Just when the entire
world has started clamouring about the new book on inequality by
French economist Thomas Piketty, it becomes essential to mention a
UNDP report on the same subject that was released in early 2014.
Entitled: Humanity divided: Confronting inequality in Developing
Countries, the UNDP report claims that the richest one percent
of the world population owns about 40 percent of the world's assets,
while the bottom half owns no more than one percent. It warns that
inequality could shake the foundations of development, and social and domestic peace. Among other things, the social
impacts of inequality include unemployment, violence, crime,
humiliation, and deterioration of human capital and social exclusion,
informs the report. (Please see the links below).
The report has stated
that in populous countries like India and China, household income
inequality is rising. The Gini index of primary income distribution
in India rose from 33.0 in early 1990s to 35.7 in late 2000s.
Similarly, Gini index of secondary income distribution rose from 31.4
in early 1990s to 34.0 in late 2000s*. (Please see the table 1 below
for details).
Using the data provided
by Abhijit Banerjee and Thomas Piketty (2010) in a study, the UNDP
report tells that the richest 1 percent's income share witnessed a
rise between 1990 and 1999 in India (see box 3.2, page 86 of the
original report).
The role of Indian
government in promoting “faster, sustainable and more inclusive
growth” relying on decent employment during the 12th
Five Year Plan has been stated in the report. It is said that India
has started experimenting with small and medium enterprise (SMEs)
financing through central bank mechanisms along with special public
funds to stimulate and guarantee bank loans linked to their business
plans. Since land reforms are problematic, the report emphasizes on
improved access to infrastructure, including physical and social
infrastructure so as to improve agricultural productivity. The report
observes the positive impacts of Mahatma Gandhi National Rural
Employment Guarantee Act (MGNREGA) such as increasing rural wages,
reducing distress migration, improving infrastructure, reducing
unemployment and underemployment, encouraging agricultural
productivity and reducing malnutrition.
Discussing the merits and
demerits associated with various types of subsidies, the report says
that total expense on food subsidies in India constituted US$12.4
billion, or 1 percent of the GDP as compared to 3 percent directed to
education in 2009 (Jha et al., 2011). On gender equality, the report
informs that the reform of inheritance laws in India, which granted
women the right to inherit or own land or capital property through
amendments to the Hindu Succession Act, increased women’s land
inheritance, but also improved their control over economic resources
in the household and their intra-household bargaining power. Quotas
as part of affirmative action policies to promote the employment of
scheduled castes and tribes in the public sector is also discussed in
the report.
According to the UNDP
report, a significant majority of households in developing countries
– more than three-quarter of entire humanity – are living today
in societies where income is more unequally distributed than it was
in the 1990s. Although redistribution remains crucial to reducing
inequality, the report calls for a shift towards a more inclusive
pattern of growth, one that raises the incomes of poor and low-income
households faster than average in order to sustainably reduce
inequality, key to the post-2015 development agenda.
The report has identified
the main drivers of inequality, namely—a. Inadequately regulated
financial integration and trade liberalization processes, whose
benefits have been distributed very unequally across and within
countries; b. Domestic policy choices, such as interventions that
weakened labour market institutions or resulted in a downsizing of
public investments in critical sectors like health, education and
social protection; c. Various economic, social and cultural barriers
hindering the political participation of various segments of the
population; and d. Discriminatory attitudes and policies that are
marginalizing people on the basis of gender or other cultural
constructs such as ethnicity or religious affiliation drive many
intergroup inequalities.
Incidentally, the world
owes a lot to the managing director of the International Monetary
Fund (IMF) Christine Lagarde who conjured up everyone's interest on
inequality. While delivering the Richard Dimbleby Lecture in London
on 3rd February this year, she paid special attention to
inequality as a leading cause for global instability. (Please see the
link of her lecture below).
The key messages of the
UNDP report entitled: Humanity divided: Confronting inequality in
Developing Countries (January, 2014) are as follows:
- On average—and taking into account population size—income inequality increased by 11 percent in developing countries between 1990 and 2010.
- A significant majority of households in developing countries—more than 75 percent of the population—are living today in societies where income is more unequally distributed than it was in the 1990s.
- Evidence shows that, beyond a certain threshold, inequality harms growth and poverty reduction, the quality of relations in the public and political spheres of life and individuals’ sense of fulfilment and self-worth.
