Tag Archives income inequality

What the war in Ukraine and the COVID-19 crisis teach us about our global interconnectedness and its implications for inequality

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Due to the war in Ukraine not only the country’s inhabitants have come under fire, but also the granary of much of the world. If the war is not stopped, grain prices will rise. This will have severe effects on many countries and vulnerable countries in Africa are likely to bear the brunt. The war, like the corona pandemic, illustrates how closely we are interconnected as nations on a global scale. What effects do such crises have on existing inequality? In this blog, a number of researchers of global development and social justice share their thoughts.

On 17 March, the Institute of Social Studies (ISS) at Erasmus University launched the book ‘COVID-19 and International Development’ (Springer, 2021). During the recent book launch in Amsterdam, ISS researchers have shed light on the unseen faces of the corona pandemic in low-income countries. We spoke with some of the authors of the book about the impact of COVID-19 on the Global South, and their expectations for the future.

What are the main socioeconomic impacts of the COVID-19 pandemic in the Global South? 

Rolph van der Hoeven and Rob Vos: ‘Developing countries have suffered severe economic fallouts due to the pandemic. Between 100 and 160 million more people in low-income countries have fallen into poverty and hunger. The recovery has been bumpy and developing countries have had little fiscal and monetary capacity to respond. Many countries now face severe debt distress. Some progress has been made towards realizing two of four reforms we proposed in the book: international tax coordination and issuance of new SDRs. However, these still need to be tailored to serve the interests of the Global South. Worldwide, we are unprepared for future pandemics and major global crises. Just look at last year’s events: many of the world’s poor also had to cope with a surge in food prices. The current Russian invasion of Ukraine will further increase food prices, while the capacity of the government to protect the vulnerable has eroded. We should expect poverty and hunger to rise even further.’

Natascha Wagner: ‘We still have very little fact-based evidence on the indirect health consequences in the Global South where health information systems are weak. We have observed severe disruptions in the provision of routine health care services, preventive care, and treatment schemes. Foregone health care potentially results in more severe complications, co-infections and uncurable conditions, in particular among the poorest. The combination of ad hoc lockdowns without a social assistance system that just as rapidly reaches the poorest has severely affected the already sluggish progress towards the SDGs.’

Farhad Mukhtarov: ‘The pandemic has made it clear that the global water crisis is not so much about scarcity or affordability of water. These can be resolved in most cases by temporarily augmenting supply and providing subsidies. Rather, it is about societal inequality, racial and class-based patterns of violence and exploitation. Many things are needed: fairer wealth re-distribution, more equal practices of taxation, greater investment in the public sector, as well as greater social provision of marginalized groups. They are all necessary to treat various ailments of contemporary global societies.’

Matthias Rieger: ‘The global nature of the pandemic and insufficient data often render it hard to precisely quantify “impacts”. During the pandemic I noticed confused public and policy discourse around the world on “impacts” without proper counterfactual thinking. I think the pandemic has highlighted the need to use natural experiment approaches in global health research and to routinely collect reliable health data.’

Sylvanus Kwaku Afesorgbor: ‘We are getting more and more confident that our optimism about the quick recovery from the COVID-19 trade shock was justified. Although the omicron is more contagious, it has less health consequences and the impact of the pandemic is weaning off – also amongst the non-vaccinated’.

 

Have you become more (or less) optimistic about the COVID-19 -related impacts since your chapter was written?

Peter A.G. van Bergeijk: Globalization encountered another setback with the Russian invasion of Ukraine. The revival of a Cold War setting is on the verge. This will tend to reduce the world’s openness by another 1.5% points (indication of the increase in the share number): Mr. Putin may have effectively killed the era of globalization.’

 

Binyam Afewerk Demena: NEW The major (COVID-19) implication is that the feasibility of export-oriented growth strategies decreases. In addition, the workings of international organizations will be further frustrated. That is bad news for developing countries. The Global South still has to deal with many challenges posed by the COVID-19 pandemic, due to weak health systems, low socio-economic conditions, extreme poverty rates, and limited access to sanitation to contain impacts.’

Agni Kalfagianni: ‘The COVID-19 pandemic has put further strain on poor health care systems and has reduced even more access to food for the most vulnerable. Not much has changed really to give reason for either optimism or pessimism in that respect. The lack of solidarity towards vaccine access from the Global North to the Global South exacerbated existing problems. Regarding future pandemics; we may react more quickly, given the experience that we gained. But until major changes in the health care systems and global cooperation take place, we will fail again.’


