Does Global Inequality Matter?

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Continuing debates on global inequality have developed a new edge and immediacy as a result of the current financial and economic crises affecting the West and, in particular the Eurozone with the accompanying ‘austerity’ measures they have generated. The rise of the ‘Occupy’ movements in 2011 challenged what was for a long time, the ‘business as usual’ model of development.

The concentration of wealth upwards towards the richest 1% of society has stimulated new debates on the moral, ethical and social implications of financial sector domination across developed countries. So too have the measures implemented by governments to ‘rectify’ the situation through increased tax rates, widespread cuts in public social spending and an increase in unemployment. Massive subsidies to the banking and financial sectors stand in stark contrast to the reductions in welfare entitlements for the general citizenry.

The social costs being borne by ‘ordinary’ people as a result of reckless gambling (and its accompanying corruption) by banks and financial institutions shocked many and highlighted the reality of an international economic system built on systematic inequality and injustice on a massive scale.

For many, this is where the renewed interest in global inequality begins. In very many developing countries, however, this reality is ‘old news’. Discussions on where the wealth is (in and between countries); who has it; who does not; and what should be done about it have been raging for decades. ‘Austerity’ measures (enforced by the IMF and the World Bank) have been the norm for the poor for decades. What caused and continues to cause this reality; how do the rich of the world have such power and influence; what can be done about it and who has responsibility? Why do so many have to suffer so fundamentally while others live in what the UNDP has described as ‘gracious luxury’?

The debate on prioritising economic growth as a ‘rising tide’ that would eventually lift all boats into prosperity remains a dominant strand in discussion of development and is the model favoured by policy-makers for tackling global inequality. Below, we have summarised the key issues in that debate.

The debate: Economic growth is the most important element in tackling global inequality

  • Yes

Increases in economic growth for living in developing countries under schemes like “fair trade” have not offset deep inequalities in the international trading system. The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. “Fair trade washing” products doesn’t mean that all products from a company are ethically made – it is only being used as a clever marketing gimmick. The Guardian – Capitalism chews over fair trade(2009)

  • No

Global poverty and global inequality are ethical issues, not simply technical economic issues. Poverty and, more especially, inequality have deep roots that go well beyond economics. Focusing on economic growth alone will not tackle or even recognise key issues such as gender, culture, environment, corrupt governance etc. The rich world cannot simply focus on economic growth and ignore its international and national contexts. Poverty and inequality are matters of justice (and, therefore, injustice). The current international economic and political system generates and sustains poverty and inequality.

  • Yes

Strong economic growth is the key to future poverty reduction. If the non-OECD (Organisation for Economic Co-operation and Development) countries are able to generate a sustainable higher growth path, then the global poverty ratio will fall from about 21% in 2005 to less than 2.5%in 2050 and the number of people living in absolute poverty will decline by another billion (Source: Food and Agriculture Organisation of the United Nations 2009)

  • No

Global redistribution of existing not future wealth is the most immediate challenge, not current models economic growth. If we continue to advocate for and support dominant growth models, we will be supporting growth that is neither sustainable nor equitable. The poor and the planet cannot afford further economic growth as its consequences are disastrous.

  • Yes

Although direct action on health, education and nutrition can improve the quality of life of the poor, growth is the only strategy that can secure a sustained reduction in poverty and provide the resources that are necessary for any direct action to reach the poor (Source: D. Bigman analysis of the pros and cons of globalisation for developing counties 2002)

  • No

“Multiple inequalities – such as between races, ethnic groups, or regions – have trapped some people in poverty even in a context of strong economic growth and rapid poverty reduction overall. Increasingly, it is inequality between groups rather than slow growth or lack of opportunity at a national level which is the driver of poverty in middle-income countries (MICs).” – Source: UNICEF (2012)

  • Yes

One of the key problems facing developing countries over the past 30 years has been the lack of investment (or Foreign Direct Investment – FDI), for example, in agriculture. At least US$30bn per year is needed in order to meet the various hunger targets. The broader development benefits seen from FDI, tackles social and economic inequalities through the benefits seen from technology transfer, job creation, linkages into the domestic economy and infrastructural development (roads, rail etc.) – these all have an impact on productivity and can channel a country’s economic growth.

  • No

Today, the average American consumes as much resources and generates as much waste as 32 Kenyans. The dominant economic growth model offers an image of ‘development’ where all aspire to live as a current average US citizen. If this ‘growth image’ were to be realised, it would be the same as asking the planet to support over 70 billion people – an impossibility! What is urgently needed is less ‘growth’ and more redistribution’ – there is plenty of wealth for all if it was shared more equally.

  • Yes

Only when the benefits of economic growth are widely shared do we encounter longer and more sustained growth periods or “growth spells”. Sustaining economic growth and reducing inequality are two heads of the same coin. This is particularly relevant when considering income inequality within countries and between countries. The closer people’s spending power is in a country the more likely the growth spell will last. Since equality is THE defining growth factor (rather than say, political institutions or trade openness) it follows that by promoting inclusive and wide plans for economic growth across countries this would have the effect of tackling global inequality. Source: IMF blog (2011)

  • No

Increases in economic growth for living in developing countries under schemes like “fair trade” have not offset deep inequalities in the international trading system. The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. “Fair trade washing” products doesn’t mean that all products from a company are ethically made – it is only being used as a clever marketing gimmick. The Guardian – Capitalism chews over fair trade(2009)The horizons of the movement are far too low – nothing less than agricultural reform and a overturning the free market capitalist system is what is actually needed to undo unfair trading rules.

  • Yes

‘Economics is not as important as it used to be’, so say critics on the primacy of economics in tackling global inequality. What about gender inequality, access to resources (access to producers and as well as channels or markets) or sustainable behaviour on a global scale in order to secure the future of the planet?Detractors have begun to see that economic growth can be a powerful tool when tweaked and harnessed as well placed policy tools for reducing global differences by both rich and poor countries. By devising economic growth policies based on the “green economy” initiatives – such as low-carbon initiatives and climate resilient strategies – it is clear that the adaptability of economics to suit the changing needs of policymakers makes it the most powerful tool for challenging global poverty and inequality in the world today. That the new demands on the planet can be met by economics, such as global strategies agreed to change business practices as agreed by governments in the recent Rio+20 UN Conference on Sustainable Development, proves it’s continuing relevance as a tool for good. The Guardian: Rio+20: reasons to be cheerful (2012)

  • No

Global gender inequality persists despite economic growth. Women work more than men. Women are disproportionately represented in the informal economy. Women constitute a majority of the world’s poor, more than 60% of the world’s hungry and are much more likely to be illiterate and face gender-based violence.“Women and girls are still more likely to die than men and boys. Women continue to be over-represented in low-paying, low-skill and informal employment. Rates of violence against women remain stubbornly high in both high-income and low-income countries, while the number of political positions held by women is disproportionately small. These are fundamental areas of resistance that the women’s rights movement around the world has been fighting against. They are sites of deep-seated conflict and tension which economic growth alone cannot address”These are the conclusions drawn from the recent World Development Report 2012 produced by the pro-economic growth institution, the World Bank.The Guardian news report (2011)