- There is nothing inevitable about growing income inequality; several countries managed to contain or reduce income inequality while achieving strong growth performance.
- Evidence shows that greater income inequality between households is systematically associated with greater inequality in non-income outcomes.
- Inequality cannot be effectively confronted unless the inextricable links between inequality of outcomes and inequality of opportunities are taken into account.
- In a global survey conducted in preparation for this report, policy makers from around the world acknowledged that inequality in their countries is generally high and potentially a threat to long-term social and economic development.
- Redistribution remains very important to inequality reduction; however, a shift is needed towards more inclusive growth patterns in order to sustainably reduce inequality.
- Reducing inequality requires addressing inequality-reproducing cultural norms and strengthening the political agency of disadvantaged groups.
- Evidence from developing countries shows that children in the lowest wealth quintile are still up to three times more likely to die before their fifth birthday than children in the richest quintiles.
- Social protection has been significantly extended globally, yet persons with disabilities are up to five times more likely than average to incur catastrophic health expenditures.
- Despite overall declines in maternal mortality in the majority of developing countries, women in rural areas are still up to three times more likely to die while giving birth than women living in urban centers.
- Besides improving the progressivity of taxes, it is important to expand the tax base in developing countries as a way to mobilize additional resources.
Note:
* The analysis of the
trends in income inequality has been focused on the distribution of
income between households in an economy. One can interpret household
income distribution in three ways (van der Hoeven, 2011):
a. Primary income
distribution: the distribution of household incomes consisting of the
(sometimes cumulated) different factor incomes in each household
before taxes and subsidies as determined by markets and market
institutions
b. Secondary income
distribution: the distribution of household incomes after deduction
of taxes and inclusion of transfer payments (i.e., as determined by
fiscal policies)
c. Tertiary income
distribution: the distribution of household incomes when imputed
benefits from public expenditure are added to household income after
taxes and subsidies. This interpretation of household income is
particularly relevant for developing, emerging and developed
countries, as different government services are often provided for
free or below market prices.
** Distribution of income
across households or individuals in an economy is usually measured
using the Gini Index of inequality, which varies between zero and
100, with zero reflecting complete equality and 100 indicating
absolute inequality.
References
Humanity divided: Confronting
inequality in Developing Countries (January, 2014), UNDP
Warning of 'humanity divided,' UN urges
job creation, inclusive growth strategies, The United Nations, 29
January, 2014,
http://www.un.org/apps/news/story.asp?NewsID=47039&Cr=inequality&Cr1#.U2wzC9xdHVI
Capital in the 21st century -Thomas
Piketty, http://piketty.pse.ens.fr/en/capital21c2
Banerjee, A. and T. Piketty (2010).
“Top Indian Incomes 1922-2000”, in Atkinson, A. B. and T. Piketty
(eds), Top Incomes: A Global Perspective, Oxford University Press,
chapter 1,
http://global.oup.com/academic/product/top-incomes-9780199286898;jsessionid=C8BCCC3A901A212BDC55B5EAD4FFF2CF?cc=in&lang=en&
Jha, R., R. Gaiha, M. K.
Pandey and N. Kaicker (2011). “Food Subsidy, Income Transfer and
the Poor: A Comparative Analysis of the Public Distribution System in
India’s States”, ASARC Working Paper 2011/16. Canberra: Australia
South Asia Research Centre.
A New Multilateralism for the 21st
Century: the Richard Dimbleby Lecture By Christine Lagarde, Managing
Director, International Monetary Fund, London, February 3, 2014,
https://www.imf.org/external/np/speeches/2014/020314.htm
Why We’re in a New Gilded Age-Paul
Krugman, The New York Times, 8 May, 2014,
http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/
The Taxation of Wealth-Prabhat Patnaik,
People's Democracy, Vol. XXXVIII, No. 18, May 04, 2014 ,
http://peoplesdemocracy.in/2014/0504_pd/taxation-wealth
The 1 Percent’s Problem by Joseph
Stiglitz, May 31, 2012, Vanity Fair,
RURAL URBAN GAP SHRINKS BUT INEQUALITY
RISES
RURAL URBAN DIVIDE: A TALE OF TWO
INDIAS