Inequality — how to address Piketty on the global level

    Chowpatty beach in Mumbai. Inequality has risen within most developing countries, making social stability and sustainable growth more difficult than in the previous decades. Photo by: Shreyans Bhansali / CC BY-NC-SA

    Inequality is a serious global development topic.

    Prominent economists, including Paul Krugman and Joseph Stiglitz, have been voicing their concerns for years. And it is evident from the success of Thomas Piketty’s new book, “Capital in the Twenty-First Century,” that the public shares the same sentiments, concerns and discontent caused by rising inequality in this modern world of globalization.

    Many studies have shown there is compelling evidence of the rise in inequality within most of the world’s major economies. However, there still remains the question of how inequality is related to the context of global development, particularly in eradicating poverty and sustaining growth in developing countries.

    In fact, the global landscape of inequality has remarkably improved over the past few decades. Inequality between rich nations and poorer nations has been narrowed thanks to the economic surges of China, India, Brazil and other developing nations. The population living in extreme poverty living on less than $1.25 per day has been reduced by half since the Millennium Development Goals were agreed upon in 2000.

    Yet, it is astonishing that 70 percent of the extremely poor live in these so-called “middle-income” countries. Thus, inequality has also risen within most developing countries, making social stability and sustainable growth more difficult than in the previous decades. Furthermore, a large population still lives just above the poverty line.

    According to the World Bank, right now there are approximately 2.4 billion people living on $2 per day. Unlike the percentage of the population living on $1.25 per day, this group has only been reduced by a mere 7 percent over the past three decades.

    Inclusive growth toward shared prosperity

    Noting this fact, Erik Solheim, chair of the Organization for Economic Development and Cooperation’s Development Assistance Committee, wrote earlier this year that inequality should be tackled first as a new goal in the global development efforts to end poverty.

    The recent OECD report, “Policy Challenges for the Next 50 Years,” warns that sustaining growth while addressing rising inequality will be the major policy challenge for all countries.

    These concerns come from the practical analysis that economic growth will never be sustainable without addressing the poverty of the vast population at the bottom of the pyramid. All the more, this is why poverty eradication must be associated with reducing inequality.

    Last year, the World Bank set an ambitious goal to achieve “shared prosperity” by seeking faster income growth among the bottom 40 percent of a country’s population, driven by the contention that a growing gross domestic product does not necessarily trickle down to the poor.

    In this regard, it is also important to remember that inequality does not stop at income. High inequality exists in terms of access to most critical services and public goods, such as clean drinking water, proper sanitation, basic health care, adequate education, electricity or protection from natural disasters. There are also inequalities related to civil rights and good governance.

    True, shared prosperity is not achievable if we are not able to include those at the bottom of the pyramid in the process of growth — not only in terms of income generation but also access to public goods.

    From the South Korean experience, transforming desperation into hope was the key to inclusion. Without the self-motivation of those who should rise up from poverty and desperation, smart policy and investment will have little effect. Inspiring people with a “can-do spirit” — through creating a sense of ownership — was one of the key strategies for South Korea’s fast growth with inclusion.

    Inclusive partnership: Call for new thinking

    Rising inequality has become a global challenge, and what causes further concern is the fear that the “inequality trap” may worsen in the coming decades.

    To make the new goal of inclusive growth or shared prosperity take root, particularly under this worldwide economic slump, pooling tangible and intangible resources from a wider spectrum of players becomes increasingly critical.

    Inclusive partnership, one of the key concepts framing the post-2015 development agenda, is already drawing the interest and participation of many new players in global development. It is both a coalition and a strategy that can produce results.

    A smartly designed inclusive partnership can make sustainable growth easier, since this partnership can bring in additional assets enabling poorly equipped developing communities with the benefit of coalition, both in terms of securing needed capacity and bigger financial resources. Other benefits are providing management skills, and sharing know-how and even intellectual property.

    Leveraging the private sector both in funding and expertise for impact investment is another important innovative action which can help expansion of social value and sustainable growth.

    Even though many advanced governments will feel larger fiscal pressure in coming years due to rising expenditure, a huge financial resource available is still underused in global capital markets. Exploring impact investment further is even important as official development assistance flows are declining.

    Now, working to eradicate poverty while reducing inequality is not a job only for aid workers, governments or development organizations. Corporations, financial investors and fund managers are also invited to join in these efforts.

    Nelson Mandela once said: “As long as poverty, injustice and gross inequality persist, we cannot rest.” Participating in a broad, inclusive partnership is what we can do right now to get to sustainable growth and shared prosperity. Inequality will become much more acceptable when the bottom is lifted upward by having better opportunities and access to value chains.

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    The views in this opinion piece do not necessarily reflect Devex's editorial views.

    About the author

    • Kim Young-mok

      Kim Young-mok is president of the Korea International Cooperation Agency since 2013. A career diplomat, Kim previously served in several senior positions and ambassadorships within the South Korean Ministry of Foreign Affairs.