Are we now better prepared to protect vulnerable individuals and communities from future pandemics? 

Zemzem Shigute: ‘The corona virus has proven to be a conundrum that even the most economically powerful nations were not able to control. The virus itself does not discriminate between rich and poor people or nations. However, marginalized groups, including migrants, continue to bear its plight. They face intersecting layers of struggle based on various factors including gender, marital status, education, language, employment, and duration of stay in the country.’

Syed Mansoob Murshed: ‘The COVID-19 pandemic’s initial impact on inequality was negative. However, there are signs that the world’s inequality tolerance may be diminishing. Secondly, the labour supply surge – engendered when China and the former Eastern bloc embraced capitalism – is now also ending. That may be good news for workers and the poor in developing countries but has to be counterbalanced with the bad news about trade disruptions and rising energy prices.’

Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

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COVID-19: the disease of inequality, not of globalization

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Binyam Afewerk Demena is one of the authors of several chapters of the recently published book ‘COVID-19 and International Development’. In this blog, he and his colleagues elaborate on their contributions to this book. We welcome you to join us for the book launch on March 17 (3:30-5:00 CET) at Pakhuis de Zwijger. Registration is now open.

The COVID-19 outbreak has posed a threat to both lives and livelihood. Because of the strong and interdependent global production value and linkages, coupled with the closure of international borders, businesses, and factories, the economic expectations and forecasts in the early months of the pandemic were generally pessimistic.

The prospect of the world plunging into another major and long-term economic recession comparable to the Great Depression in 1930s and the Great Recession of 2008/9 was on the minds of many economists, governments, international organizations, and citizens worldwide. The attacks on supranational governance and international cooperation were a symptom of an underlying disease – inequality – that has been illuminated by the pandemic. The de-globalization process was driven by increasing inequality, and a dreary lack of trickle-down of the benefits of internationalization.

COVID-19 and globalization

Globalization is a multifaceted concept that describes the process of creating networks of connections among actors at intra- or multi-continental distances. This emphasizes that globalization captures the increased interdependence of national economies, and the trend towards greater integration of different varieties of flows such as information, goods, labour, and capital.

More recently, however, there has been growing discontent and increase in negative sentiments about the impact of globalization. These negative sentiments have manifested in different ways, including through the election of the former U.S. President Donald Trump in 2016, Brexit, and criticism of the World Trade Organization. For instance, Afesorgbor and Beaulieu (2021) argue that the Trump presidency strained diplomatic relationships with close allies, and undermined the rule-based global system, creating uncertainty for the global economic system.

These occurrences constitute a major setback to the pace of globalization, and have set the stage for growing protectionism and nationalism around the world. As van Bergeijk (2019) highlighted, these actors were political. More recently, the principal actor was a virus. The outbreak of the COVID-19 pandemic introduced new health threats to globalization (see van Bergeijk, 2021 for details), emanating from the health risk posed by the contagious nature of COVID-19. In a sense, the pandemic clearly reflects globalization — the virus went global in a few weeks’ time due to the high level of globalization and interconnectedness. COVID-19, however, also relates to de-globalization — the breakdown of international co-operation, and the re-emergence of zero-sum thinking and raw beggar-thy-neighbour polices on the markets for medical productive gear, medical machinery, and vaccines.

We* set out to explore the impact of COVID-19 on the global economic system by looking at three components of globalization: economic, social, and political globalization. The pandemic and the economic policy response to the crisis have impacted these three aspects to different degrees.

  1. Economic globalization

Economic globalization has been conceptualized by means of flows of goods, services, capital, and information in connection to long distance market transactions. Although the pandemic is global, regions and countries have experienced differential effects on various indicators of the economic dimension of globalization. For instance, merchandise trade contracted for the global economy, but the rate of decline was more pronounced in advanced economies  compared to in developing and emerging economies. Moreover, not only were trade flows hit, but the impact of COVID-19 on foreign direct investment (FDI) was also immediate, as global FDI flows declined by nearly half in 2020.

  1. Social globalization

COVID-19 was also impactful, in particular, on social globalization, an aspect which involves interaction with foreign nationals through events such as migration, or actions such as international phone calls and international remittances paid or received by citizens.

