population experienced a decline of its income, and the richest 20% received 30.7% of total income in 1991 and 48.3% in 2001. A similar rising income inequality occurred in most countries of the region and, in a context of decline of economic activity – the GDP is only recently approaching its level of 1989 after a spectacular fall in the first seven/eight years of the transformation – poverty increased dramatically. Estimates put absolute poverty by the end of the 1990s at 44% of the total population in Romania, 50% in the Russian Federation, and around 80% in Armenia, Moldova, Tajikistan and Kirgyzstan. Real wages in 2001 were half or less their 1989 level in the Russian Federation, Bulgaria, Georgia, Azerbaijan and the other former republics of the Soviet Union in South-Central Asia.

8. The study covering 17 developed countries of the OECD[vi] considered the evolution of their average Gini coefficients over the last four decades, with the following results: there is a rising trend in inequality in four countries, Australia, New-Zealand, the United Kingdom and the United States of America; in four other countries, Canada, Italy, Norway and Spain, income inequality decreased; and there was stability in the remaining nine countries: Austria, Belgium, Denmark, Finland, France, Germany, Japan, Netherlands and Sweden. In the Republic of Korea, a country considered in another of these studies, income distribution was also stable – at least until the end of the 1990s -- and fairly equal, with Gini coefficient at 34% in 1965, 30% in 1990, and 32% in 2001. At the end of the period analyzed, towards the end of the 1990s, the highest Gini coefficients were in Australia (41.7%), in the United States (41.4%) and in New Zealand (40.2%). In the United Kingdom, however, one of the four countries with rising income inequality, this Gini coefficient was still at 32.5%, or the same level than Sweden, Denmark and Spain, and below France (36%), Japan (35%) and Italy (33.3%). Austria and Finland had the lowest level of income inequality, with their Gini coefficient at 26.1%. Other sources of information show an increase of absolute poverty –measured with national poverty lines – in most developed countries during the last decade.

9. Thus, the clear overall world trend towards more inequality in the distribution of income appears to have some exceptions, mostly in the economically developed regions, but also in some countries of Latin America. Progress in the reduction of absolute poverty, measured with national yardsticks, is ambivalent, with significant strides in a number of countries, most notably the large and populated countries of Asia, and regression in Africa, in some parts of Latin America, in Eastern and Central Europe, and also in affluent countries.

10. Regarding income distribution among regions and notably between developed and developing regions, the studies, concentrated as they were on inequality within countries, confirm nevertheless well-known facts and trends. Growing interdependence is accompanied by a deepening of the gap between rich and poor regions and countries. The computation made by one of the authors, on the basis of World Bank data, shows that regional per capita incomes, as a share of high income OECD countries evolved, in the following manner between 1980 and 2001: Africa, from 3.3% to 1.9%; Middle-East and North Africa, from 9.7% to 6.7%; Latin America and the Caribbean, from 18.0% to 12.8%; South Asia, from 1.2% to 1.6%; and East Asia and the Pacific, from 1.5% to 3.3%.

Distribution of assets

11. As the time available for research and analysis of often dispersed data was limited, the studies only provide a few points on the distribution of assets.

12. The growing income inequality is partly explained by a major shift from labor to capital and its remuneration: the share of capital income in the total income has increased significantly in many countries. An example given in the WIDER research mentioned earlier is taken from South Africa:[vii] there, the share of property income in total income rose from 18% in 1981 to 30% in 2000. This world wide change in the “factoral distribution of income” is less commonly mentioned than changes in wages and in employment to explain the deepening of income inequality.

13. The almost universal movement of privatization that swept the world in the last part of the 20th century rarely resulted in the spread of “popular capitalism”. Instead, it created a concentration of assets in a few private hands. This concentration took an extreme form in the countries of the former Soviet Union. The main “winners” of the transformation process are those who where in a privileged position to grasp the assets of state owned firms. And the value of assets owned by individual workers is too negligible to be a significant source of income and a means of control or participation in the management of the firms. As to the small entrepreneurs, in the Russian Federation their share of total income produced by capital ownership is around 15-18%.

14. This privatization movement, combined with a much freer circulation of capital, also led to a redistribution of assets from national to foreign hands. In mid-1990s, transnational corporations controlled half of the first 100 and accounted for 43% of the sales of the 500 largest companies of Latin America. This transnational ownership is pronounced in both manufacturing and services, the latter having received the largest inflow of foreign direct investment during the second half of the 1990s in Latin America. The foreign ownership of assets is also significant in Asia, a region with a great deal of concentration of wealth. In China for instance, a recent study of mainland bank deposits estimates that only 0.16% of the population owns 65% of the nation $1.5 trillion liquid assets. It was noted, however, that in this region, political interest for the rich/poor divide is episodic and often replaced by debates with nationalistic overtones on foreign versus domestic ownership of assets. Also, in some countries, notably Malaysia, the distribution of income and wealth is mainly seen along ethnic lines. In Africa, a strategy of liberalization and growth through exports, implemented in a context of highly unequal distribution of assets, led to a worsening of intra-urban and intra-rural inequality. In many African countries, however, the problem is absence of key productive assets rather than distribution of these assets. A related problem is capital flight. A recent study, using data based on 22 countries from Sub-Saharan Africa, concluded that the continent has the highest incidence of capital flight, exceeding the Middle-East and Latin America. Were Africa able to bring back this private wealth, the private capital stock would increase by around 64%. Another inquiry estimated the capital flight from severely indebted countries of Sub-Saharan Africa at $22 billion. Moreover, although the distribution of land is in problem inherited from colonization, many poor Africans own or operate a significant amount of farm land, but land that is remote, fragmented and often of poor quality. In any case, on the whole across the world, land redistribution has not been high on the political agenda of these last decades.

