Inequality and the post-2015 agenda

Employment & Income,Inclusive Economy25 Jun 2014Sara Murawski

Apart from being a media partner at the EADI conference The Broker also took part, presenting a panel on inequality and the post-2015 agenda. During a session of almost two hours the panel provided an update on global inequality trends, based on the most recent studies and publications. 

Against the backdrop of the financial crisis, the post-2015 process is up and running, offering a window of opportunity to integrate inequality goals into a new international perspective. Globalization has not brought the garden of Eden that proponents and optimists promised, while the majority of the world population lives in countries where inequality is increasing.

The Broker panel included David Sogge (Transnational Institute and NOREF), Evert-Jan Quak (The Broker), Marc Vandepitte (Technische School Mechelen) and Sara Murawski (Socialist Party, on behalf of The Broker). Murawski kicked off by reflecting on the fact that inequality has become a hot topic, especially since the consequences of the financial crisis have become visible (see The Broker’s dossier on inequality). Both national governments (for instance, the Obama administration) and international organizations like the World Bank, IMF and OECD have identified inequality as one of the main challenges (or even the main challenge), of our time, adopting a critical perspective on the theory of trickle down and austerity. Additionally, since the launch of Thomas Piketty’s Capital in the 21st Century the classical capital versus labour struggle has made a comeback in the both the academic and the political arenas.

In fact, the majority of the world population lives in countries where inequality is increasing. Referring to a Financial Times analysis, Murawski pointed to the fact that the global middle class, which is ’emerging’ out of poverty, is still very fragile. It constitutes almost three billion people, or 40% of the world population, who are living off a daily income of $2 – $10, nearly a billion of whom earn an income of between $2 and $3 a day. The slow-down of the global economy is threatening to push this ‘fragile middle’ back into poverty.

However, since uncontrolled growth tends to lead to more inequality and is exhausting our natural resources, politicians are faced with a complex dilemma: in the short and medium term, growth-stimulating policies seem to be needed to lift the bottom billion out of poverty and secure the position of the global middle class. At the same time though, the detrimental effects of growth must be acknowledged and dealt with, as growth-driven inequality can hinder sustained growth. The question therefore arises, what kind of growth models and policies are suitable for the short and the long term?

Panel session presentation Sara Murawski: ‘Inequality and the post-2015 agenda’.

Before reflecting on this question, Marc Vandepitte focused on the link between inequality and power. He argued that the world elite has thus far succeeded in neutralizing the ‘core contradiction of inequality and democracy’, stating that democracy is shaped in such a way that it does not endanger the unequal distribution of wealth. The fact that 85 people in the world possess the same amount of wealth as 3.5 billion – the bottom half of the world population – illustrates this. Vandepitte argued that there are two gaps to which international policy-makers should pay attention: between the North and the South, and between the poorest 10% and the richest 10% of the population. He demonstrated that the gap between the 20 richest and 20 poorest countries is increasing, and that Sub-Saharan Africa and low-income countries (LICs) are lagging far behind East Asia and the Pacific in terms of GDP growth.

As Vandepitte showed, inequality has also worsened between the northern and southern countries in Europe. Instead of being a window of opportunity for a new perspective on global capitalism, the eurozone crisis has functioned to legitimize doing things “that we could not do without the crisis”, as Wolfgang Schäuble put it. Illustrating how the crisis was used as an excuse to pursue harsh austerity policies, Vandepitte drew a parallel to the neoliberal shock doctrine that was applied in Latin America countries, as if no lessons have been learned. He also pointed to the recent wake-up call by a perhaps surprising ally, The Economist, which calculated that 65 countries (43% of 150) will be at a high or very high risk of social unrest in 2014 – a serious concern indeed.

Panel session presentation Marc Vandepitte: ‘Inequality and democracy’.

