For richer, for poorer: addressing inequality through shared prosperity
Growing inequality is one of the biggest social, economic and political challenges of our time. But it is not inevitable; Suleiman Mustapha looks at the World Bank model of addressing the challenges of inequality
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Appearances, they say, sometimes deceive. The democratisation of living standards has masked a dramatic concentration of incomes over the past 30 years on a scale that matches, or even exceeds, the first Gilded Age.
The challenges of inequality seen daunting; Economic growth in most countries is slowing; whilst some others are locked in war; the number of extreme weather events continues to rise; families who have lost everything remain in anguish, in some cases risking their lives to cross from the Middle East and Africa into Europe.
With such global threats and daily tragedies, it can be hard to imagine a world in which prosperity is shared by all. But imagining a time in which countries are recording slower growth, climate havoc, pandemic threats, families escaping conflict or poverty, is a period to fundamentally rethink the development enterprise.
But the World Bank President, Dr Jim Yong Kim is upbeat of achieving the twin goals of the World Bank Group: to end extreme poverty by 2030 and to boost shared prosperity for the bottom 40 per cent of the population in developing countries.
In the face of all the shocks and crises, the World Bank Group is focusing on the extreme poor and the bottom 40 per cent because they are the most affected and least able to recover.
Last year, Oxfam laid down an unusually sharp challenge in its report, “Even It Up,” stating that the richest 85 people in the world control as much wealth as the bottom 50 per cent of the world – or more than 3.5 billion people.
By highlighting the stark reality that so much of the world’s population shares almost none of the world’s wealth, Oxfam touched a nerve.
The World Bank approach
The World Bank Group’s approach to addressing this problem is embodied in a term that suggests a solution: boosting shared prosperity. In our work with governments, we support efforts to ensure that everyone benefits from growth not just those who already control or have access to capital.
Dr Yong Kim is proposing that to boost shared prosperity, the incomes of the poorest 40 per cent must grow, ideally at a rate that matches or exceeds the rate of income growth for the general population.
But since 1990, labour income in most countries has grown more slowly than national GDP. More recently, inequality has increased in the United States, as well as much of Europe, China, India, and Indonesia—half the world’s population. But the news isn’t all bad. Of 94 countries in our Global Shared Prosperity Database, 65 of them, comprising 73 per cent of the global population, have enjoyed mean
income growth for the poorest 40 per cent between 2007 and 2012 despite the financial crisis. And in 56 of them, growth in the bottom 40 per cent has been faster than for the population as a whole.
“So, the poorest people have not always been left behind. We know that people will earn higher wages when markets are more efficient for everyone and governments provide better access to quality health services and education”, the World Bank boss said.
More income for more people increases demand and consumption, leading to still more investment, both public and private.
The twin goals
For us, then, to reach our twin goals, three things have to happen — inclusive economic growth, investment in human beings, and insurance against the risk that people could fall back into poverty. Grow, invest, and insure: that’s our shorthand for the strategy.
Of the three, economic growth accompanied by rising wages and job creation has been the most important factor in reducing extreme poverty over the past half-century. But the World Bank is not focusing simply on GDP growth.
It rejects the “trickle-down” notions that assume that any undifferentiated growth permeates and fortifies the soil and everything starts to bloom, even for the poor. The bank is in search of an economic growth model that lifts up the poorest citizens rather than enriching only those at the top. But what do we do in an era of low global growth—such as we are living through now?, Dr Kim quizzed.
One answer is to encourage countries to do all they can to boost growth – which often means enacting reforms such as ending regressive fossil fuel subsidies, improving the business climate, and making public expenditures more efficient and targeted.
Tax evasion
Developing countries must also construct more equitable, efficient and transparent tax collection systems. IMF Managing Director Christine Lagarde and Dr Yong Kim have all pledged to help countries collect more taxes more fairly.
In too many countries, the rich evade paying their fair share. Some companies use elaborate strategies to avoid taxes in countries in which they work, a form of corruption that hurts the poor. More equitable, taxation could easily eclipse official development assistance received by countries.
Efforts to boost shared prosperity will differ in each country. A low income country may need to ramp up agricultural productivity. Middle income countries may focus more on urbanisation. For a country where most children don’t go to primary school, this is the first goal that has to be reached.
But for every country, the World Bank is doing all it can to help its clients stimulate inclusive economic growth. But when growth is slowing, it must focus even more on efforts to invest and insure. — GB