15. Pointing also to a stability, or more likely a worsening of inequality in the distribution of assets in developing and developed regions, has been the evolution of tax systems. Problems of equity raised by tax havens, tax exemptions to attract investment, or tax forgiveness to re-attract domestic capital put abroad, have not been addressed. Indirect taxes have generally increased in relation to direct taxes. And the studies mention a number of countries with still narrow-based and regressive tax systems, for income and even more for capital.

Distribution of opportunities for work and employment

16. The first fact confirmed by the studies is that employment opportunities continue to lag behind the demand for work. This gap has even worsened during the last decade, notably in the developing regions, and is partly responsible for the growing income inequality. In India, for example, the employment growth rate plummeted during the 1990s. The annual rates of growth of urban and rural employment declined respectively from 3.39% to 2.03% and from 1.34% to 0.67% form the beginning to the end of the decade. For rural employment, this was the lowest rate of growth in post-independence history. As a result, official figures put unemployment at 7.32% of the work-force in 2000, compared to 5.95% in 1994. In Pakistan, employment declined by 0.4% during the 1990s. In Bangladesh, open registered unemployment rose from 1.8% to 4.9% during the same period and the ILO estimates urban underemployment to be 42% of the work-force and rural underemployment 22%. Employment in China has been growing steadily over the last decades, at 2.55%. This growth, however, has been 4.33% in the 1980s and 1.09% in the 1990s. This deceleration came from the agriculture sector, but also from industry and services, and official figures put unemployment at 1.8% of the labor force in 1985 and 4% in 2002. In Latin America, open unemployment rose from 4.6% to 8.6% during the 1990s. In most African countries unemployment rates are extremely high, especially in urban areas. In the former Soviet Union industrial employment declined 38.5% between 1989 and 1999, before starting to grow again in recent years. In Russia and Ukraine, when output declined by 50% during the first part of the 1990s, registered unemployment remained below 5% as firms opted for lower or unpaid wages and labor offices did not offer attractive alternatives to laid-off workers. Unemployment also rose in a number of OECD countries during the 1990s. And, everywhere, the extent of the economic control and ownership by transnational corporations has not been matched by a commensurate contribution to employment generation. In Brazil, for instance, during the second part of the 1990s, transnational corporations increased their share of total sales from 27% to 42% and decreased their participation in employment from 17% to 10%.

17. Secondly, during the same period, employment opportunities diminished further in agriculture and the rural areas, and, in urban areas, these opportunities were mostly in services, a sector of activity where public services declined and that is often dominated by the informal economy. In China, between 1980 and 2000-2002, the share of agricultural employment declined from 68.7% to 50%, the share of industry increased from 18.2% to 21.4% and then share of services jumped from 13% to 28.6%. Rural employment remained almost stagnant between 1995 and 2002, provoking a large scale migration of rural workers to urban areas. In India, only about 8 to 10 % of the population is involved in the organized sector. There has been a sharp increase in employment opportunities in some sub-sectors of the service sector: in information technology, communications and entertainment related activities jobs have been created for around 200.000 young Indians. These jobs, however, are concentrated in a few large cities, and the judgment of the authors of the study is that the very high growth rates of these sectors have created some islands of prosperity in an otherwise desperate employment situation. In Bangladesh, informal employment has grown from 10% of the labor force in 1990 to 17% in 2001. In Latin America, in the 1990s, 66% of all new jobs were in the informal sector. Employment in this informal sector rose from 41% of total employment to 46% in 1999. At the same time, public employment declined from 16% to 12,9%; professionals and technicians of the private sector rose from 4.7% to 7.8%; and employers and independent professional and technicians rose from 3.8% to 4.3% of the employed population. These increases of “decent jobs” were however insufficient to prevent growing unemployment, underemployment and growing employment precariousness and insecurity.

18. Thirdly, employment and work opportunities became better for a minority and deteriorated, in quantitative and qualitative terms, for the majority, notably for people deprived of a recognized and socially valued skill. In addition to unemployment, gaps in wages and remunerations have deepened. In Latin America, the wage differentials among various segments of the work-force became more pronounced, notably between the formal and the informal sectors. Within each sector of the economy, wage disparities also increased between workers with higher and lower skills. In the former Soviet Union, wage-earners in general were losers in the transformation process and, among them, people with low skills were hit particularly hard. In China, apart from the urban/rural income inequality, wage disparity has been increasing within the urban sector. Differences in wages between manufacturing and services as well as between various sectors within industries, and especially between services, have grown. Wages in new sectors, such as telecommunications, banking and insurance, and real estate, have increased significantly, whereas they have stagnated in traditional manufacturing industries. In some state-owned activities and government agencies, however, notably in health care, sports, education, culture and scientific research, have also increased.