Linking COVID-19 to social globalization is important since the former reduced interpersonal globalization, as many countries imposed travel restriction on both residents and foreign travellers. Border closures hindered temporary migration, especially tourists’ and foreign students’ movements in and out of countries. Migrant remittances were also affected, not because of any formal restrictions on remittances, but mainly because of a negative labour market shock on immigrant employment. Demena et al. (2022) found that the pandemic, overall, negatively affected various labour market outcomes. The impact has been most pronounced, in particular, in developed countries, reducing the number of remittances that could be repatriated to developing countries.

  1. Political globalization

Political globalization captures the ability of countries to engage in international political co-operation, as well as the diffusion or implementation of government policies.

The initial outbreak of the COVID-19 pandemic negatively affected international co-operation, mainly because of the blame game between the two largest economies in the world, the US and China. Although global co-operation to fight the virus did not begin immediately with the outbreak of COVID-19, there were many efforts later by different countries to co-operate in fighting the pandemic. China, for example, supported countries like Italy, which became the epicentre of the COVID-19 pandemic in Europe in April 2020. Politically, the outbreak of the coronavirus could, therefore, be used as a building block in the future to reinforce international co-operation and strengthen the pillars of political globalization.

Optimistic outlook for the global economy

There are, in fact, reasons to be optimistic about the COVID-19 economic recovery, as well as about the future of globalization. The main reason for optimism is the noteworthy resilience of world merchandise trade and investment during previous global crises. Multinational enterprises have already had their stress test during the 2008 – 2009 collapse of world trade. That collapse kick-started the process of de-globalization. However, global merchandise trade and industrial production recovered to previous peaks quickly, and this recovery has occurred even quicker during the COVID-19 crisis.

This is the big and fundamental difference with the Great Depression of the 1930s, and it may be related to the fact that world trade is governed and supported by the multilateral trading system. The shock of the pandemic was sharp and immediate, but so has been the recovery. The so-called invisible flows (FDI, remittances, tourism, official development cooperation) have been hit harder compared to the two major historical economic crises during the Great Recession and the Great Depression, and a full recovery of these invisible flows is not to be expected before vaccination is ‘sufficiently global’ in scope. Yet, the expectation of a speedy recovery is realistic at the time of writing. For instance, global FDI has shown full recovery in the last quarter of 2021, although recovery has been highly uneven regionally, and was concentrated in developed economies. Recovery efforts, therefore, took hold early, compared to the two major historical episodes of economic crises. This suggests stronger resilience of the global economic system than anticipated.

The disease of inequality

The prediction and reports of the expected “death” of globalization, however, were, with hindsight, grossly exaggerated. Yet, the pandemic has taught us that inequalities are the breeding ground for the spread of disease and the suffering that follows. Reducing epidemic vulnerabilities, therefore, requires tackling those inequalities. The fight against next potential pandemics, however, implies that we cannot limit ourselves to domestic developments only. Inequalities around the world – within and between countries – provide the breeding grounds and disease pools from which new variants, viruses, and other contagious diseases emerge. Adhering to the United Nations Sustainable Development Goals (SDGs) is a high-return investment project, in particular SDG 10 (reduced inequalities). A recent study by Fantu et al. (2022) pointed out that the COVID-19 pandemic exacerbates the inequalities between migrants (in particular Eritrean and Ethiopian migrants) and ordinary citizens in the Netherlands. Likewise, Murshed (2022) highlighted that the COVID-19 pandemic is likely to accelerate the various forms of inequality.

And last but not least, the outlook for openness of the world economy is still much better than in the 1930s. Yes, de-globalization exists. Yes, overall globalization will probably be lower for the foreseeable future. Our societies will, however, remain much more open than at the start of the globalization wave in 1990. We are now connected via the internet with an intensity that has never been observed before in history. Even though the push towards de-globalization certainly still exists, economies are now digitally connected in ways they have never been before.

Conclusions and recommendations

In conclusion, the eradication of the spread of the virus will require international co-operation, and a global effort to make sure that no single country is left behind. A pool will be forged to prevent new variants and potential future outbreaks. Vaccines must be made available to all countries and must be affordable, something that has been reiterated by the promise of the leaders of the G7 nations as a ‘big step towards vaccinating the world’ – to supply one billion doses of vaccine to poorer nations. A global initiative recently called for urgent further funding to supply a minimum of 600 million additional doses.  Just as globalization has ramifications for all countries, the health of different nations is intertwined. The health of one nation affects the health of the other, as the pandemic has demonstrated. The implication, therefore, is that fighting a pandemic requires us to tackle inequalities, as the latter determine pandemic vulnerability to a large extent. Moreover, it requires a global approach to ensure equality for all the world’s citizens.

