Inequality, Poverty and Climate: Global inequality is greater than that in the most unequal country. While this is nothing new, climate change, and the continued failure of the global community to take any effective action to reduce global carbon emissions, transforms the issue into one of vital importance.
If global economic growth resumes at its pre-crisis rate,
even limiting global warming to 2°C will require what we currently produce and consume with 40 units of carbon, by
the 2040s, to be produced and consumed with one. This seems unimaginable with known and anticipated technologies, even setting aside the risk of unanticipated side-effects (eg of biofuels on food prices).
Equally, even a return to the pre-crisis growth scenario
would have little effect on poverty. 1993-2008 saw major improvements in development policy (debt relief, aid and aid effectiveness, PRSPs, the MDGs, etc); yet incomes of the poorest 10% of the world population (excluding China)
greaw at barely half the rate rate of global GDP per
Extrapolating this trend, it would take more than 100
years to eradicate poverty, even based on the $1.25-a-day poverty line, and much longer at a more reasonable poverty line of, say, $5-a-day. And this assumes, not only that the 1993-2008 rate of improvement in development policies can be maintained indefinitely, but also no greater impacts on the poorest as a result of climate change.
Thus the complacent world-view in which global inequality
can be ignored, and poverty reduction can be left to trickle-down from global growth is tenable only if one considers as morally acceptable the perpetuation of poverty for centuries, and of the most extreme ($1.25-a-day) poverty for several generations. The only alternative is to address the issue of global inequality directly, by shifting decisively from a global economy focused primarily on global growth irrespective of who benefits towards a system aimed more directly and explicitly at increasing the incomes, and meeting the needs
of the poorest.
Inequality and Economics: This is just part of a wider problem. It is conceptually incoherent to treat growth and distribution – two summary indicators of the same matrix (of household incomes) – as separable and quasi-independent.
Policies designed to promote economic growth inevitably affect the incomes of different individuals in systematically different ways, and hence also affect distribution.
It is equally erroneous to give growth primacy, as a
matter of efficiency, and consider distribution as a secondary issue, limited to equity considerations. It is self-evident that an extra $100 of income has an immeasurably greater impact to a landless labourer living on less than a dollar a day than on a billionaire. Thus the value of the additional income generated by economic growth is critically dependent on who receives it. Distribution has a major effect on the efficiency with which aggregate income is translated into human well-being additional to considerations of equity in the distribution of material well-being. The scale of global inefficiency suggests that such distributional efficiency may well be as important as productive efficiency.
Moreover, if we accept that the value of each dollar of
income varies (inversely) according the total income of recipient, this not only undermines the usefulness of aggregate income as an indicator or policy objective – it also requires us very largely to rethink economics as it is
generally used in policy. Markets and “market-based” responses to externalities, cease to be optimal: it is the most beneficial consumption –that of the poor – not the least, which is discouraged.
In a relatively equal society, this might not matter very
much. But in a world where 1.3 billion people below the $1.25-a-day line, with an average purchasing power of around $300 per person per year, must compete in
an increasingly globalised market with 1,426 billionaires, with a combined net worth of more than $5,300,000,000,000, it matters very much indeed.
Economic and Political Inequality: Why, then, do we retain growth as our primary objective and free markets as our primary means of achieving it, using “market-based”
mechanisms to correct for externalities? The answer lies not in economics, but in politics.
Political systems in practice give greater power to the
wealthy (and to corporate and financial interests) than to the poor; and this allows the former to skew decision-making to their own economic advantage.
This phenomenon arises as much as the global as at the
national level. In the IMF and the World Bank, inequality of power is institutionalised in “economically-weighted” voting systems unthinkable in any democratic society, which give a substantial majority of the votes to a rich minority of developed country governments representing less than one-sixth of the world population, reinforced by a number of other mechanisms which further disempower the representatives of low-income countries in particular.
The WTO is no better. Impeccably democratic as its one-member-one-vote formal structures may be, effective decision-making takes place behind closed doors in secretive processes outside these rules, governed by systematic arm-twisting and pay-offs by the developed countries.
The inevitable result – from the debt crisis through structural adjustment to the WTO Agreements – is a process of commercial globalisation which has systematically favoured the financial interests of (mostly rich-country) elites at the expense of the disadvantaged, particularly
in the poorest countries.
Even the recent partial shift in favour of the “BRICS”
leaves their influence far short of their share of the world population – even collectively, they at best have the power to say no to an agenda driven by the North, which is a recipe for inertia rather than progress. Worse, low-income and least developed countries are still clearly excluded. This is critical: not only are their needs greatest (and least well served by global governance as it stands), but their interests are often diametrically opposed to those of the “emerging market” economies.
Breaking this vicious circle requires breaking the formal
links between economic power and votes in institutions such as the IMF and World Bank, establishing democratic decision-making systems, and ensuring that decisions are made through these mechanisms.
However, as long as national governments are themselves
disproportionately influenced by elites and financial and corporate interests, merely shifting power among them will have a limited effect. While this can only be resolved by reforms within each country, a first step might be to shift the accountability of global institutions from governments to Parliaments. Coupled with greater transparency (eg live web-casts of major discussions) and
more effective accountability mechanisms, this could start to move power in global institutions towards where it belongs – with the world population as a whole.
Then, and only then, when we at least begin to weaken the
avaricious circle of economic and political power, if not to break it, might we expect to see some real progress on global inequality.
Inequality, Growth and Poverty Eradication in a Carbon-Constrained World
The Failure of Economics in an Unequal World
Breaking the Avaricious Circle of Global Inequality