Distribution of social services and benefits

19. Traditional indicators of well-being, such as reduction of infant mortality or progress of enrolment in schools and universities, reflecting a general improvement in living conditions, appear to have globally continued their long lasting upward trend. The study for Africa, suggest that infant mortality per 1000 live births declined from 96.7 in 1990 to 85.3 in 2000; the gross enrolment ratio for the female age-group was 77.6% in 1990 and 89.3% in 2000, and 85.1% and 95.3 % for the male age-group; and for the population aged 15 years and more, the proportion of illiterates declined in the same period from 61% to 46% for women and from 40% to 29% for men. In Latin America, enrolment in the first level of education is now complete in most countries and significant progress has been achieved, though with important variations among countries, for the second and third levels. Infant mortality fell from 42 to 32 per thousand live births and life expectancy rose from 67 to 70 years. In China, primary school enrolment was 98.6% in 2002, and the proportion of primary school graduates entering secondary school was 97%. Illiteracy was reduced to 15% by the end of the 1990s, and infant mortality was 31 per 1000. In India, the literacy rate went from 52% in 1991 to 65% in 2000 and infant mortality was also reduced.

20. This general and superficial picture of progress in the human condition is nuanced in the studies in several important ways. There are countries and even regions that, according to the scale suggested by traditional social indicators, have regressed. The most prominent example is Eurasia, where, until very recently all these indicators were showing a decline in health conditions and education facilities and opportunities. There are also individual countries where problems of security or political turmoil were so severe as to affect average levels of well-being. There is the dramatic problem of HIV/Aids, which, for millions of individuals and many nations is the equivalent of the great plagues of the past. Moreover, other pandemics are also threatening humanity. Then is the overall question of the quality and effectiveness of the services, notably in education and health, that are seemingly made available to a growing proportion of the population. In China, for example, the student-teacher ratios, particularly for secondary schools, suggest some problems in infrastructural support for education. And the ratios of health personnel and hospital beds per 1000 persons declined slightly in both urban and rural areas during the 1990s. In India, there are indications that some 70 million children in the age-group 6 to 14 years are either dropouts or have never been enrolled. Many primary schools suffer from insufficient number of teachers, poor quality buildings and poor equipment, including blackboards and textbooks. In Latin America, full enrolment in primary education should be seen together with the fact that only around 50% of those who start are able to finish. And there is the issue, central in the context of the studies undertaken for this Forum, of the distribution of these services and benefits among different population groups.

21. Most common, and particularly important in large countries of Asia, are the regional and rural/urban inequalities in the distribution of public social services. In India, in 2001, the literacy rate varied from below 50% in Bihar to above 90% in Kerala. This same literacy rate was 80% in urban areas and 59% in rural areas. Infant mortality was twice as high in Uttar Pradesh as in Tamil Nadu. In Bangladesh, however, a country with much improvement in its social indicators over the last decades, regional and urban/rural disparities have lately been reduced in a number of domains, including child mortality, rates of immunization, incidence of malnutrition, access to safe drinking water and proper sanitation, and enrolment for the 6 to 10 years of age. In China, in the mid-1990s, illiteracy and infant mortality rates were still double in rural areas than in urban areas.

22. As to the inequalities in the distribution of public social services by social groups, the study on Latin America provide a number of illustrations of the magnitude of the problem and there is no reason to believe that matters are very different in other regions. The distribution of education, for both access and results, is very uneven in most countries of Latin America and this inequality tends to be transmitted from generation to generation. Around 75% of young people in urban areas are from households in which the parents have less than 10 years of education and, on average, more than 45% of them do not reach the educational threshold – currently put at 12 years of schooling – required to have a chance to obtain a decent and stable job. Just over 30% of young people whose parents did not complete their primary education manage to finish the secondary cycle. In contrast this secondary cycle was completed by 75% of children whose parents had at least 10 years of schooling. In addition, the quality of education is generally lower in public than in private schools and these are predominantly accessible to children from families in the middle and high social strata. Thus, this particular study can state that in to-day Latin America there is a close link between access to education and the social stratum of origin and that the well-being of young people today has to a large extent already being determined by the pattern of inequalities that prevailed in the previous generation. Then, comparable analyses are made for access to health, sanitation and housing, with the general conclusion that, due to lack of schools, health services, adequate transportation and all other deprivations generally associated with low income, poor neighborhoods create conditions for the intergenerational reproduction of poverty. In addition, the quality of life in this region has increasingly deteriorated, especially for the poor, in terms of lack of security, organized crime, drug trafficking and urban overcrowding.