References:

*Afesorgbor, S.K., van Bergeijk, P. and Demena, B.A., 2022. COVID-19 and the Threat to Globalization: An optimistic note. In E. Papyrakis (Ed.) Covid-19 and International Development, Springer.

Demena, B.A., Floridi, A. and Wagner, N., 2022. The short-term impact of COVID-19 on labour market outcomes: Comparative systematic evidence. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.

Fantu, B., Haile, G., Tekle, Y.L., Sathi, S., Demen, B.A., and Shigute, Z., 2022. Experiences of Eritrean and Ethiopian Migrants during COVID-19 in the Netherlands. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.

Murshed, S.M., 2022. Consequences of the Covid-19 pandemic for economic inequality. In E. Papyrakis (Ed.), Covid-19 and International Development, Springer.

van Bergeijk, P.A.G., 2021. Pandemic Economics, Edward Elgar: Cheltenham.

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Opinions expressed in Bliss posts reflect solely the views of the author of the post in question.

About the contributors:

Binyam Afewerk Demena: International Institute of Social Studies, Erasmus University

Peter A.G. van Bergeijk: International Institute of Social Studies, Erasmus University

Sylvanus Kwaku Afesorgbor: Agri-Food Trade and Policy, University of Guelph

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Human development and responsible guardianship of our planet must go hand in hand

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The recently published UNDP Human Development Report shows that we’ve come a long way in recognising the damage we’re doing to the planet and how intricately connected natural resource use and poverty are. The COVID-19 pandemic has exacerbated inequalities and poor living conditions, making it clear that we don’t have time to waste in addressing the double challenge of environmental and social injustice. We now have an opportunity to change things for the better – if only we seize this opportunity together, writes Kitty van der Heijden, Director-General for International Cooperation at the Dutch Ministry of Foreign Affairs.

United Nations Development Programme (2020) ‘Human Development Report 2020. The next frontier. Human Development and the Anthropocene’. United Nations Development Programme. Available at: http://hdr.undp.org/sites/default/files/hdr_2020_overview_english.pdf.

We are ruining the planet. This is the simple, yet scary message that the latest edition of the Human Development Report conveys. The 2020 UNDP Human Development Report titled ‘‘The Next Frontier” was launched in the Netherlands on 12 February 2021 through an online event organised by the Dutch Ministry of Foreign Affairs, the United Nations Development Programme (UNDP) and SDG Nederland.

During this event, in my keynote speech I stressed that we are in fact destroying the natural resources on which we depend – be it water, soil or a stable climate. We are entering the sixth mass extinction of species. We are using the atmosphere of this planet as the global sewer for greenhouse gases. And in a period of about 150 years, without intending to do so, we as humankind managed to change the properties of an entire planet’s atmosphere. That is quite an accomplishment for a bunch of fur-free apes.

In so doing, we are not only ruining our own future here in the Netherlands, but more importantly, we are losing the prospect of a life in dignity for the many poor and vulnerable communities worldwide that we have promised a better future. They are least responsible, and least capable of dealing with the impact, and yet this is where we are.

Over the past year, the COVID-19 crisis exacerbated multidimensional inequalities within and between countries that existed prior to the pandemic. But what the report truly shows is that inequalities and environmental degradation are not separate issues. We cannot eradicate poverty if we do not at the same time address the accelerating degradation of natural resources on which we all depend, but poor people even more so. Natural resources like forests, freshwater and fertile soils are often called ‘the only wealth poor people have’. They are essential for their survival.

Yet it is in no small part our production and consumption patterns, particularly from developed economies, that degrade and destroy such resources. Protecting the environment and combatting climate change is not a luxury. It’s not icing on the human development cake. Environmental degradation and poverty are inextricably linked. They are two sides of the same coin and they exacerbate each other. Together they are a truly toxic combination. If we do not change the way we use our planet, we will never be able to reach the Sustainable Development Goals (SDGs). And meeting these is essential for just, equitable and sustainable development that leaves no-one behind.

