UNU-WIDER Inequality Conference 2014
Country Comparisons and Conceptual Approaches
18 December 2014
In an earlier article I reviewed a number of the high-profile contributions to the September 2014 conference on inequality. It is now time to dig deeper into the material presented at the event. This article features a few of the country case studies and methodological approaches.
Declining inequality in Latin America
The Latin American story on income inequality was presented by Giovanni Andrea Cornia (2.1) whose book summarizing a major UNU-WIDER research project on this issue was recently published. His presentation showed a significant decrease in income inequality measured in Latin America since the turn of the millennium. This is as a result of new, more egalitarian policy approaches in many countries of the region, following on from the 1980s (the Washington Consensus and the ‘Lost Decade’) and the 1990s (the ‘Augmented Washington Consensus’). He argues that the decline in inequality is structural rather than cyclical, since in countries where there is data available we can see that the decline continued during the 2008-12 period of financial turbulence.
On average the fall in inequality has accounted for about 40% of the decline in poverty which has taken place, with growth accounting for about 60% (with significant variation among the countries).
Among the data presented some points stand out. The return to democratic politics and dissatisfaction with the result of Washington Consensus policies of previous decades favoured social democratic and left-wing governments with a more redistributive agenda, although right-wing governments in the region also introduced some social democratic policies. The impact of better education opportunities and fiscal policies (taxation, transfers in cash-and-kind) also deserve mention. Cornia concluded with comments on the challenges to be faced if efforts to reduce inequality still further are to be pursued. These depend on avoiding the temptations of populism and maintaining prudent macroeconomic policy, which requires further efforts to strengthen tax collection particularly in countries with low levels of tax revenue generation.
National analysis and comparisons: South Africa and Brazil
The conference provided considerable material for comparing South Africa and Brazil. Leibbrandt (2.2) presented a careful study on the effects of decreasing schooling inequality on general income inequality in Brazil and South Africa. Declining schooling inequality in South Africa did not lead to greater earning equality, largely because of the high levels of return for those with much longer education in South Africa. This differed from the Brazilian trend.
Greenstein’s (2.2) South Africa–Brazil comparative paper argued that redistribution on its own would not be sufficient to achieve substantial reductions in inequality if the pattern of structural change did not lead to inclusive growth with wider opportunities for employment. In South Africa structural transformation has proven difficult with agricultural employment declining to less than 10%, but also with manufacturing employment declining from over 20% in 1995 to less than 15% today. In Brazil, a higher level of education does not command as high an income premium as formerly (Lustig et al. 2011). More integration of urban and non-urban labour markets, and more and better targeted transfer schemes, also contribute to greater equality. In both countries poverty reduction has taken place through ‘raising the floor’ for the poorest groups rather than due to growth. Transfers to the poorest seem to be easier to organize than restructuring of the labour market for sustainable and more egalitarian job creation.
These studies were augmented by others focussing on South Africa. The paper by Kerr et al. (3.2) showed the complexities of designing and implementing the affirmative action admissions policy at the University of Cape Town. Kreuser and Burger (3.2) looked at spending decisions within households. They reject a unitary model for household spending decisions because of the different preferences for expenditure between men and women, with men favouring consumption of alcohol and tobacco, followed by food and entertainment, whereas women favour communication, clothing, personal care and medical care. Rossouw (3.2) examined under-reporting of sickness and not accessing healthcare in spite of illness in poorer South African sectors of the population. In spite of pro-poor healthcare spending since 1994, the quality of public healthcare remains inadequate. International comparisons suggest that vulnerable groups tend to under-report health problems, partly because the economic consequences of being ill (for example, through job loss) are so severe. People often pay for private healthcare because of long waiting times and poor-quality public services. The paper contributes to understanding that levels of wellbeing are more nuanced and complex than income measures of poverty.
Methodological approaches: Palma versus Gini
The conference also featured papers of a more general methodological nature. Krozer (1.2) looked at international data on inequality and asked what the desirable level of inequality was. The extreme levels of inequality at the top end of the distribution are unlikely to be in the best interests of the majority of the population. She proposes agreement on a threshold which is socially determined as being ‘too much’ and policy tailored to address this inequality drawing on indicators derived from the work of Palma. In shorthand terms, this is a contribution to the Palma vs. Gini debate (with a preference in this instance for Palma). The Palma measure of income concentration compares the top 10% with the bottom 40%.
Foster (3.3) presented the case for multidimensional measures of poverty in a paper co-authored with Alkire. The presentation illustrated applications and developments of their Alkire–Foster methodology (2011) which centres conceptually on the insight that a person is poor if they are multiply deprived—suffering shortfalls in significant dimensions which are necessary to human survival or, beyond that, basic wellbeing.
He argued that these refinements are applicable when variables cannot meaningfully be aggregated—for example access to adequate sanitation and years of schooling, and other disaggregated variables can be valuable as guides to policy (e.g., division of household income into food and non-food consumption). Developing the framework of Sen (1976), Foster distinguishes between two steps: identification, which addresses the question ‘who is poor?’, and aggregation which asks ‘how much poverty is there?’. Each requires a different policy response. The paper concludes that there is real policy value in being able to see the dimensional composition of poverty and compare it across social groups and analyse changes through time in order to tailor policy to priorities. This approach can be augmented by further analyses of inequality within and across subgroups of the poor.
The paper presented by Seth (1.3) which was also co-authored by Alkire provides a methodology for quantifying the number of people who are destitute—i.e., they have an inability to meet subsistence needs. The authors also show how this more detailed account of deprivation relates to extreme poverty (US$1.25 per day). The detailed calculation of the separate dimensions of the multidimensional poverty index (MPI)—under which someone is defined as poor if they are deprived in more than one-third of the weighted indicators—provides policy-relevant data with greater precision (provided, of course, that the indicators are accepted as determinative and measurement is accurate). Destitution measures are established by intensifying the MPI poverty criteria still further to define cut-offs. Data is now available for 49 countries containing 2.8 billion people. These contain 1.2 billion MPI poor, half of whom are destitute according to these criteria. Ninety-seven per cent of the destitute live in sub-Saharan Africa and South Asia and over half of these live in India.
My two articles on the conference should leave the reader with the clear understanding that this is a rich and multifaceted issue—there is more to inequality than Piketty. You are encouraged to explore the conference website and to dig deeper into the material from this rich and varied conference.
Roger Williamson is a non-resident Senior Fellow at UNU-WIDER.