23. Time will tell whether government’s efforts will alleviate these inequalities. For the study reports that public social spending (i.e. expenditure on education, health, housing, social welfare and social security) rose considerably in the Latin American region during the 1990s, from an average of $360 per capita at the beginning of the decade to an average of $540 at the end. As a percentage of the Gross Domestic Product of the region, this represented for social expenditure an increase from 10.4% to 13.1%, and an increase from 42% to 48% of total public expenditure. Excluding spending on social security – which is less progressive in its redistributive effects – calculations show that, on average, 28% of this social expenditure went to the poorest quintile of the population – as compared with 4.8% of primary income – and 12% was received by the richest quintile, which has 50.7% of primary income. Different examples were however provided by the other regional studies. In China, where domestic economic and fiscal reforms led to a fall of the share of public revenues in the Gross Domestic Product and to a decentralization of power to provincial and local authorities, the central government has less possibilities than before to act directly to reduce inequalities, including through public expenditure on social services. The Government of India, in order to reduce the fiscal deficit, undertook in the 1990s major expenditure cuts. Capital expenditure fell from 5.9% to 2.6% of the GDP and this led, according to the study on the region, to a virtual collapse of public services in education, public health and sanitation. Also, the reduction of food subsidy crippled the public distribution system of food, which provided fair-priced items of food to a large number of low-income households. In Pakistan, subsidies were also largely eliminated, development oriented public expenditure dropped from 9.3% to 3.4% of GDP in 20 years, but expenditure on the social sectors increased slightly, from 1.96% to 2.20% of the same GNP between 1990 and 2000. In the former Soviet Union, the judgment made in the study is that without deliberately corrective policies and increase in public expenditure the already marked social stratification in the educational system will become more severe, further limiting the bleak prospects of low-income people, impairing their employment prospects and pushing them into marginalization. Then the system will not only reproduce but increase social inequalities. Comparable remarks apply to the health system. In the case of the OECD countries, this question of distribution of services and benefits was not treated in the relevant study, but it is probably roughly correct to state that a general increase of inequality in primary or market income and regressive changes in tax systems were totally or partially compensated by publicly financed benefits that traditionally have a strong equalizing effect and that were not dramatically altered during these last decades. Such partial, total, or over compensation must partly explain the different grouping of the OECD countries according to the evolution of their Gini coefficients.

Distribution of political power: access to information and political participation

24. The formulation of this fifth dimension of equity and equality implies a distinction between the distribution of opportunities for possible access to political power and the distribution of the actual exercise of this power. This is a vast and complex domain of inquiry that, obviously, could be touched upon only very superficially in the context of these regional studies. The points mentioned below are merely a few markers for further work.

25. Access to information is one of the conditions for political participation and indicators that are now routinely figuring in the statistical profiles of countries produced by national, regional and international institutions are newspaper circulation, telephones lines, television receivers and internet users. The studies confirm that this last indicator is increasingly used to rank countries in terms of overall development and level of modernization.

26. The studies also offer a useful reminder that political participation is inaccessible, even at the local level, for a great number of people around the world. There are oppressive political, social, cultural and economic structures and institutions, and there are conditions of poverty that constrain people to a constant struggle for survival. There are also situations that generate what used to be called alienation and is now called marginalization or exclusion, and where the relation of the individual and the family with work plays a decisive role. Work, a professional activity providing, in the words of the Universal Declaration of Human Rights, the means for “an existence worthy of human dignity” remains a necessary conduit for active citizenship. Could it be that, in most societies, the proportion of people economically, socially and politically marginalized has actually risen during these last decades?

27. The separation of people between “winners” and “losers” – a language reflecting the centrality of competition in the spirit of the time – appears to have often connotations beyond economics and distribution of work opportunities, income and assets. It evokes irremediable failure and separation from society. The study on Eurasia indicate that the winners of the great transformation that shook the region were in general the young, healthy, well-educated, flexible and mobile people, and in particular those who were entrepreneurial and socially and politically well-connected at home and abroad. The losers, much more numerous and diverse, were the wage-earners, the pensioners, the less educated and the less skilled, most of the rural population, many of the people living in remote regions and small towns, and also those belonging to certain ethnic groups. The same study evokes the spiritual-moral situation of the region, with alarming problems of neglect and homelessness among children and young people, the spread of child abuse in families and in orphanages, a distancing of the school from children in difficulty, a destruction of the traditional system of child upbringing, a deterioration in the mental health of the adult population, a rise of crime, and a general fall in moral standards. Political participation has little meaning in such a context. Taking into account the brutal “transition” experienced by this region, could it be that the buffers progressively developed since the end of the 19th century to facilitate people adaptation to rapid technological and related changes have been so weakened as to be ineffective? The study on Latin America also evokes winners in the social strata controlling, managing and working in large enterprises – especially transnational corporations, and losers among the unemployed, the employed in the informal sector or in firms and sectors with low productivity, and, above all, among the young and among women, those that upon entering the labor market could not find jobs providing a minimum welfare. Recent surveys conducted on the Latin American continent indicates that if a great majority of people prefer democratic to authoritarian regimes, less than a third are satisfied with the functioning of democracies. In other regions also, there is an apparent lack of confidence in governments, political parties, and political institutions in general. In addition, trade-unions, which represented a most important avenue for defense of workers’ interests and political participation, are currently considerably weakened.

28. Political participation by all those who wish to have a say in public affairs, including though an informed vote when elections are called, implies, in the language of the time, transparency and accountability of public institutions, processes and administrative and political personnel and leaders. Good government is often implicitly subsumed under the call for good governance, The studies allude to these conditions for political participation and see them as inseparable from the quest for an equitable, sustainable and peaceful development of all societies. In Africa, during the last decade, good governance was recognized as one of the fundamentals of socio-political and economic development. All countries reported significant progress in improving governance structures and modalities, linking it with the imperative of working towards peace, stability and security. Several initiatives aimed at fostering legitimacy, transparency, participation and accountability were reported as being undertaken. Democracy, human rights and the necessity of establishing adequate institutions have been recognized as essential elements of good governance. This is complemented by the formation of continent-wide forums, notably the New Partnership for Africa Development (NEPAD). From this perspective, it is therefore obvious that some social progress is being made. But, concludes the study on this point, such progress remains negligible given the pervasive nature of poverty and social underdevelopment that besieged the continent.