When you look at climate statistics, you might feel like pulling a duvet over your head and going back to sleep. Nevertheless, I am still optimistic. There is hope, and I will tell you why:

  1. What is evident now was not so evident ten years ago

In 2012, I was involved in the Rio+20 United Nations Conference on Sustainable Development. Around that time, the link between environmental degradation and poverty eradication was not recognised. Development experts considered the environment a separate realm. ‘Real’ development – to them – was working on health, education and malnutrition. Countries from the Global South thought that anything ‘green’ was an aid conditionality or a luxury – something you would do after development projects were completed. The environment was seen as a Western agenda.

In less than ten years, a broader understanding has developed that you cannot achieve human development without looking at durable usage of a country’s natural resources. This paradigm shift in thinking happened in a very short time span, which gives me hope for the future.

  1. We are starting to take universality seriously

Development used to be seen as a foreign policy objective, as something you ‘do and deliver elsewhere’. We have come to realise that with global challenges such as water shortages, climate change or soil erosion, none of these challenges can be dealt with through development cooperation alone. In a globally connected world, we are linked through supply chains and terrorism, through climate change and communicable diseases, through the Internet and information systems and through migration and global media. We thus need a whole-of-government approach, because our global environmental footprint impacts people well beyond our borders, our trade policies may impede or enhance people’s ability to achieve a life of dignity, etcetera. And even more so, we need a whole-of-society approach. This means including the private sector, science communities, civil society organisations, and so on, in a holistic effort to bring about global sustainable development.

Solving these issues will require looking at our policies through the lens of policy coherence for sustainable development. Our actions here in the Netherlands as part of the Global North have an impact elsewhere. This realisation will hopefully speed up and accelerate an integrated pathway towards global sustainable development.

All proposals for law in the Netherlands are subject to an SDG test. But research shows that all developed countries can still do (much) better in achieving policy coherence.

  1. The COVID-19 crisis offers an opportunity for change

The COVID-19 pandemic has set back human development tremendously. Decades of progress have been undone by the lockdowns globally, but especially in developing economies where shock resilience is low. Job losses, especially in the informal sector, have led to a steep increase in (extreme) poverty and malnutrition. Children are unable to go to school, and digital education is still a dream for too many. Too many girls will lose the opportunity to proper schooling – as they are married off early or fall in the hands of sex traffickers. Gender-based violence is on the increase. And it’s important to realise that this crisis in fact originated in environmental degradation, zoonotic diseases and rapid biodiversity loss.

Still … it may also be the best opportunity we ever had to address the planetary (or climate/environmental) crisis. Never before in the history of mankind has the public sector globally poured in this much money in relief and recovery programs to combat the impact of COVID-19. Never ‘waste a good crisis’, the old adage goes. If we use these resources well, we can keep global warming within the 1.5˚C limit (compared to pre-industrial levels), as well as the SDGs within reach.

The alternative is simply too horrifying to contemplate. If we do it wrong – if we return to the old, wasteful and polluting economy – the planet and mankind will suffer the consequences. Not just for the next 10 years, but possibly for the next 10,000 years.

Thus, the message of the Human Development Report that we must act now to combat both poverty and environmental degradation is crucial to keep the dream of a life in dignity for all humankind alive. The realisation of that dream depends on all of us.

Opinions do not necessarily reflect the views of the ISS or members of the Bliss team.

About the authors:

Ms. Kitty van der Heijden is Director General for International Cooperation at the Ministry of Foreign Affairs. Her responsibilities include development cooperation policy, implementation and funding. Central themes are gender, sustainable economic development, and climate policies.

Between 2014 and 2019, Ms. Van der Heijden has served as Vice President and Director Africa and Europe at the World Resources Institute in Washington. She served as the Dutch Ambassador for Sustainable Development from 2010 until 2013 and as Ambassador for the Millennium Development Goals in 2009. Before that she held several other policy and managerial positions at both the United Nations and Dutch Ministry of Foreign Affairs.

Other positions Ms. van der Heijden has served in include a position as non-executive member of the board at Unilever NL (2014-2019), and Advisory Board positions at ‘Pathways to Sustainability’ at Utrecht University (2018-2019), the Global Commission on Business and SDGS (2016-2017), SIM4NEXUS (2015-2019) and Global ‘Planetary Security’ Conference (2015-2018). She was awarded the Viet Nam Presidential Medal of Friendship in 2009 and the Dutch National ‘Green Ribbon’ of Honor in 2013.