Evert-Jan Quak continued by relating the problem of inequality to global unemployment (see The Broker’s dossier on employment). In 2013, 200 million people were unemployed, while job-growth lagged behind population growth. Meanwhile, 25% of workers earn a maximum of $2 a day, and half of the jobs being created are ‘precarious’, creating a class of working poor. Quak interpreted these statistics by pointing to a number of fundamental theoretical assumptions underlying the neoclassical theory of employment and growth, the most significant of which is that growth automatically leads to more jobs. Instead, we are facing growth that decreasingly creates sufficient, good-quality jobs. There any multiple reasons for this, Quak argued. Contrary to what mainstream economists claim, more free trade can actually hamper job creation, and often results in competitive low-wage jobs at best. Also, the prospectus that increasing labour productivity will generate more employment turns out to be an illusion. As are ‘solutions’, like better education, that make globalization work for everyone. And whether technological innovation will provide more jobs depends on who will benefit from increased robotization: workers, consumers or corporations?

Emphasizing that governments have a huge task reflecting on the assumptions of growth and employment, as illustrated above, Quak provided a perspective on both short and long term policy strategies contributing to the goal of global employment. In the course of the coming years, in the aftermath of the crisis, higher minimum wages can keep workers out of poverty, and cash transfer schemes will be necessary to help families who are losing out. However, these mechanisms are not appropriate means to pursue long-term sustainable growth. That requires global policy-makers to rethink the link between growth and employment in terms of inclusive macroeconomic policies, as these are two sides of the same coin.

Panel session presentation Evert-jan Quak.

The final speaker David Sogge addressed this question by reflecting on the particular case of Norway and its aid ideology. The main objectives of Norway’s ‘Sharing for prosperity’ agenda were promoting jobs, human rights and democracy, distributive policies and fighting illicit flows. At the core of Norway’s ‘theory of change’ and aid tradition is the assumption that there is no contradiction between growth and equity; the country perceives creating decent jobs by promoting functional job markets as the best way to lift people out of poverty. Norway also reviewed its own policies, which were having detrimental effects in developing countries. As Ovind Eggen from the International Law and Policy Institute said: “The total Norwegian contribution to inequality in the world is far larger than aid policy to equality.”

Inspired by the Norwegian development aid agenda, Sogge enumerated a range of policy cornerstones which have equitable asset-holding at their core. For example, basic health services should not be considered as mere commodities (as is the case in user–fee systems), and productive assets, such as water and land, should be much better protected. Sogge also advocated measures to restore stolen assets and terminate odious debts. Furthermore, sustainable finance could be boosted by phasing out secrecy jurisdiction and the misuse of transfer pricing, while crises (like the current one) that promote redistribution upwards could be prevented by taxing the financial sector.

Panel session presentation David Sogge: ‘Tackling inequality: looking for leverage in the Global North’.

In the discussion that followed, several members of the audience, including Jean Luc Maurer (former head of EADI), Bartholomew Armah (regional policy advisor at UNECA) and Ashok Desai (one of EADI’s keynote speakers in the morning session), responded to the panel by raising a number of challenging questions, such as What is the role for behavioural studies if we consider the fact that people tend to accept neoliberal policies in times of crisis? Is it best to prepare ourselves for the next crisis, or should we be more ambitious, and if so, in what direction? Taking inequality as the reflection of unequal relations, how should we grapple with the fundamental disjunction of interests between the elites and “the rest”? How can the elite be pushed towards a more equitable distribution of income and wealth?

If the discussion demonstrated one thing in particular, it is that there is no ‘one size fits all strategy’, especially regarding the pursuit of inclusive and sustainable growth by promoting decent jobs. For example, as Vandepitte pointed out, Chinese growth did go hand in hand with the creation of jobs (and conversely, China’s declining growth rate is costing a lot of jobs). In India however, where the middle class is benefiting from economic growth, the government is barely paying attention to employment. In North Africa, on the other hand, the employment rate is perhaps not very high, but the jobs that are being created are fairly decent.

These macroeconomic issues should be linked to the question of social change and the driving actors, both social movements and governments that pursue coherent policies. Perhaps Latin America offers inspiration, where the simultaneous effort of working on consciousness and social engagement, and the shift from defensive to offensive demands has led to a change in the overall power structure since the 2000s. Or Ethiopia, which a successful shoe industry was established enabled by a government that combined specific policies, consistency and commitment. Sometimes, as in the case of Ethiopia, it is simply a matter of getting your act together.