PART II: INTERPRETING CURRENT TRENDS IN INEQUALITY

29. The main question the authors were asked to address was the relationship between the observed trends in equity and equality and the opening of national economies that took place since the mid-1980s, accompanied as it was by policy prescriptions known as expressing the “Washington Consensus.”

30. Almost all countries considered undertook a significant opening of their borders to trade and capital circulation and took various measures of liberalization and deregulation of their economies to encourage foreign investment and the free interplay of market forces. During the same period, most of these countries experienced an increase of inequality – at least in the distribution of income and assets – and a number of them managed to reduce extreme poverty. Are these facts related, and how?

31. The study on Africa notes that trade, while very small from the point of view of its share in world trade – Sub-Saharan Africa counts for about 1% of world exports – is critical for the African countries, representing on average 60% of their GDP. African exports are dominated by a few primary commodities and are concentrated towards a few developed countries. There has been in the 1990s a growing instability of exports earnings and a steady decline in terms of trade, though some improvement occurred in the last two years. Foreign investment has been meager – around 1% of world total in the mid 1990s -- and concentrated in a few countries and sectors. In such context, liberalized trade does not seem to have led to an acceleration of economic growth – currently at a level below the average of other parts of the world --, nor to an increased demand for labor and had effects on various households which were diverse and not always positive. The flooding of Sub-Saharan countries with cheap imports from developed and newly industrializing countries meant the destabilization of small scale enterprises and a significant loss of jobs. Increased competition from imports led to a form of de-industrialization. The search for competitiveness also led to the repealing of minimum wages laws, when they existed. Currency devaluations and loss of revenues from import taxes compounded the loss of purchasing power from low income households as governments increased indirect taxes and reduced subsidies and spending on social services. Overall, a greater openness of African economies seems to have generated greater inequalities and to have had uncertain effects on economic growth and reduction of poverty. And, most importantly, controversies on the precise merits of export-oriented strategies or on the role of foreign investments should not obscure the fact that the African continent is still struggling with the fundamentals of growth, development and equity, namely human resources, physical infrastructure, macro-economic stability and the rule of law.

32. The economic transformation experienced by Latin America in the last part of the 20th century was intense and strongly influenced by external forces. External actors and policies were important in the origin of the processes of indebtedness of the 1970s, of adjustment policies of the 1980s and of reforms in the 1990s. Though these processes, strategies of government-led industrialization were more or less abandoned and replaced by reliance on transnational corporations. These, as indicated earlier, were not net-employment creators. And, during the period 1980-2003, the per capita GDP of the region increased only by 3.4%. The ups and downs of the regional economy, highly influenced by the positive and negative capital transfers with the rest of the world, had negative effects on the poor. Thus, openness did not generate the expected economic growth, did not provide the means to reduce poverty, and contributed to an aggravation of inequalities in a region where they have been traditionally extremely high. Openness took place in an economic, social and political context that oriented its benefits towards a few and concentrated its costs towards the poor and the majority of the population.

33. Apart from long standing rural/urban disparities, accompanied since the 1970s by increasing regional disparities, the causes of increasing inequality in China are looked for, in one of the two studies on Asia, in the following domains: foreign direct investment and trade opening; fiscal policy; financial policies; effects of industrial development; decentralization of agricultural policy and dissolution of the communes; terms of trade and price deregulation; migration and unified labour markets; and social security. The conclusion of the author is that the opening of the Chinese economy and society through increased international trade and foreign investments flows has helped considerably China’s growth performance and has been a major factor behind rising inequalities. For India, the same study also mentions liberalization of trade and foreign investment as having contributed to the rise in inequality, but, in a context of slower economic growth than in China, insufficient employment generation, emphasis on reduction of fiscal deficit, changes in taxation benefiting upper income groups and reduction of public expenditure on welfare appear to have played a bigger role than openness per se in this increase of inequality. For South-Asia as a whole, this study concludes that trade liberalization has had “inequalising” effects and that foreign investments patterns have tended to reinforce existing inequalities. Increased public expenditure on productive investment in infrastructure as well as in social sectors, food access, and fair and progressive taxation remain, however, privileged means to reduce inequalities or at least moderate their aggravation that is inherent to the interplay of market forces.

34. In the former Soviet Union openness to trade and foreign capital was part of a dramatic and sudden transformation of the political system. Liberating private initiative from the tutelage of the state, and thus permitting inequalities to rise, was the essence of this transformation. Advisers to the new regimes, notably western economic advisers, suggested that fast liberalization was the key remedy for curing all the economic ills of the “transition” countries. Their assumptions were based on the mainstream economic theory, rather than on practical experiences, for instance of countries having undertaken the decolonization process. It was thought that, regardless of their structural impediments, previously closed economies would expand new exports sectors, increase their imports, and through the competition introduced by these imports eliminate their inefficient sectors. It was also assumed that the relatively low level of poverty and inequality and the safety nets that existed under the socialist regimes would make the social costs of the transition tolerable. The well documented result was a huge fall of economic activity, the creation of a class of oligarchs, and the spreading of inequality and of widespread absolute poverty. Whether it will have been possible to introduce a model facilitating a more equitable market system, is, says the author of the study, unfortunately an academic question for the people directly concerned, but it is a question of great relevance for international organizations whose mandates are to bring peace and development to the world.

