Inequality and the Post-2015 Agenda

David Woodward

Development Studies Association Annual Conference, Birmingham, 16 November 2013

National Gini Coefficients: Frequency Distribution (c2005)

National Gini Coefficients: Frequency Distribution (c2005)

Inter-quartilerange

National Gini Coefficients: Frequency Distribution (c2005)

National Gini Coefficients: Frequency Distribution (c2005)

Global Income Distribution, 2005

Income pc (multiple of world average)

Branko Milanovic (2012) Global Inequality Recalculated and Updated. Journal of Economic Inequality 10(1):1-18, March.

Global Income Distribution, 2005

Global Income Distribution, 2005

Global Income Distribution, 2005

Global Income Distribution, 2005

Global Income Distribution, 2005

Top 1%: 10.4%(7 million people)

Bottom 60%: 10.1%(4,200 million people)

Global Income Distribution, 2005

Income pc of top 1% = 260 times bottom 10%

Global Palma Index, 2005

Top 10%: 55.5%

Bottom 40%: 4.1%

Global Palma Index, 2005

Top 10%: 55.5%

Bottom 40%: 4.1%

Palma Index = 13.54

Global Palma Index, 2005

Top 10%: 55.5%

Bottom 40%: 4.1%

Palma Index = 13.54

60% of countries < 2.0(Cobham & Sumner, 2012)

Woodward, D. (2013) "Incrementum ad Absurdum: Global Growth, Inequality and Poverty Eradication in a Carbon-Constrained World", article submitted to World Economic Review. http://werdiscussion.worldeconomicsassociation.org/wp-content/uploads/Woodward.pdf

NB all graphs use log scale

declining

rising

AcceleratingdeclineDecelerating

increase

Composition of Poorest World Decile

Composition of Poorest World Decile

Poverty Eradication in a “Business-as-Usual” World?

• Treat China and the rest of the world separately• Extrapolate global decile income pc growth

relative to global GDP pc• Assume (conservatively) lowest income is half

mean of lowest (non-China) decile– (or 1% poverty can be dealt with by income transfers)

• Estimate– Level of GDP pc required to eradicate poverty (+ GDP)– How long to reach this income level at 1993-2010

global growth rate

Results ($1.25-a-day)

• Eradicating poverty– requires GDP pc > $110,000 (2005 PPP)

• 11x 2010 level• 3.3x high-income OECD average

– increasing global GDP by a factor of nearly 15– takes >100 years at 1993-2010 global growth rate

• By comparison– Poverty gap = 0.6% of global GDP (PPP)– Poverty eradication = 0.04% of increase in GDP

Results ($5-a-day)

• Eradicating poverty– requires GDP pc > $1.35m (2005 PPP)

• 135x 2010 level• 40x high-income OECD average

– increasing global GDP by a factor of >170– takes >200 years at 1993-2010 global growth rate

• By comparison– Poverty gap = 6.7% of global GDP (PPP)– Poverty eradication = 0.04% of increase in GDP

Progress to 2030 (Regional Approach)

• $1.25-a-day poverty <1% in Europe/Central Asia and East Asia Pacific

• 1-4% in Middle East/North Africa and Latin America/Caribbean– NB wide country variations (esp. EAP)

• South Asia 12%• Sub-Saharan Africa 37% (cf 2015 goal: 28%)• Total poverty 700 million (2.5-3bn at $5pd)

A Gini Goal?

• Advantages– Widely used– Covers the whole income distribution

• Disadvantages– Significance not intuitively obvious– No clear ideal level (cf poverty, child mortality)– Too sensitive to the middle of the distribution cf

extremes

A Palma Goal?

• Advantages– Simple– Clear meaning

• Disadvantages– No “ideal” level– No account of distribution within 10/50/40% bands– Based on observed empirical regularity in country

data, which may not apply globally

A Convergence Goal?

• A target for narrowing gaps between income deciles (eg by a quarter/a third/half)

A Convergence Goal?

• Advantages– Intuitively clear– Covers the whole distribution

• Disadvantages– Multiple targets– No account of distribution within deciles (esp. top)• could supplement with target for top 1% share in top

decile.

Convergence Goal: an Illustration(Gap Reduction ¼)

Gaps between Global Income Deciles (%)

Gaps between Global Income Deciles (%)

Greatest absolute reduction at extremes

Convergence Goal: an Illustration(Gap Reduction ¼)

Convergence Goal: an Illustration(Gap Reduction ¼)

-16%+0%

+16%+37%+40%+53%+65%+78%+94%

+122%

Convergence Goal: an Illustration(Gap Reduction ¼)

-16%+0%

+16%+37%+40%+53%+65%+78%+94%

+122%

All but top c 15% gain income share

Convergence Goal: an Illustration(Gap Reduction ¼)

-16%+0%

+16%+37%+40%+53%+65%+78%+94%

+122%

All but top c 15% gain income share

Poorest c 17% more than double income share

Convergence Goal: an Illustration(Gap Reduction ¼)

-16%+0%

+16%+37%+40%+53%+65%+78%+94%

+122%

Top decile income grows 1% pa less than

global GDP pcAll but top c 15% gain income share

Poorest c 17% more than double income share

Convergence Goal: an Illustration(Gap Reduction ¼)

Top 10% 55.5% 46.6%

Convergence Goal: an Illustration(Gap Reduction ¼)

Bottom 40%:4.1% 7.4%

Top 10% 55.5% 46.6%

Convergence Goal: an Illustration(Gap Reduction ¼)

Bottom 40%:4.1% 7.4%

Palma index:13.5 6.3

Top 10% 55.5% 46.6%

Convergence Goal: an Illustration(Gap Reduction ¼)

Bottom 40%:4.1% 7.4%

Palma index:13.5 6.3

Top 10% 55.5% 46.6%

Highest except Jamaica, Namibia,

South Africa

How do we do it?

• Income transfers?– Needs are too great– National resources inadequate– International transfers not financially sustainable– Politically untenable– Logistically problematic

How do we do it?• Employment/livelihoods in developing countries• Requires – a better development model – economic transformation– a more supportive international environment– a more pro-development global system– more democratic global economic governance

• as well as– a successful exit from the financial crisis– an effective, pro-development solution to climate change

• All absent from Post-2015 discussions (as MDGs)

Transformation Requires Investment

• Economic transformation = expansion, diversification and increased productivity

• Requires investment– in the right sectors– commercially viable/competitive– productive– job-creating– forward/backward linkages

Investment Requires…• Demand growth (+external/domestic rebalancing)– less restrictive macro policies– wage growth proportional to productivity increase

• Technology– access– opportunity and capacity to adapt

• Infrastructure– transport, communications, energy, social….

• Finance– financial sector focused on intermediation, productive

investment– mobilising diaspora resources – best of both worlds?

A Developmental State

• Solid tax base and collection capacity• Adequate/appropriate infrastructure

investment• Active industrial policy• Productive deployment as well as production

of human capital

Global Economy

"Everyone is entitled to a social and international order in which the rights and freedoms set forth in this Declaration can be fully realised." (UDHR, Article 28)

“Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services” (UDHR, Article 25.1)

ie an entitlement to an international order conducive to poverty eradication

Global Economy

• International financial system– Financial stability– Policy coordination– Crisis prevention and effective resolution– Management of tax competition

• International trade system– Trade barriers, subsidies, etc– Policy space for industrial policy– Access to, and opportunity to adapt, technologies

Global Economic Governance

• Coherence/consolidation/codification• Democratisation (cf national level)– a system that will serve the interests of the

majority of the world population

• Time for a new Bretton Woods?