20 October 2014

How much of a problem is inequality in East Africa? How can it be reduced?

A video from Ben Taylor (aka @mtega) shows the distribution of wealth in the three East African countries. It comes at no surprise that the top 1% have a lot and there is little left for everyone else. He ends the video with a series of questions, but it is rather obvious that there are some issues to deal with when the 6 individuals have as much wealth as the bottom 50%.

How can it be dealt with? Not everybody agrees. Claire Melamed of the Overseas Development Institute says the attention has to be placed on the poor in order to reduce inequality. She writes in Aeon:

The mainstream narrative – about the runaway incomes of the richest people in the richest countries, the absurdities of boardroom pay and tax avoidance and so on – might prick our sense of fairness, but it has only a limited amount to offer the analysis and treatment of extreme poverty. The second, lesser known, inequality story is about the things that keep people poor. This story offers fertile ground for the coalitions and policy agendas that can actually address both poverty and inequality.

These stories are, of course, linked. Concentrations of income and opportunity at the very top might well make progress at the very bottom harder, in some cases – for political, economic or social reasons. And more money, generated by taxing the super-rich, would give more options to those governments that do want to act.

But at present too much analysis and attention in the development sector is given to the first story. This has led to a situation where people want to believe that inequality is important, but they don’t quite know why. Answering that question requires us to grapple with the second type of inequality. And that, in turn, requires better information.
At present, the empirical foundations of our inequality debates are far too weak. Perhaps that is the most basic inequality of all: between those of us who are counted, and those of us who are not.
Oxfam's Duncan Green disagrees arguing that both the top and bottom need to be addressed at the same time. He writes:
Recovering and strengthening the sense of social responsibility of the powerful is important, as is attacking the chronic poverty of the people at the bottom of the heap – why can’t they be mutually reinforcing? At the top, the effort includes more and fairer redistribution through taxation, but also thinking about ‘predistribution’ – some economic models pile up inequality by, for example, favouring capital intensive sectors, whereas others generate more benefits to the poor by creating jobs or involving small farmers in value chains. Then there’s the need for constraints on elite power and political capture – when was the last time a development organization talked about the rules governing lobbying or financing political campaigns, North or South? Put them all together and the overall task becomes something like supporting the strengthening of the social contract between (all) citizens and the state.

Don’t get me wrong, I think the chronic poverty agenda is really important (that’s why I’m on the advisory board of the Chronic Poverty Action Network). But I felt their most recent Chronic Poverty report lost the plot a bit on the SDGs: instead of arguing that chronic poverty is what is left when all the relatively easily reducable poverty has been tackled, and should thus be at the core of ‘getting to zero’ in the post 2015 process, the report went off at a tangent about what to do about people who are not chronically poor, but ‘churn’ in and out of poverty over the course of a year. That’s interesting and important, but people who churn are by definition, not the chronic (i.e. permanent) poor.

So within ODI, Claire Melamed (who runs the team on growth, poverty and inequality, but mainly does post 2015 stuff) is advocating putting chronic poverty at the heart of the SDGs, while the actual chronic poverty people are talking about something else. And anyway, I disagree with both of them, because we should be addressing both the top and bottom of the inequality equation. Feels like time for a poll (if only to put Tim Gore out of his misery for getting the ‘wrong’ answer on the last one).
Who is right? I think Duncan makes a good point and am curious to hear if Claire agrees. Where there is no disagreement is on the point that wealth and income inequality is a problem in need of solving.