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Global agenda for tackling inequality

The Great Leveler, an impressive new book by the historian Walter Scheidel, proposes that ever since foraging gave way to agriculture, high and rising inequality has been the norm in politically stable and economically functional countries. And the only thing that has reduced it, he argues, has been some sort of violent shock – a major conflict such as World War II or else a revolution, state collapse, or a pandemic. After each such shock, he writes, “the gap between the haves and the have-nots had shrunk, sometimes dramatically.” But, the effect was invariably short lived, and the restoration of stability initiated a new period of rising inequality.

Reviewing the book, “Inequality – Redistribution’s Violent History” for Foreign Affairs magazine (September/October 2017), Timur Kuran observers: “Today, the risk of violent shocks has fallen considerably. Nuclear deterrence has made great-power war unthinkable, the decline of communism has rendered wealth-levelling revolutions unlikely, powerful government institutions have staved off the risk of state collapse in the developed world, and modern medicine has kept pandemics at bay.” However welcome such changes may be, Scheidel says, they cast “serious doubt on the feasibility of future levelling.” Indeed, he expects economic inequality to keep rising for the foreseeable future.

“The Great Leveler should set off loud alarm bells. Scheidel is right to call on the world’s elites to find ways to equalize opportunities, and to do so before driverless cars, automated stores, and other technological advances complicate the task. The bloody history he recounts suggests that reducing inequality will be difficult, even in the best of circumstances. But he also exaggerates his case; there are reasons to believe that societies can reform without an instigating catastrophe.”

Although inequality has come to the top of the global agenda over the past decade, it is not always recognised that high inequality between countries – rather than domestic inequality within countries – is the major determinant of the world’s inequalities.

According to Jack Goldstone “Wealthier World, Poorer Nations – The Problem with the Rise of the Rest” in Foreign Affairs (March 28, 2016), by the 1980s, rising inequality within countries became the major adverse global trend up until the present. In the 1980s, the world was to a large degree divided into “developed,” or rich, countries and “undeveloped,” or poor ones. The rich countries included Japan and those in Europe and North America. In comparison, the rest of the world was mostly quite poor. In fact, the World Bank economists Christoph Lakner and Branko Milanovic found that in 1988, average incomes in developed countries were 20 to 30 times higher than the average in poorer countries. Meanwhile, most people in the poorer countries remained mired in agricultural poverty, falling further behind the richer nations.

“The 1980s saw the opening up of China, and then of India, to the global economy. This led to a proliferation of global supply chains that produced inexpensive goods and services through cheap Asian labour. There was also a boom in commodities and construction as the developing countries built their own cities, railways, roads, and manufacturing plants. Commodity producers such as Brazil, Indonesia, and South Africa became major global exporters. In addition, the Opec-led rise in oil prices shifted income from the rich world to oil-producing nations.

“In the following decades, wages in the developing world rose rapidly, pulling hundreds of millions out of poverty in China, India, Latin America, the Middle East, and parts of Africa.”

Many nations became “middle-income countries.”As a result of these changes, the division between “rich” and “poor” nations became far less marked, and indeed began to blur. By 2011, there was no longer the stark division, as in 1988, in average incomes between developed and developing countries. This was a result of the rise of the new “global middle class” in the developing world and the stagnating incomes of the middle classes in the richer nations. Countries that were once insignificant players in the global economy suddenly emerged as major economic powers, and the former dominance of the Western nations started to fade.

“By now, however, this moderating factor is probably no longer relevant, since it was partly a result of the super-cycle of commodity prices that fuelled positive income trends in Africa, Latin America, and the Middle East during that period.”

Rising inequality within countries has once again come to the forefront of global political discussions, as ‘excluded’ voters have caused political earthquakes in several countries.

According to Jose Antonio Ocampo (“Why reducing inequality must be a global effort,”) Columbia University, October 31, 2017, international cooperation should be an essential part of the agenda for tackling inequality. While national governments can have a direct impact on domestic inequality, only through international cooperation between developed and developing countries, particularly with the poorest of them, can sustained progress be made on reducing international inequality.