35. Since the developed countries of the OECD, notably the most powerful among them, initiated the great ideological shift that transformed the world economic and political scene from the mid-1980s, and since these same countries, together with the international financial organizations and the WTO, defined and propagated the meaning and concrete implementation of concepts such as liberalization, privatization, globalization and openness, one can assume that their governments were, alike the new regimes of the transition countries, deliberately promoting capitalism and inequality – at least of income, assets and power. Governments of the leading countries of this radical ideological shift were indeed democratically elected on a platform of less public intervention and regulation and more freedom for homo oeconomicus and the enterprises and corporations he creates. The growth of inequality in these leading OECD countries was therefore a facet of a political doctrine and strategy rather than the unintended or regretted result of a greater openness to the world economy.

36. Overall, however, a great majority of governments of developing and developing countries would by now probably agree with the conclusion on the relation between economic openness and inequality reached by the authors of these regional studies. This conclusion, is that an open economy is today unavoidable, that it can perhaps be advantageous to all countries if managed with this objective of overall equity, and that, automatically creating and amplifying all types of inequalities, it requires national, regional and international public policies, laws and regulations. On this need for policies, a few points are made in the third part of this Summary.

37. Interpreting current trends in inequality requires an understanding of the conditions that prevailed at the beginning of the period under scrutiny. The importance of these “initial conditions” is stressed in several studies. The study on Africa notes that lack of social development and current difficulties to reduce poverty and promote more equity ought to be interpreted in the light of the numerous handicaps that this continent has to overcome: weak public institutions and weak human capital at the time of independence, an “extractive” colonial history, the dependence of almost all countries on the production and trade of a few primary commodities, the lack of domestic capital, the alarming level of aid-dependency, the lack of ownership of policies that are invariably imposed by bilateral donors and international institutions, poor governance, and the prevalence of violent conflicts.

38. Another study points out that initial conditions explained largely the recent more egalitarian experience of North East Asia – although these initial conditions were not enough to prevent a rapid and strong rise of inequality in China -- in comparison with South East Asia. A number of countries of North East Asia, particularly the Republic of Korea, were so far able to combine rapid economic growth with low inequality of income and assets for five main reasons: they started rapid growth with an exceptionally egalitarian distribution of real and financial assets as a result of post-war, mainly agrarian, reforms; rapid growth was based on capital accumulation as well as employment expansion; high profit shares were crucial for accumulation by generating high savings rates and inducing high investment rates through effective institutions and policies; wealth distribution was relatively even due to the highly egalitarian post-world war II redistribution and the unusual savings behavior of low income households; and, although wage distribution did not remain particularly egalitarian, rapid employment expansion and near full employment has probably generated a wider and more even distribution of wage-earning opportunities among households. In another region, Western Europe, initial conditions also partly explained why certain countries, as pointed out at the beginning of this summary, managed to more less keep the same level of distribution of income among social classes while pursuing policies of a neo-liberal type. But, obviously, such initial conditions favorable to equity and a certain level of equality, have to be nurtured to keep their beneficial effects. Openness is a great shaker of social values and structures.

39. The “story” of recent trends in inequality and their relation with economic growth and economic interdependence also confirms, or put in question, a number of commonly accepted views, hypotheses, or economic “laws.” The experience of a number of countries, notably in North East Asia, show that low inequality is compatible with, or even conducive to rapid economic growth in its early stage. And, poverty alleviation and reduction of income inequality can not only accompany but is even helping economic growth and industrialization. Also, the experience of the four OECD countries (see Part I above) that have increased their level of inequality – as measured with Gini coefficients – suggest to the author of the study on these countries a dramatic and historical change. In the 1950s, Simon Kuznets argued that income inequality conforms to an inverted “U” pattern with respect to per capita income: after an initial tendency for inequality to rise at low levels of per capita income, a reversal would take place and inequality indices of high income countries would be found well below the medium value of these indices for all countries. In other words, developed countries would tend to have more equal distributions than developing countries. This “fundamental law” appears to be now contradicted: during the 1990s these four OECD countries had Gini coefficients that were not significantly different from the mean calculated from a sample of 104 countries. More generally, rather than looking for the appropriate “trade-off” between growth and equality – a notion that wrongly assumes that there is such thing as a distribution-neutral growth – one should distinguish functional inequality, which is a necessary part of the effective operation of a market economy, and dysfunctional inequality, in which some groups enjoy incomes in excess of their market-determined supply prices. The latter may result from market control, political power, or, most commonly a combination of both. And the experience of a number of countries –primarily but not exclusively the Nordic countries –suggests that the degree of inequality necessary for the effective functioning of a market economy can be quite low.