Ms. Van der Heijden (56) holds an MSc degree in Economics from the Erasmus University Rotterdam. She enjoys family time, nature walks and kick-boxing.

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Micky Mouse economics: how trade theory fails but policy still sells its fairytale benefits by Irene van Staveren

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Income inequality is rising globally. Trade has not delivered on its promises. Statistics and econometric analyses begin to show this failure in the global south as well as in the global north. However, IMF economists and the Trump administration stick to the usual policies of ‘workers, just get more education’ and ‘tax cuts for the rich are good for workers’. These policies are inconsistent with the evidence of increasing inequality. When even some filthy rich Americans see this and oppose their own tax cuts, it’s time that IMF economists begin to give consistent policy advice too—to the benefit of workers worldwide.

 

Worldwide, economic inequality is on the rise—both in incomes and in wealth. See, for example, the first World Inequality Report, published in December 2017. The problem occurs within developing as well as developed countries. And it occurs at a global scale: the world’s richest households get richer at a much faster rate than the global poor, while globally, middle class incomes are stagnating. The only decline in inequality we see is between developing countries as a group and developed countries as a group. But those are just country-level statistics not reflected in the everyday reality of people.

A related problem is the decreasing share of wages in national income. Again, this trend occurs in both developing and developed nations. In other words, the labour share in national income declines and the capital share in national income increases, with China being among the countries showing the strongest trend of this rising factor income inequality.

A logical question, then, is whether this trend is indeed problematic, or perhaps is inevitable for economic growth. If the rich would be more productive than the poor, thereby contributing more to economic development, as neoliberal policy-makers believe and would have us believe, rising inequality is perhaps the price to pay if we want economies to grow out of poverty. According to the dominant economic theory, the answer to the question is yes: let the rich be free to make money because by doing so, they stimulate the economy, create jobs, and let employees benefit too.

This is exactly what Donald Trump promises with his tax cut policy for the rich and large firms. The hardworking American would see his annual wages rise by a few thousand dollars if his boss’ tax bill is cut. So, when Scrooge McDuck gets richer, all inhabitants of Duckburg benefit, according to neoclassical economic theory.

The trickle-down effect: A fantasy

But institutional economists know, since Thorstein Veblen published his Theory of the Leisure Class in 1899, that such a trickle-down effect is a fantasy. The rich protect their vested interests and manage to change the institutional environment in such a way that they benefit as much as possible. Today’s statistics prove him right. The globalised economy of today, in which low-skilled jobs move around following the location choices of capital, and medium-skilled jobs get replaced by machines, the production factor labour is on the losing end everywhere.

To my surprise, this view suddenly receives support from researchers at the IMF in a working paper and in other IMF publications. They state that investment in the world’s stock of capital has become cheaper over time due to technological development. And, of course, the low interest rate in the developed world has helped too. As a consequence, more and more labour is being replaced by relatively cheap machines and software. Hence, however hard an employee or subcontractor works to add even more to the increasing labour productivity, it does not pay out in a higher wage or fee. Moreover, newly created jobs tend to be increasingly flexible jobs—a euphemism for insecure as well as low paid jobs.

This lack of power of labour over total income generated in the economy affects workers worldwide. In China, for example, wage growth is under pressure because the export products are not sold in a competitive world market to the highest bidder. Rather, the entire production process is contracted by oligopolistic multinationals controlling global value chains.

This means that just a few big companies control a whole sector, ranging from food to electronics and from personal care products to sports brands. They pay very low prices for the goods produced in local Chinese-run factories thanks to the threat to end the contract with the factory and move to another factory that keeps wage demands better in control. So, when a few big multinationals outsource their production through global value chains, local contractors, factories, sweatshops and workers are on the losing end.

So, the IMF has in fact admitted that technological development and globalisation disadvantages workers in both the developed and the developing world. This is nothing new for labour economists and development economists, but it is interesting to see this assessment coming from a mainstream and influential development institution.

Interestingly, this view goes against the dominant trade theory which has found strong support in the IMF. This theory predicts that trade is beneficial for low-skilled workers in developing countries—not only in terms of numbers of jobs but also through rising wages. The same theory also predicts that although low-skilled workers would lose jobs in developed economies, the middle class, relying on medium-skilled labour, would benefit.

