The fundamental human right to health cannot be achieved for a great portion of humanity unless the issue of equity is addressed

Jubilee Research

Theories claiming universal human rights assert that it is proper to accord equal dignity and respect to all people by virtue of their humanity. But this statement becomes meaningless unless we take proper action to limit the imbalance between advantaged and disadvantaged human beings. Grossly to exploit a person's relative weakness is not to treat her with respect; to watch her live, and often die, hungry, afraid, sick and oppressed is precisely to deny her human dignity.

All constitutions to some extent acknowledge this principle, and enshrine institutions designed to protect both political equality and equality before law. But although a reasonable level of economic equality is also a critical factor affecting human well-being, national legislation aimed at redressing imbalances of wealth is woefully inadequate in many modern societies. Moreover, although our increasing whole-globe awareness should give such measures a strong international dimension, this has proved to be far from the case. Instead, our "winner-takes-all" global economic system, geared as it is to protecting the assets of the rich, has shown itself inherently opposed to redistributive policies. Government regulations limiting private or national accumulation of wealth are regarded as unwelcome intrusions on personal and economic liberty, and have come under persistent under attack since the start of the 1980s. As a result, economic inequality has now reached obscene proportions, with the most recent available estimates showing that the income of the world's richest 5 per cent is now 114 times that of the poorest 5 per cent.[1]  

Meanwhile, it has become unmistakably plain that economic "trickle-down" theories have proved ineffective, and that the neoliberal poverty reduction policies advocated by the Western International Financial Institutions (IFIs) are failing the world's poor. As the United Nations Development Program's new Human Development Report for 2003 points out, the 1990s was a "decade of despair" for many developing nations, with 54 countries becoming even poorer than before. In many of these, improving indices have been shockingly reversed: life expectancy has fallen in 34 nations; in 21 the Human Development Index[2] has declined, and a larger proportion of people suffer from hunger; in 14 more children are dying before the age of 5; and in 12 primary school enrolment has decreased.

As a result, progress towards the Millennium Development Goals,[3] so proudly flagged up at the turn of the century, has virtually stalled. If one discounts the steady progress of India and China -- both countries that have refused to follow the dictates of the IFIs -- there is now no realistic prospect that any of the goals will be met by 2015. For some regions the prospects are truly appalling: at the current of global progress Sub-Saharan Africa will not reach the goals for poverty and child mortality until 2147 and 2165 respectively, and for HIV/AIDS and hunger, trends in the region are heading up -- not down.

What can be done to reverse this accelerating development crisis? As the UNDP says in its overview "addressing poverty requires understanding its causes" and since the world is overall becoming richer, there is no disputing that rising poverty must reflect increasing inequality in the distribution of its wealth. However, although the disparity between nations is glaringly obvious, and startling global comparisons are well documented (the income of the richest 10% of the US population, for instance, is now equal to that of the poorest 43% of the world [4]), much less attention has been paid to the destructive effects of rising inequality within nations, and still less to the cause of these increasing disparities.

Instead the old mantra of low growth rate is incessantly put forward as the sole cause of poverty, and the failure of poor country governments properly to pursue economic programs dictated by the International Financial Institutions (IFI's) is blamed for their lack of progress. Within this critique, civil and international conflict, corruption and the failure of the rule of law, environmental degradation and food insecurity, social dislocation, weak domestic institutions and high indebtedness, are all acknowledged as contributory factors -- although naturally, the Western-led deflationary "structural adjustment" policies that have contributed so heavily to many of these ills, are not deemed to be responsible for them.

Even laying the last contentious point aside, much is missing from this assessment. In the first place, growth alone does not guarantee poverty reduction: rather the connection between the two processes is very complex, and within-country distribution is a critical part of the equation. Moreover, the general trend towards equality that was present up to the 1950s and 1960s has been reversed during the last decades and within-country inequality is rising sharply (see Chart 1 below, taken from a study conducted by the World Institute for Development Economics Research (WIDER).[5] This research showed that from the 1960s to the end of the 1990s inequality has risen in 48 of the 73 countries for which sufficient "high quality" data is available on the World Income Inequality Database, and that several more have joined them in the last two to three years.

It is important to appreciate that rising inequality eventually sets up a vicious circle, because once inequality within an economy reaches a certain level it begins to exert a negative impact on growth. The point at which this occurs varies across countries, but productivity appears to be at its highest where the Gini coefficient[6] lies between 25 and 40. Over this point efficiency begins to fall, as work incentives for the poor decrease and social cohesion weakens. Typically this leads to the erosion of social capital and a rising crime rate, which not infrequently result in an escalation of corruption and social unrest that threatens business security and economic stability. In turn, this makes both domestic and foreign investment less attractive. Where wealth becomes highly concentrated, domestic demand is also adversely affected, because the less affluent spend a greater proportion of their income on consumption than do the rich.

In this context it is interesting to note that all of the 25 top-ranking countries in the 2003 HDI have a Gini coefficient of less than 40, except for the United States at 40.8. By comparison, 13 out of 19 of the 25 lowest-ranking countries, have coefficients of over 40 (the remaining 6 have no data available). The four countries at the bottom of the HDI scale, Mali, Burkina Faso, Niger, and Sierra Leone have coefficients of 50.5, 48.2, 50.5 and 62.9 respectively.

