Worlds apart

Jomo K. S. is Assistant Secretary General for Economic Development in the United Nations Department of Economic and Social Affairs (DESA).

by Jomo K.S.

Macroeconomic policies, financial globalisation, and changes in labour market institutions have exacerbated inequality in recent decades, not only in income and wealth, but also in access to education, healthcare, social protection, as well as in political participation and influence. Even within countries experiencing rapid economic growth, an array of factors, exacerbated by tremendous demographic changes, has conspired to transmit inequality of knowledge, social responsibility, and life chances from one generation to the next.

As surveyed in the United Nations report The Inequality Predicament, few countries, rich or poor, have proved immune to the global trend of rising inequality, or to its consequences for education, health, and social welfare.

Of course, there is no simple causal relationship linking poverty and inequality to violence. But inequality and a sense of deprivation do contribute to resentment and social instability, threatening security. Excluded and facing bleak life prospects, young people, in particular, often experience anomie and may turn to anti-social behavior, including violence.

Nor is there a simple explanation of what causes poverty. Clearly, however, poverty arises from various complex conditions, and its amelioration requires a multidimensional approach. It is hard to imagine, for example, how to “make poverty history” without also generating enough decent work, educational opportunities, and healthcare for all.

To be sure, the world has seen progress on some fronts in recent decades. Access to education for girls has improved, and some gender gaps have been reduced. Despite AIDS and the resurgence of malaria and tuberculosis, life expectancy has increased in much of the world due to improved public health systems. Overall, however, the inequality gaps are large and, in many cases, growing.

The most important determinant of income inequality today is wealth inequality, with the increasing concentration of asset ownership in recent years principally responsible for greater income inequality in most countries. Meanwhile, growing unemployment, widening skill and productivity gaps, and the “informalisation” or “casualisation” of labour markets have exacerbated income inequalities worldwide, as the number of “working poor” and the incidence of “jobless growth” has spread.

Nor have stabilisation and structural adjustment programs, imposed since the 1980’s, delivered on their promise of achieving higher economic growth. Growth in much of the world during the past quarter-century has been slower than in the previous 25 years, despite more rapid growth in East Asia, India, and a few other countries.

Such growth differences suggest that overall global inequality may not have increased unequivocally. But inequalities at the national level have deepened in most countries in recent years, largely due to economic liberalisation at both the national and international levels. Indeed, in much of the world, such economic reforms have actually undermined growth rates as well as the progressive role of government, while otherwise increasing overall inequalities.

The few exceptions have been due largely to continued or new progressive government interventions. But they are exceptions: the cumulative impact of these reforms over the past 25 years has been greater inequality in most developed and developing countries, with rising unemployment, greater earnings disparities, reduced social protection, and environmental degradation.

International financial liberalisation, for example, has undermined the use of more inclusive and targeted developmental credit to promote desired economic activities. In addition, contrary to the promises of its proponents, financial liberalisation has actually resulted in net capital flows from the capital-poor to the capital-rich over the long term, while increasing financial volatility and weakening economic activity.

Meanwhile, free-trade negotiations seem to ignore historical trends. Developing countries’ international terms of trade have worsened: prices of primary commodities have declined in relation to manufactures, as have tropical agriculture prices against temperate agriculture, and prices of generic manufactures have fallen relative to output protected by intellectual property rights.

As a result, trade liberalisation of manufactures has resulted in de-industrialisation and greater unemployment in much of the world, as in the case of garments this year. And, while agricultural trade liberalisation may enhance export earnings for some poor countries, the main beneficiaries will be the more well-to-do agricultural exporters. Countries that import currently subsidized food will be worse off.

The “retreat of the state” in much of the developing world in recent decades has involved a generally reduced role for government, including the capacity to lead and sustain development, as well as its progressive social interventions in areas such as public education, health, housing, and utilities.

The economic liberalisation carried out in much of the world in the last 25 years was a flawed policy from the start, and its consequences have become glaringly obvious. Unless the world refocuses economic policies to address the adverse impact of economic inequality on growth and poverty reduction, the poor and the privileged will continue to live worlds apart.