Countries can reverse growing inequality with the right domestic policies


Growing inequality is neither destiny nor a necessary price to pay for economic growth according to UN DESA’s report which was released on Friday, 14 February, and national policies and institutions play a crucial role in defining inequality trends.

The Report on World Social Situation 2013: Inequality Matters, was launched during the UN Commission on Social Development, and has a special focus on policy and on the impacts of inequality, including among disadvantaged social groups.

According to the report, 7 out of 10 people live in countries where income inequality has increased in the last two decades. These include a majority of developing countries and some large emerging economies, most notably China. But income inequality has declined in a large majority of Latin American countries (14 out of 20) and in several African countries.

Unlike inequalities within countries, economic disparities across countries remain high but have somewhat declined in recent decades. The mean income of a resident of Albania or the Russian Federation, for instance, is lower than that of an individual in the lowest 10 per cent of the income distribution in Sweden, who also earns 200 times more than an individual in the poorest tenth of the population in the Democratic Republic of Congo.

The report further argues that inequality affects the well-being of not only those at the bottom of the distribution, but also those at the top. For instance, as richer households typically spend a smaller share of their income than the poor, this unequal concentration of income and wealth reduces aggregate demand and slows economic growth. Inequality also slows down the pace of poverty decline and limits opportunities for social mobility, including inter-generational mobility. Inequality thus leads to a less efficient economic system and creates barriers to social development. Highly unequal societies are therefore fertile ground for political and civil unrest, instability and heightened human insecurity.

However, by tracing the recent trends, the report shows that inequality trends vary greatly by country and region. National policies and institutions play a crucial role in defining such trends.

A unique contribution of the 2013 report is that it brings special attention to the disparities that exist across five social and population groups – youth, older persons, indigenous peoples, persons with disabilities and migrants – and also illustrates how such disparities reinforce one another. The report calls for a specific policy focus on disadvantaged groups to achieve equality, including through action to end discrimination. However, it emphasizes that the targeted interventions should not become a substitute for a universal approach to social policy.

Built on positive examples of what has worked in different countries, the report offers a series of key policy recommendations. It asserts that universal social policies and strong labour market policies and institutions are necessary to contain inequality. But a policy environment conducive to sustained inequality reductions also requires macroeconomic policies oriented towards such a goal and the creation of full employment and decent work opportunities. Industrial development and economic diversification policies as well as investments in infrastructure are also needed.

The analysis and policy conclusions contained in the report are aimed at providing useful inputs for the ongoing debate and forthcoming consultations on the post-2015 development agenda, and should serve as a policy guide on socioeconomic issues.

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