In the last two decades,
developing countries have outstripped developed countries when it comes to
economic growth. In many places around the world, that economic growth has
fueled reductions in poverty levels. And yet, many countries around the world
continue to suffer from high poverty rates even as the monetary value of all
the finished goods and services produced within their borders, or gross
domestic product (GDP), continues to grow.
Today, the disparity in education,
skill, and income continues, further reports show that the gap is not only
widening, it is intergenerational. The circumstances that exacerbate Africa’s
inequality are both historical and a result of years of policy uncertainty,
making it harder for ordinary Africans to claw their way out of poverty.
Goal 10 in the proposed SDGs
states: “Reduce Inequality Within and Among Countries,” with its key relevant
target: “By 2030, progressively achieve and sustain income growth of the bottom
40 percent of the population at a rate higher than the national average.”
Importantly, income growth is not the only important measure for this goal. The
roles of fiscal, wage, and social protection policies are noted as key
contributors to this goal of increased equality. The World Bank’s notion of
inequality of “opportunities” is also recognized as critical.
Inequalities based on income,
sex, age, disability, sexual orientation, race, class, ethnicity, religion and
opportunity continue to persist across the world, within and among
countries. There is growing consensus that economic growth is not sufficient
to reduce poverty if it is not inclusive and if it does not involve the three
dimensions of sustainable development – economic, social and environmental.
In thinking about a strategy that
could start to change the status quo, it is necessary to unpack the main areas
of inequality. In this paper Wealth, Income and Opportunity have been chosen as
the main areas of focus. Health care, town planning, public transport, sport,
access to justice, urban versus rural development and other areas are also
important – space does not permit of addressing them all.
In the pursuit of reducing income
inequality (setting aside inequality of opportunities for the purposes of this
blog) on the assumption of reaching the 7 percent economic growth target in
Goal 8 of the SDGs, we must remember the three vital results from the relevant
developing country literature relevant for our understanding of growth,
poverty, and inequality dynamics in a society.
First, economic growth
accompanied by a rise in income inequality will reduce the growth-poverty
elasticity (defined as the sensivity of poverty reduction to a rise in economic
growth) of a country. Put simply, income inequality is the thief of the
poverty-reducing effect of growth. Hence, economies that yield to a
highly unequal growth path will produce lower income-poverty-reduction
outcomes.
Second, higher initial levels
of income inequality will reduce the impact that economic growth has on
poverty. In the jargon of economics, the higher initial levels
of income inequality, the lower the growth-poverty elasticity of an economy is
likely to be.
Third, income inequality-growth elasticity’s
are inertial over time, suggesting that it takes a much longer period of time
to reduce income inequality amid growth, when compared to reducing poverty.
However, within the above
context, at least four immediate areas of policy are obvious, in a bid to
aspire towards a growth and development trajectory for Africa, which induces
lower levels of inequality.
The first of these is to pursue a
growth trajectory that is far more intensive in the use of low-wage
employment. A more labor-intensive manufacturing-centered growth
trajectory is thus essential for a more inclusive growth agenda. Data
shows that for all regions of sub-Saharan Africa, manufacturing as a share of
GDP has in fact declined in the period 2000-2012. Ultimately, the fact that
manufacturing has contracted during one of Africa’s most sustained periods of
economic growth must serve as a threat to a more inequality-reducing growth
trajectory for the continent.
Second, Africa’s growth boon has
been predominantly resource-driven, especially amid China-fuelled global
commodity super-prices. However, resource-dependent economies present a
number of potential channels through which inequality may increase, such as the
political capture of rents; ineffective and unprogressive tax systems; and the
overly complicated ownership structures of global extractive industry
companies. The capital-intensive nature of the resources sector also
means that its growth contribution will not realize huge employment
(and potentially inequality-reducing) gains. At a minimum then, ensuring
that corruption and governance transgressions are eradicated in these economies
together with a more carefully constructed tax regime—will ensure that gains
from resources are more evenly distributed.
Third, in the midst of commodity
booms, governments should be considering well-targeted anti-poverty and
anti-inequality cash transfer programs. Such resource-based social
transfer funds, can be a key intervention in the pursuit of a more inclusive
growth trajectory.
Finally, it is obvious that the
long-run solution to reducing income inequality is through improving both the
supply and quality of graduates coming through the schooling and higher
education system. In many ways then, Goal 8 and Goal 10 are inextricably
linked. Current evidence for the continent shows that, apart from very
poor performance outcomes on all standardized test scores, progression is a
huge challenge. Hence, for every 100 African children entering the
schooling system, only four will make to a tertiary institution—the lowest
outcome in the world.
Inclusion, Inequality and its
effects still disproportionately affect Africans especially women. While some
previously disenfranchised may have escaped poverty, the country’s inability
create jobs and find a sustainable solution means the ranks of the impoverished
are swelling far faster than those able to climb out.
We can think of having an economy
that indeed is geared for a growth process that benefits the poor, then we can
expect pretty good progress in poverty. In some sense, if you look at the
Chinese situation, much of the investment has been in the area of a labor-intensive
type of production. That means a lot of people are employed—there’s no doubt
about that. Also, Governments and all its development partners have to think
about transferring resources so that people can engage in meaningful economic
activity. If we just let the process lead itself, the outcome might not be as
desirable. We can look around and if we, for example see significant growth
from, say, natural resources, it should be reinvested into infrastructure to
make business easier to undertake. States have to also be sure the poor have
the human capital to participate in the economy. #SDGS #ReduceInequality #EqualOpportunities
#PovertyReduction #SDG10 #SustainableIncomeGrowth
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