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Sharing seed in participatory maize breeding project, Oaxaca / Mike Listman via flickr

Development economics on the right track to address inequality

Evert-jan Quak | 25 June 2014

The Dudley Seers lecture at the EADI General Conference was given by French economist Francois Bourguignon of the Paris School of Economics. Bourguignon analysed 50 years of development economics, characterized by a shift from a pure growth strategy to fully addressing inequality.

Bourguignon was optimistic about the analytics of development economics, which nowadays recognizes market failures and political economy. However, he is not convinced that development economists have found the policy levers that will actually permit the full eradication of income and non-income poverty. In his lecture, he said that development economists are nevertheless on the right track, because inequality is high on their research agenda. 

Bourguignon referred to important development economists like Dudley Seers, who recognized the need to address inequality as early as the 1960s and 1970s. Seer said 40 years ago that developing countries should look beyond economic growth, but little more than lip-service was paid in his time to analysing inequality and growth together. “We are still setting targets mainly or only for the national income,” Bourguignon quoted Seers as saying in 1969.

From planning to markets to governance 

What does this say about the evolution of development economics in the last 50 years? Bourguignon distinguished three stages in the evolution of thinking in mainstream development economics. The first stage ran from 1960 till 1980, during which time GDP per capita in Latin America and Africa increased, but remained at the same level in Asia. This stage started with decolonization and ran through to the oil boom and the debt crisis. The general approach during this period was top-down planning embodied in import substitution and the prominence of the public sector in economic development. The implicit economic model was that accumulation leads to development with a focus on growth models. In the late 1970s this model ran out of steam; the planning was done, but what then? The model was also interrupted by the severe oil and debt crises.

The response from economics was structural adjustment, heralding the start of the second stage. The period covered by this stage included the Asian take-off, as well as a series of financial crises in Latin America and Asia. The implicit model moved away from controlling accumulation and now sought ways to influence it. There was a macro focus without country-specific analyses. This stage came to an end with the Asian crisis in 1997.

The latest stage in development economics started in the 2000s. Bourguignon explained that the general approach is defined by continuity with the previous stage, but with a shift to incorporate a focus on governance. The role of institutions is seen as  pursuing the right policies to maximize the incentives for accumulation. Analysis focuses more on the micro level. This stage shows, for the first time, a convergence between the poor and the richest countries in the world.

Inequality

The lessons learned throughout these stages are that there is no universal recipe, and that there are market failures and government failures to deal with. Furthermore, there is greater recognition than before that development is a political and not purely an economic issue.

As a result of this evolution within development economics, the issue of inequality has re-emerged as a key dimension of development. According to Bourguignon, there are three ways of considering inequality within a development framework: as an objective to be addressed in itself; as a determinant of the growth elasticity of poverty – as instrumental in development; and in terms of how it is related to growth.

While the first perspective places reducing inequality at the forefront of political goals (as with the proposals of the High-level Panel in the Post-2015 process), the second shows the complexity of inequality, how it depends on many determinants that have to be analysed and cannot be reduced to a single goal. The third perspective focuses on the current debate within economics on how inequality influences growth. 

Where are we heading now the issue of inequality has been addressed and the debate is beginning to recognize its complexity? According to Bourguignon, development economics is at the stage of understanding and designing remedy policies. But these efforts are still in the initial stages. He took the example of the IMF study by Ostry,  which concludes that inequality is not good for sustainable growth. Bourguignon found this a good contribution to the debate, but thought that Ostry too easily emphasized the solution of redistribution. 

Redistribution

Bourguignon expressed his doubts about redistribution being essential for development. He is afraid that redistribution policy will be made without clear analysis of the costs and its real impact on inequality. He mentioned the example of a government that implements a redistribution policy without addressing wage discrimination against a large part of the population. In such a situation, the policy will have no influence on inequality. This also can be said of macroeconomic challenges and globalization: the problem is much more complicated, and redistribution alone will deflect the policy debate from other important policy measures that may be more important in tackling inequality.

The positive side of Bourguignon’s story was the sea change in development economics. It has taken a long time to start seriously extending the analytical and empirical framework beyond GDP. According to Bourguignon, “we are on the right track”, but he admitted that we are only just starting to understand the causes of inequality a little better, while at the same time defining the right palette of policies. 

The Broker reports from the EADI conference 'Responsible Development in a Polycentric World: Inequality, Citizenship and the Middle Classes', 23 – 26 June 2014 in Bonn, Germany. The Broker is main media partner during this conference.

Photo credit main picture: Sharing seed in participatory maize breeding project, Oaxaca / Mike Listman via flickr