Of the 21 countries who saw a drop in their HDI index during the 1990s, 7 are in transition from the former Soviet bloc, where the number of people living in poverty jumped from 14 million in 1989 to 147 million in 1996. Here the increase in inequality has been universal, but due to low initial inequality, most coefficients still remain in the 30s (with the exception of Russia which now stands at 45.6). The remaining 14 are all in Africa; only two (Tanzania and Cote d’Ivoire) have coefficients of less than 40, and 10 are in excess of that figure (for 2, Congo and Democratic Republic of Congo, no figure is available).

Most crucially, it should be noted that higher levels of inequality are associated with lower rates of poverty reduction at any given rate of growth. Where high levels of inequality already exist, it is more difficult to translate increased growth into poverty reduction, and where distribution is deteriorating, little or no impact will be made (see.Table 1[7] below).

This negative relationship has profound implications for pro-poor policy making, and has certainly not been given the attention it deserves. To the contrary, the IFIs continue to advocate (or in the case of indebted economies, to dictate) macroeconomic stabilisation programmes designed to protect rich creditor assets. As is well known, these structural adjustment packages have typically focused on drastically cutting inflation and reducing the budget deficit, and on pressurising governments to privatise industrial assets and to liberalise their trade regulations and capital accounts.

All these objectives inevitably increase inequality in developing countries, especially where they have led, as they so often have done, to economic recession. Deflationary measures cause wages (particularly of unskilled workers) to fall much more quickly than profits, thus increasing the capital share of total income within the economy; and when recovery takes place, the wage share normally fails to regain its former level. Countries struggling to reduce their fiscal deficits frequently do so at the expense of pro-poor policies, further penalising the disadvantaged, while "stabilisation" policies usually entail a rise in interest rates, increasing the cost of servicing the public debt, and directing government revenues towards this end rather than towards social expenditure. In cases where this cost is partly met by an increase in taxation, the new policies are typically regressive, with indirect measures such as Value Added Tax (VAT) increasingly favoured by governments. Privatisation also results in very regressive asset redistribution, concentrating former state assets in the hands of powerful elites. Above all, financial liberalisation leaves economies open to speculative attack on their currencies in the financial markets. Where countries attempt to solve this problem through monetary policies involving a rise in interest rates, the cost of public debt-service again increases, while the holding of high dollar reserves ties up wealth that should more properly be spent on poverty reduction. On the occasions where these measures fail and full blown economic crises develop, the incidence of poverty soars.

Long-term entrenched inequality is often rooted in grossly skewed land distribution (in Brazil, for example, less than 3% of the population own two-thirds of the country's arable land) and in a pronounced imbalance between rural and urban living standards, including inadequate access to health, education and training facilities for the urban poor. These matters urgently need to be addressed, but although they can be seen as causes of inequality, they do not explain the sharply rising levels of inequality that have been experienced over the past two decades. Instead it has become clear that this trend has been largely driven by IFI policies emerging from an economic system predicated on borrowing and speculative investment, where the need to achieve ever increasing profits for asset holders is of paramount importance.

If we sincerely wish to reduce global poverty, these programs must be challenged and changed. Shock therapy tactics should be avoided, and time allowed for the development of domestic institutions and the provision of adequate safety nets to protect the disadvantaged. Where governments are laboring under unsustainable debt burdens, their position should be examined by an independent court and, where appropriate, all or part of the debt should be cancelled. This would reduce the need to maintain high primary fiscal surpluses in order to pay off rich creditors, and allow proactive fiscal policies to operate where they are most needed. More progressive tax systems should also be implemented and the current reliance on increasing indirect taxation discouraged. And in order to offset the damage caused by volatility in the financial markets, capital controls should be readily available to governments wishing to protect their currencies against speculative attack.

At the moment, extreme inequality between nations has risen to shocking proportions, and is widely documented and rightly condemned. But within-nation inequality is also detrimental to poverty reduction, and ultimately inhibits growth in developing nations. All pro-poor programs should recognize this critical relationship, and incorporate redistributive measures in the policies they recommend.

[1] United Nations Development Programme Human Development Report 2002

[2] The Human Development Index is a summary measure of three dimensions of human development – living a long and healthy life, being educated and having a decent standard of living. Until the late 80s it was rare for this index to fall, because the capabilities it records are not easily lost.

[3] The Millennium Development Goals are a set of eight goals with quantifiable targets designed to reduce poverty, hunger, illiteracy and preventable disease by 2015. (The first of these is to halve the number of people living on less than $1a day, and to halve those living in hunger). Most of the world's countries have pledged to support these goals, as have the IMF and the World Bank, but more assistance from the rich economies is desperately needed At the moment few countries are on track to meet the MDGs, and the findings of the 2003 Human Development Report suggest that Su-Saharan Africa may not do so for well over another century.

[4] Op Cit. HDR 2002

[5] World Institute for Development Economics Research (WIDER) Policy Brief No 4, Inequality, Growth and Poverty in the Era of Liberalization and Globalization, by Giovanni Andrea Cornia, and Julius Court, a report based on WIDER's research project Rising Income Inequality and Poverty reduction: are they compatible? Overall, I am much indebted to the WIDER project’s findings.

[6] The Gini index measures the extent to which the distribution of income among individuals or households within a country deviates from a perfectly equal distribution. On this scale a value of 0 represents perfect equality, and a value of 100 represents perfect inequality.

[7] Op Cit. WIDER Policy Briefing.