“Firstly, the multilateral organisations can foster cooperation with developing countries, particularly the poorest among them, through a mix of financial support (official development assistance and financing from multilateral development banks) and “special and differential treatment” in trade relations (preferential access to developed countries’ markets and less binding trading rules).

“An essential missing element in the associated cooperation agenda in recent decades has been the need for more active production and technology development strategies for poor and middle-income countries. These strategies have been considerably weakened by the free-market policies pushed by international institutions. This issue is back on the international agenda under SDG 9, which calls for “resilient infrastructure, industrialization and innovation.”

“In the technology field, the push for industrialization and management of environmental degradation and enhanced social policies (notably in the area of medicines) also is said to require economists to rethink the rules on intellectual property rights in order to enhance the public goods character of technological knowledge and make sure it is available equitably to all of the world’s citizens.

“Finally, a rising issue in the realm of international cooperation that is said to be absolutely central to the reversal of growing inequality is tax cooperation. This is needed in order to accomplish three main goals: 1) to curtail the siphoning of personal and corporate incomes towards low-tax jurisdictions (or tax havens), 2) to prevent tax competition that reduces tax rates on capital income (supposedly to encourage investment, an effect which has been weak at best), and 3) to reverse the implementation of increasingly less progressive tax systems, which redistribute the tax burden towards consumption and less mobile factors of production.

“However, these processes should only be seen as constituting a starting point for enhanced international cooperation in this area, due to the incomplete character of the agenda, the lack of cooperation by low-tax jurisdictions (including those of OECD member countries), and the fact that capital has increasingly been channelled into tax havens in recent years even after these initiatives were put in place. New governance arrangements are also required in this area, under the leadership of the UN, as the OECD is not a globally representative organisation. An alternative institutional arrangement in this area would be the transformation of the current UN Committee of Experts on International Cooperation in Tax Matters into an intergovernmental organ of the UN system. Such a proposal was made by developing countries in the 2015 Addis Ababa Conference on Financing for Development, but it was opposed by developed countries. Transforming this committee into one which ensures that tax cooperation reduces inequality both between and within countries, as well as approving the UN Conventions on Harmful (or Abusive) Tax Practices, and on Tax Competition, will be a crucial step forward.

“Because rising inequality within countries has once again become the dominant trend, the support of multilateral organisations to help reduce domestic inequality is said to be equally, and vitally important. Growing domestic inequality calls for strong domestic policy action, which multilateral organisations can support through financing, analysis, policy advice, and monitoring.

“The first and most important action is said to be the construction of effective welfare states, a task made urgent by the weakening of welfare arrangements in developed countries and their insufficient progress in the developing world.

“The fulfilment of the 2030 Agenda clearly calls for such an effort, and has to be implemented with specific initiatives, such as that by the International Labour Organisation (ILO), with support from the World Bank Group (WBG), to develop and expand social protection floors. Such measures should be combined with a push for universal social protection systems (including, in particular, universal pension and healthcare systems), and not just targeting (or means testing) social policies, which has been the priority of the WBG since the 1980s. Universal social protection systems are said to be much better instruments of redistribution than targeted policies, and indeed indicate that targeting should be an instrument of, rather than a substitute for, universalisation. Other types of spending that are also vital to reducing inequality are said to be universal, free, and publicly-provided education.”

Equally important today, given the strong changes in labour markets, are said to be very active labour market policies, which include retraining and labour intermediation services, higher minimum wages and enhanced labour and union rights, as well as special attention to gender imbalances in labour markets.

The private sector also is said to have a vital role to play in reducing inequality. Not only must it provide decent work and pay fair taxes; it also needs to do much more – in partnership with providers of official development assistance – to ensure that the financing provided for global and national development reaches the poorest and reduces inequality. In relation to private finance, policies need to ensure that it is not just guaranteeing poor people’s access to finance, but reforming financial systems more broadly to ensure that they fulfil the needs of the poor.

M Ziauddin, "Global agenda for tackling inequality," Business Recorder. 2017-11-16.
Keywords: Economics , Financial affairs , Agricultural investment , Agriculture development , Labour policies , Africa , UN , ILO , WBG