Well, the disappointment expressed in populist votes by these middle class workers in the US, Europe and other western countries shows that also that prediction has not come true. The only benefit of trade for them is lower consumer prices of imported products—but what is the benefit of cheaper consumer goods if you don’t have sufficient income to buy them?

Of course wages in China have risen enormously over the past two decades. But China’s capital income has risen faster, alongside the capital earnings of shareholders of multinationals who are largely located in the developed world.

So, what was the policy advice that the IMF report came up with? What was the conclusion of the IMF in the face of evidence provided by their in-house researchers promoting this dominant theory that trade and elite development would simultaneously benefit workers and the poor? Amazingly (or not), the IMF’s report’s main conclusion was that workers worldwide should keep on investing in their education. As if one had advised the passengers of the Titanic to move up a deck to stay safe.

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What surprises me most is that it has apparently not occurred to the IMF economists that there is a gap between their recommendation and the findings from their own study. I almost feel sorry for those poor IMF researchers. How attached the IMF economists are to out-dated theories. When will they open their eyes for the benefits of shifting taxation from labour income to capital earnings? Or to the disadvantages of free trade of goods and free capital flows when at the same time labour migration is severely restricted?

Perhaps they should watch the short YouTube video by a Disney heiress, Abigail Disney, who informs us about the immoral and ineffective tax cuts for the rich in the US. She states how appalled she is that her already relatively low tax bill is cut even further. She is convinced that this will not help middle class Americans in any way, let alone those with low incomes without access to affordable healthcare. In conclusion, if such rich individuals in the entertainment industry can relinquish their Scrooge McDuck personas to see through the rhetoric, IMF economists should do so too.

Picture credit: Fibonacci Blue. Photo has been edited by cropping and applying a filter.

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Irene van Staveren is Professor of Pluralist Development Economics at the ISS. Professor Van Staveren’s field of research included feminist economics, heterodox economics, pluralist economics and social economics. Specifically, her field of expertises lie in ethics and economic philosophy.

Inclusiveness and the SDGs: Can income inequality be reduced? by Rolph van der Hoeven and Peter van Bergeijk

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About the authors: 

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Rolph van der Hoeven is Emeritus Professor of Employment and Development Economics at the ISS. He is also member of the Committee on Development Cooperation of the Dutch Government and of several other Dutch development organizations. Earlier he was Director Policy Coherence and Manager of the Technical Secretariat of the World Commission on the Social Dimension of Globalization at ILO Geneva. Other positions included Chief Economist of UNICEF in New York and policy analyst for the ILO in Ethiopia and Zambia. His work concentrates on issues of employment, inequality and globalization.

pag van bergeijk

 

Peter van Bergeijk (www.petervanbergeijk.org) is Professor of International Economics and Macroeconomics at the ISS and co-editor (with Rolph van der Hoeven) of The Financial Crisis and Developing Countries: A Global Multidisciplinary Perspective.

 

 

Our recently published edited volume Sustainable Development Goals and Income Inequality1 can be considered a milestone for the ISS research agenda of Global Development and Social Justice, illustrating how social impact and academic rigour can go hand in hand. Contributors to this volume argue that the economic debate in the policy institutions and leading development studies institutions should definitely be informed by but not exclusively based on current statistics of GDP and other economic phenomena. A broader set of indicators including alternative measures of development such as the Human Development Index and greening economic progress is available to inform this debate2.

 

Toward inclusive development

Income inequality remains an important and highly relevant subject, as illustrated by the findings of the recently published World Inequality Report 20183, which shows that income inequality has increased globally and in nearly all world regions in recent decades, and highlights the important roles of governments in mitigating inequality. The United Nations Millennium Development Goals (MDGs), one of the major instruments of global governance and development in the period 2000 to 2015, did not consider inequality at all. Indeed, this was a great omission in an era of increasing inequality.

SDG10NewIcon-1
Source: United Nations

While the Sustainable Development Goals (SDGs) as successors to the MDGs contain a goal to reduce inequality (Goal 10), the target related to this goal is insufficient, as it relates only to progress at the very bottom of the income distribution scale4. As a consequence, the SDGs do not pay sufficient attention to income inequality, because there is no sensible indicator to attest the growing importance of the growing cleavages between income of work, income of capital, the income of the extremely wealthy (the top 1% of the population in terms of income), and the average income level of the population.