PART III: NATIONAL AND INTERNATIONAL POLICIES FOR EQUITY IN AN INTERDEPENDENT WORLD

National policies

40. The first fact highlighted by these studies is that, in a context of growing interdependence and general acceptance – though greatly varying in degree, enthusiasm, perspective, and capacity to influence the process – of a world open economy, national policies to shape purposefully patterns of equity and equality are still possible and are actually actively pursued.

41. There are the countries that pursued policies to increase inequality, or at least that refrained from adopting measures that would have limited the aggravation of inequalities resulting from open and deregulated economies. Some of these countries were economically developed and in a leading position on the world scene. The study on the OECD summarizes in five points their policies: they implemented a reduction in the progressivity of their tax structures, including a shift from direct to indirect taxes (from corporate and personal income taxes to sales or value-added taxes), a fall in the average income tax rates by reducing taxes at the top of the distribution, and a reduction in corporate taxes and taxes on unearned income; they reduced expenditures on universal social programmes, such as unemployment compensation and old age pensions, thus reducing public transfers to low-income households; they eliminated basic elements of the regulation of the financial sector, generating a shift in the distribution of national income from profits to revenues and rents derived from financial speculation; they promoted a decline of trade unions, thus facilitating a fall in the national income going to labour; and they did not manage to prevent an increase of unemployment that affected particularly those at the lower end of the income distribution.

42. Apart from the countries of the former Soviet Union and Eastern Europe, and apart from China, there are also countries others than those of the OECD mentioned above that have pursued policies leading to or accepting a more unequal distribution of income. India during the 1990s, Pakistan, Indonesia, South Africa, Brazil also in the 1990s, Argentina, Mexico are cases in point.

43. There are, on the other end, countries that actively pursued policies to maintain or even improved their level of equality – at least in terms of distribution of income and perhaps also of access to services and benefits – and succeeded so far in this endeavor, while opening further their economies and promoting private initiative and entrepreneurship. These “exceptions” are in fact thirteen of the seventeen countries included in the OECD study, including Japan. The Republic of Korea, also a member of the OECD, is another prominent example in Asia. Viet Nam was not included in this survey, and neither was Cuba, but the study on Latin America mentioned that at least two countries of this region – Costa Rica and Uruguay – maintained their distribution profiles. Only precise and comprehensive national studies could determine the evolution of the different forms of inequality in these various countries and sort out the role of “initial conditions” and of resistance and rigidity of social norms and structures versus the role of deliberate public policies in this maintenance of a certain degree of inequality. But the studies summarized here clearly indicate that policies were indeed pursued by the governments of the countries concerned, more or less along lines opposite of those mentioned above. Moreover, these countries had economic characteristics comparable to those of others in their group or region, notably in terms of income per capita, growth or integration in the world economy.

44. A greater number of countries, irrespective of their attitudes towards inequalities in the distribution of income and wealth, have, since a few decades, actively worked for the reduction and elimination of inequalities between women and men. Although this critical issue was not the focus of this Forum, all the studies included references to it. In Latin America most countries have modified or enacted legislation to suppress discrimination against women and some concrete progress has been achieved, notably in education. And, most significantly, in a context of high and growing inequality, income disparities between men and women have narrowed. In China, the study notes that, in terms of employment and income, women have done well in some new service sectors. Yet, gender bias has not been completely eliminated in the distribution of opportunities for education. In India, agriculture still employs about 75% of the female work force, and 38% of urban female workers are employed in the service sector. In most Indian states differences in education and literacy standards between male and female are still high and the bias against women in highly skilled jobs also persists, but the trend towards more equality is clear. Prenatal sex discrimination has for instance been legally banned. In Bangladesh, the still high gaps between males and females in school attendance and literacy rates have nevertheless be reduced in the 1990s and efforts in this direction are continuing. It is of course true that some governments are still resisting this universal movement towards gender equality and it is also obvious that most countries remain very far from the results achieved in some societies, notably the Nordic countries. But the trend is hopefully strong and irreversible and, from the perspective of this Forum, progress in equality between women and men confirms that what has been called in the Annotated Agenda “horizontal equality” continues to receive public attention in a context of growing indifference for “vertical” inequality, that is distribution of income and wealth among social classes and groups. And this progress in the situation of women also confirms that purposeful public policies are still possible in a general context of globalization and interdependence.

45. Such governmental autonomy and capacity to pursue “vertical” egalitarian policies should not, however, be overestimated. Assuming political orientations in favor of more equality, there are nevertheless considerable difficulties in the effective exercise of this autonomy, especially of course for a country that is economically poor and that does not have a great international political weight. It is always difficult to resist the dominant current, and there is no doubt that the most powerful actors on the world scene have currently an agenda that does not give priority to the reduction of inequalities, be it within countries or among countries. Economic freedom, openness, the multiplication of links between societies, are sources of disparities, imbalances, asymmetries that often become serious inequalities for the weakest. Policies for more equality are, in themselves, often complex to elaborate and difficult to implement. The study on Latin America notes for instance that every measure to promote more equality, for instance in the distribution of opportunities for education, has to be complemented by, and is generally dependent upon other measures in other domains, including employment, health, housing and infrastructure. The transmission of inequalities, as of absolute poverty, through generations, either in some segments of the population or in some areas of the country, is difficult to break. Moreover, policies that aim at objectives that are intrinsically good for the individual and for society, are also generally creating more inequalities. Economic openness, competition, free individual initiative to create, own and expand, are of course in this category of elements of the common good that have adverse consequences for these other elements of the common good that are equity and equality. And the balance among these various elements is a long standing problem that each society has to address. But even more modest and apparently simpler initiatives, such as the decentralization of public power and the related emphasis on the local, often result in an aggravation of various forms of inequality.

