In this guest blog Sir Richard Jolly, research associate and former director of the Institute of Development Studies (IDS), emphasizes that reducing inequalities is a crucial factor in the recovery of the current global economic crisis. However 'governments in the US, the UK, and many other developed countries are still turning their backs on equity, despite soaring incomes for the top few percent'.

"The economies of most of Europe and the US are languishing, with worldwide repercussions. In the UN General Assembly meeting last month, leaders debated how to reduce poverty and meet the Millennium Development Goals; meanwhile the IMF in Washington and EU officials in Brussels are focused on how to jumpstart global financial stability and economic growth.

A newly-formed group of NGOs, researchers, social movements and UN agencies is pushing for these two agendas – usually separated by miles and institutional walls – to be brought together. Reducing poverty, unemployment and global inequalities need to be combined with actions to reduce debt overhangs and restore economic growth. Recent research by the IMF has shown that recovery from downturns is faster in countries with low income inequalities.[i] Similarly, countries where income is distributed more equally tend to have longer-lasting spells of sustained growth. Other research clearly shows that inequalities aren’t just the result of poverty; they help to generate it.

Inequality unmentioned

Yet few of the leaders scrambling to avoid another global financial crisis will mention inequality. While their attention is elsewhere, inequalities continue to balloon dangerously. The incomes of the richest sections of society are soaring in developed, emerging and developing economies alike. Meanwhile, the poorest groups are experiencing only slow improvements or decline. Recent estimates indicate that at the current rate it will take more than 800 years for the bottom billion of people in the world to achieve ten percent of global income.[ii]

Even in countries where there has been progress towards poverty reduction and the MDGs, inequalities have often grown. A recent UNICEF study shows that only one third of the countries that have reduced national rates of child mortality have succeeded in reducing the gap between mortality rates in the richest and poorest households.[iii]

Expanding social protection

Inequality matters not just for those at the bottom. Highly unequal countries tend to grow more slowly, are more prone to conflict [iv] and have weaker civil societies [v]. The much-cited study "The Spirit Level" found that across developed countries crime, disease and environmental problems were exacerbated by inequality.[vi] Such ill effects in society made everyone worse off, even the middle-classes.

As we seek to tackle this challenge, we can learn from the experiences of a handful of countries that have defied the global trend of inequality. Thirteen countries in Latin America, including Brazil, Argentina, and Chile, have narrowed the gap between the incomes of the poorest and wealthiest groups in the last decade. Similar positive trends have been seen in Malaysia and Thailand and in several countries of Africa.

Progressive taxation

Governments have successfully reduced inequalities by expanding social protection – as with Brazil’s Bolsa Família – and by supporting minimum wage legislation. In Brazil and in other countries in Latin America these policies were reinforced by earlier actions which had increased access to secondary and higher education across society. The way revenue was raised has also been significant. Both progressive taxation systems and channelling revenues from mining and oil exports have helped reduce inequality and fund social protection for the poorest.

UN agencies are also making inequality a priority. UNICEF is now centering its efforts on promoting equity and has uncovered unexpected evidence showing that serving the social development of the poorest and most isolated groups can be the best value for money.[vi] UNDP has also made inequality a major concern.[vii] NGOs too have made a difference by highlighting pro-equity programmes, advocating on behalf of marginalised groups and acting as brokers between parties that might otherwise not negotiate face-to-face.

In contrast to these success stories, governments in the US, the UK, and many other developed countries are still turning their backs on equity, despite soaring incomes for the top few percent, and stalled or declining standards for middle- and low-income groups. Top incomes have been allowed to reach astronomical heights in US and the UK – but have increased much less in continental Europe and Japan.

Measure development beyond income

Policy makers and advocates should focus on equity success stories and how these might be expanded to other developing and developed countries. Monitoring progress in reducing inequalities is also needed. UN agencies are positioned to lead development of better indicators, which should embrace measures beyond income alone - including gender and ethnic inequalities. Important for the long-run is better understanding of the intersecting inequalities, which trap people in poverty from generation to generation. Focusing on human rights and on children and women can help to mobilize political energy and overcome party-polarized debates.[viii]

The new inequality group is advocating for these actions to be prioritized in recovery and development agendas. A new report from the Institute of Development Studies and the MDG Achievement Fund makes the case, outlining thirteen actions needed to reverse growing inequality.[ix] The group aims to demonstrate how inclusive growth, expanding employment, and recovering go hand-in-hand. Reducing inequalities need not slow economic growth – it can serve to stimulate it. It is high time to bring the reduction of inequality into the fight against poverty and the promotion of economic growth."

List of mentioned studies in this blog post:

[i] Inequality and Unsustainable Growth: Two Sides of the Same Coin?, IMF Staff Discussion Note, April 8 (2011), written by Andrew G. Berg and Jonathan D. Ostry

[ii] Global Inequality: Beyond the Bottom Billion, a rapid review of income distribution in 141 countries, April 2011, UNICEF Social and Economic Policy Working Paper, written by Isabel Ortiz and Matthew Cummins

[iii] Progress for Children: Achieving the MDGs with equity, #9 September 2010, UNICEF

[iv] Inequalities, Conflict and Economic Recovery, UNDP Background paper #6, 

[v] World Development Report 2006: Equity and Development, The World Bank

[vi] Richard Wilkinson and Kate Pickett (2009), The Spirit Level: Why Equality is Better for Everyone, Penguin Publisher  

[vii] Narrowing the Gaps to Meet the Goals, UNICEF report, September 2010

[viii] Can the MDGs provide a pathway to social justice? The challenges of intersecting inequalities, 15 September (2010) IDS publication, written by Naila Kabeer

[ix] Inequality and Social Justice Roundtable Consultation, IDS Publication, 27 September (2011)

For further reading:

- The Guardian published another blog post by Sir Jolly, which focused on framing the inequality problem.

- IDS webpage on the inequality group

Photo credit main picture: Photo by tarotastic