This gap manifests itself in a much more visible form in emerging and in developed countries. Yet it is important to give attention to the behaviour of the rich, as ignoring their ascendency through ever-increasing wealth to the very top of the income pyramid will put the social fabric under strain, as is already evident in some Latin American, Asian and African developing countries, as well as in many developed countries. This is thus a highly significant weakness of the SDGs, because inequality in the end co-determines success and failure on many, if not most, of the SDG targets. The new publication Sustainable Development Goals and Income Inequality provides an in-depth analysis of the link between SDGs and measuring income inequality informed by different development studies perspectives (policy-making, econometric analyses, and discourses) and covers global trends with particular attention for Africa, Asia and Latin America. The focus is on the international community and its role in making development more inclusive.

The SDGs: Critiques and commentary

9781788110273
Source: Edward Elgar Publishing

In the volume, a number of authors provide interesting discussions of the SDGs and income inequality. Richard Jolly analyses the SDGs from the perspective of five fundamental objectives – universalism, sustainability, human development, inequality and human rights – linking these objectives to teaching and research in the field of development studies. Jan Vandemoortele provides a critical reflection on the SDGs. He points out the strengths of the SDGs in getting the message across to the public at large and is positive about the consultation process informing the development and selection of SDGs. However, Vandemoortele is critical about the inclusiveness of the SDGs, particularly due to their formulation in absolute numbers that reduces their universality and inclusiveness. Rob Vos focuses on financing the transformation process required to achieve the SDGs. Trillions of dollars are needed, he argues, as well as new modes of finance. Clearly this cannot be achieved with traditional instruments such as Official Development Assistance. However, it seems possible to leverage the large amounts of international reserves, which have great potential.

Rethinking income inequality measures

The issue of inequality on the other hand requires both a discussion of measurement (within countries and between countries) and of developments for specific regions and country groupings. Andy Sumner points out that the World Bank’s new poverty line and accompanying narrative on the successes of reduced poverty misses the point. He argues that income levels below US$10 per head do not provide sufficient certainty against a fall back into poverty. Furthermore, scenarios for future numbers and the location of the global poor point to many problems and uncertainties. Andrea Cornia, by focusing on developments in Latin America and using a political economy perspective, challenges the idea that recession by definition increases inequality. Tony Addison critically reflects on the African experience where structural reform did lead to increased growth, albeit such grown was unequal. He points out the futility of quick ideological answers to the continent’s problems related to inclusive development. Malte Luebker, citing experiences in Asia, argues that focussing only on employment and productivity results in growing functional income inequality and that strong labour institutions are needed to counter this trend. Focusing on the Next-14 (the top-14 non OECD countries, including the BRICS countries), Deepak Nayyar formulates two interlinked hypotheses that sum up one of the main threads of the book: Economic growth (catch-up) is essential to reduce inequality, but, at the same time, such growth will be unsustainable lest inequality is reduced.

Piecing together the puzzle

The volume  does not provide a panacea to tackle all of the income inequality problems that increasingly emerge, but brings together the pieces of a coherent puzzle. Importantly, the contributors propose innovative ideas that may strengthen the SDG approach. These ideas comprise of proposed new and better measures of inequality, new evidence-based policies, demand measures stretching beyond the design of some of the vaguely formulated goals and targets, and the active involvement of civil society in order to call governments in the Global North and Global South, as well as in the UN system, to task on growing national and international income inequalities. Indeed, (thus strengthened) SDGs could form the basis of a global social contract for an effective development partnership.

Elements of such a global social contract should include, firstly, the right to development, especially the economic, social and cultural rights and the basic elements thereof in the form of non-discrimination, participation and accountability. Secondly, the contract should include the introduction of a global social floor, which is financially possible, provided that the international financial system is reformed. Importantly, SDGs offer an opportunity to strengthen the coherence, at the national and international level, between social, economic and environmentally sustainable policies.

1The book is based on a seminar series on new modes of development cooperation that the authors co-hosted with INCLUDE, the knowledge platform on inclusive development policies of the Netherlands Ministry of Foreign Affairs (http://includeplatform.net/)
2In the use of any such measures, special attention should be paid to the bottom 40 per cent of the population in relation to the top 10 per cent of the population (the so-called Palma ratio).
3World Inequality Report 2018 (http://wir2018.wid.world/)
 4SDG 10: Reduced Inequalities focuses on reducing inequalities ‘within and among countries’, primarily  through poverty reduction (http://www.un.org/sustainabledevelopment/inequality/)