46. Notwithstanding these difficulties, the case for active national policies aiming at the reduction of inequalities can be made at a number of complementary levels, ranging from a philosophical perspective of what constitutes the common humanity of all people and the foundation of a viable international community, to the need to avoid violence from those – individuals, groups, countries or regions – that are ignored and humiliated, or also including the observation that the social stability resulting from a perception of fairness and equity is conducive to economic growth. These arguments are explicitly or implicitly made in the regional studies that are here summarized. Others arguments made include: policies are needed to restore a balance between the interests and rewards of capital and labour; the social rigidities that result from the transmission of inequalities and poverty from generation to generation are strong obstacles to development and progress in a world that is marked by rapid technological change; the various forms of elitism that are surfacing here and there are detrimental to social cohesion; and, the development of national laws and the respect for such laws, whether on matters of taxation or respect for internationally accepted labor standards, are indispensable foundations of societies.

International cooperation

47. The few points on international cooperation and the role of the United Nations that emerged from the studies and the discussion with the authors in June 2004 are presented below as mere markers for further reflection.

48. In the logic of the emphasis on the role of governments to shape patterns of distribution of income and others dimensions of equity and equality among the people they administer, international organizations should assist their member states to fulfill their responsibilities. This involve assistance, generally known as “capacity building,” through programs aiming at institutional development, the strengthening of public administration and the application of the principles of efficiency, transparency, and accountability. This assistance, however, requires coherence and consistency on the part of the regional and international institutions that give advice, aid and loans and apply various forms of pressure, notably on developing countries, to convince their governments to adopt specific strategies and policies. Particularly in the 1990s, the most powerful ideological current was to reduce the role of the state and, de facto, diminish the capacity of governments to influence patterns of distribution.

49. National governments, however, are more and more interdependent and public and private transnational forces have a growing influence on economic and social conditions in the world. It has therefore become essential that the United Nations and other international organizations recognize these forces and try to orient them towards making a contribution to a more equitable world order. This will be a long and difficult process and the opening of international organizations to organizations of the civil society and to the private sector is a first step. Various views on the forms of equity and equality that ought to be maintained or promoted, on the relations between equity within countries and equity among countries, on the balance between openness and equality, on the relative weight to be given to equality of rights, equality of opportunities, and equality of conditions, and, more generally on the meaning and content of such notions at the beginning of the 21st century, ought to be researched and debated in a variety of national, regional and international forums.

50. The difference between international and national policies aiming at reducing and eliminating extreme poverty, and policies aiming at preventing or reducing various forms of inequity and inequality, ought to be debated. In particular, the advantages and disadvantages of targeted versus universal programmes, services and benefits, is an issue requiring further attention. It was noted that international organizations should be careful to avoid hasty generalizations and to use and propagate rigid and comprehensive doctrines based on assumptions and objectives that are not necessarily universally shared ant that should, in any case, be constantly subjected to scrutiny. On matters of economic and social development and of international cooperation to promote equity and inequality, there are a few principles, rights and obligations that are embodied in basic treaties and agreements, notably the Charter of the United Nations and the Universal Declaration of Human Rights. The text adopted in Copenhagen in 1995 reflects these principles and orientations. Specific forms of international cooperation to implement them need to be largely debated and adapted to an evolving global context and to different national circumstances.

ANNEX

LIST OF THE REGIONAL STUDIES SUMMARIZED

- Openness, Inequality and Poverty in Africa : Exploring the Role of Global Interdependence, by Alemayehu Geda

- Growth with Equity in East Asia?

by Jomo K.S.

- Inequality in China and South Asia :A survey of recent trends,

by Parthapratim Pal, Ranja Sangupta and Jayati Ghosh

- Equity in Latin America, An Overview of the Nineties,

by Pedro Sainz

- The Sources and Consequences of Poverty and Inequality in Eastern Europe and the CIS countries at the Beginning of the 21st century,

by Mihaky Simai

- Trends in Inequality in the Developed OECD Countries: Changing the Agenda,

byJohn Weeks

NOTES

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[i] See in particular Inequality, Growth, and Poverty in an Era of Liberalization and Globalization, Edited by Giovanni Andrea Cornia, UNU-WIDER and UNDP, Oxford University Press, 2004

[ii] While some references are made to North Africa, the study covers essentially Sub-Saharan Africa

[iii] The two studies on Asia did not cover Viet Nam, nor Cambodia, Laos and Nepal

[iv] The study on Latin America did not include Cuba

[v] The study on this region focused on the former Soviet Union and touched upon Bulgaria and Romania. It did not cover the other Eastern European countries nor the Baltic states

[vi] These 17 countries are: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, New Zealand, Norway, Spain, Sweden, United Kingdom, USA

.

[vii] See in the book mentioned above, chapter 15 The changing nature of inequality in South Africa, by Carolyn Jenkins and Lynn Thomas

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