Inequality is a policy choice. Governments can close the gap between rich and poor, and some are already doing so, writes Max Lawson, head of inequality policy for Oxfam International
We live in a world where the top one per cent own more than everyone else combined. Many feel that this process of division between haves and have-nots is unstoppable. That it is the result of globalisation, and of the march of technological progress. That our leaders are not just unwilling but effectively unable to reverse this unstoppable tide.
If this were true, then every country, regardless of its government’s actions, would be seeing a remorseless rise in inequality. But the Commitment to Reducing Inequality (CRI) index created by Oxfam and Development Finance International shows that this is not the case.
While some governments are doing nothing to tackle inequality, and in fact are helping to make it worse, many others are taking a different route. Inequality is a policy choice. Tackling inequality is central to the fight against extreme poverty, with the World Bank and others clear that unless we see a significant closing of the gap between the richest and the rest, then ending extreme poverty will not be possible.
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One positive example is Namibia. Here is a country that inherited the highest levels of inequality in the world when it gained independence from apartheid-era South Africa in 1990. Bucking the global trend of increasing inequality, Namibia’s Gini coefficient – the standard measure of inequality in income distribution – has fallen by some 15 points since 1993. The Namibian government has managed to systematically reduce the gap between rich and poor, more than halving the poverty rate from 53 per cent to 23 per cent.
Its investment in education has been key: the country has the second highest percentage of budget spending on education in the world, allowing it to provide free secondary schooling to all. Of course, more remains to be done. Namibia’s tax system needs improving and its minimum wage is inadequate. But it is clearly demonstrating a serious commitment to reducing inequality.
Other countries are also using policy tools to buck the inequality trend, with some surprising results. Despite its many problems in other areas, Zimbabwe spends the highest percentage of its budget on education of any country, a commitment recognised by Unesco as having a positive impact on children. Malawi has one of the world’s most progressive tax systems, helping to ensure that those who can afford it support those who can’t – although it could do far more to collect tax. Mongolia treats workers and trade unions better than developed Portugal, where significant restrictions on collective bargaining are in place.
Inequality is a policy choice and tackling inequality is central to the fight against extreme poverty
Many countries in Latin America have, in recent years, made positive steps. These include Argentina, Costa Rica, Chile and Uruguay. All of these governments have made strong efforts to reduce inequality and poverty through redistributive expenditure and, in some, by increasing minimum wages. In Argentina, for example, the Gini coefficient fell from 0.53 in 2003 to 0.42 in 2013, and the poverty rate fell from 23 per cent to 5.5 per cent, with 40 per cent of the reduction in inequality and 90 per cent of the reduction in poverty due to redistributive policies. Chile has moved to increase spending, and to increase corporation tax, bucking the global trend.
Unfortunately, the new government elected in Argentina in 2015 has already moved to reverse many of these policies, including cutting the education budget and extending tax breaks for the richest people.
The CRI index aims to show how government policies really can help to shape more – or less – equal societies and economies. It focuses on key policies that are shown to reduce inequality, including progressive spending on things like schools and hospitals, taxing the better-off more than the poorest, and paying workers a living wage. Action in these three areas is then combined to give a country a score and ranking in the CRI in comparison to 150+ other countries. Governments are not the only ones who can work to reduce inequality, but without them, success will not be possible.
Above all, we seek with the CRI index to start a debate about what governments should be doing to reduce inequality – and to provide a tool to hold them to account. It will chart efforts to build more human, fairer economies that are designed to support the best interests of all their citizens, rather than those of the privileged few.
Max Lawson is head of inequality policy for Oxfam International.
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Fair game: the nations that are challenging inequality
• The 5 top-performing countries in the Commitment to Reducing Inequality index are:
• However, in Oxfam’s Commitment to Reducing Inequality index, 1 in 4 of the top 50 countries are either low or middle income
• Low-income countries spend a much larger proportion of their budget on education than high-income countries
• Zimbabwe spent nearly 1/3 of its budget on education for the 3rd year in a row in 2014. The country has one of the best teacher-pupil rations in the world
• Liberia has the world’s highest minimum wage compared to GDP per capita
In focus: Namibia
• The Namibian government has more than halved the poverty rate from 53% to 23% since 1990
• Namibia spends the world’s second highest percentage of overall budget on education, providing all students with free secondary school education
• The country also spends a greater proportion of its budget on health than Finland
• It has reduced annual malaria cases by 97% within 10 years
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Planning for the 99%
• The world’s 8 richest people have the same wealth as the world’s poorest 50%
• UN sustainable development goal 10: ‘reduce income inequality within and among countries’
• Oxfam’s Commitment to Reducing Inequality index focuses on 3 key policies that are shown to reduce inequality:
1. Spending on health, education and social protection
2. Progressive tax structures
3. Labour market policies, e.g. paying workers a living wage
Closing the gap
• In general, average incomes in poorer countries are catching up with those in richer ones, and inequality between nations is falling
• Between 1990 and 2011, economic growth in Asia helped nearly 1 billion people to escape extreme poverty (though income inequality within countries remains high, for example in China)
• While extreme poverty has fallen – today only 0.7 billion of the world’s 7.5 billion people live below the extreme poverty line – inequality has grown
Featured image: Benny Jackson