A crucial step in fighting inequality and discrimination: the law to make India’s private schools admit 25% marginalised kids

This guest post comes from Exfam colleague and education activist Swati Narayan 

This summer, India missed the historic deadline to implement the Right of Children to Free and Compulsory Education Act, 2009. This landmark law, the fruit of more than a decade of civil society activism, has many path-breaking clauses. For the first time, it bans schoolteachers from offering private tuition on the side – a rampant conflict of interest. It also legally prohibits corporal punishment.

Most powerfully, it insists that every private school must reserve 25 percent of classroom seats for children from poorer or disadvantaged families in the neighbourhood. This quota is by no means a silver bullet. After all, eighty percent of schools in India are government-run and in dire need of teachers, infrastructure and more.

Nevertheless, this masterstroke, which aims to piggyback on the rest of the mushrooming for-profit private schools, single-handedly opens the door for at least 1 million eligible children each year across the country to receive 8 years of free education.

Despite strident opposition from school management and parents’ associations, the Indian Supreme Court last year upheld this visionary clause. Though it may not (yet) be as internationally renowned as the United States’ Brown versus Board of Education ruling, its ripple effect will be no less important in a country as socially stratified as India.

In the last three years, apart from resorting to the courts, private schools have used every trick in the book to deny children their rightful admissions (see video). Despite a ban, some have held separate evening classes to accommodate students from poorer families. Others have sent eligible parents literally in circles over admission paperwork. As a result, last year, Maharashtra state, for example, filled only 32 per cent of reserved seats.

One bone of contention is who will foot the bill? The Act is categorical that the state will reimburse private schools only based on what it spends per pupil in government schools, which is typically much less. For-profit private schools are therefore keen to pass on the burden and increase their already inflated fees for the remainder of the class. Unfortunately, this has pitched wealthy parents against semi-literate ones, further aggravating tensions across the class and caste divides.

On the other hand, many civil society activists are disappointed that the legislation only reserves 25 percent and does not embrace the more inclusive concept of a ‘common schooling system’.

But, even this diluted, watered-down 25 percent reservation clause offers an unprecedented window of opportunity to break the shackles of centuries of social prejudice, which has pigeon-holed and stymied educational, occupational and social opportunities for generations. For the first time, there is a genuine effort to ensure that that children — rich and poor, upper and lower caste — are schooled together at an impressionable age, perhaps laying the basis for India to overcome centuries of divisions.

Even today, children of marginalized castes and tribes are less likely to attend pre-primary and primary school and the quota defines them as primary beneficiaries of the new legislation. The law also supports the entry of children with disabilities. In addition, some states have devised truly progressive rules. Tamilnadu, for instance, has recognized transgender children as eligible. Andhra Pradesh explicitly includes orphans, street and homeless children. Gujarat has clarified that teachers should be professional trained and sensitized for the proper integration of children and warned that schools which discriminate could face closure.

These gems in the rulebook could revolutionize private education in India.

Sister Cyril’s award-winning elite Loreto School in Kolkata, has over the last three decades, already showcased first-hand the transformational potential of integrating street children in mainstream classrooms.

Now, the key to the success of this dream to create inclusive classrooms lies with the burgeoning Indian middle class — to support rather than oppose — this transformative initiative to build the foundation for a more integrated India.

Swati Narayan is a social policy analyst

Make Inequality History? What would change if we focussed on inequality rather than poverty?

Last week I spoke at a Brussels conference on inequality, organized by the Belgian NGO coalition 11.11.11. Inequality is flavour of the month right now, showing surprising staying power within the post-2015 process and elsewhere. Inequality gabfests usually involve violent agreement that inequality is indeed a Bad Thing, lots of evidence for why this is the case, and polite disagreements on what inequality we should target first – often along the lines of ‘because inequality is really important, we should all work on X’, where X just happens to be the thing that person works on anyway. A more retro variant involves ritual combat between supporters of equality of opportunity (aka American Dream) v equality of outcome (Socialist Paradise). Cynical, moi?

But in Brussels, I had a more difficult, but interesting job: what, if anything, should we do differently if our focus is on inequality rather than, say ‘getting to zero’ on poverty? So let’s imagine. It’s 2015, the UN has signed off on a shift in focus from poverty (MDGs) to inequality (post-2015). True, the commitment is a little vague (hey, this is the UN we’re talking about), but now NGOs and official donors are charged with the task of turning this into a viable campaign and lobbying exercise. What might a Make Inequality History campaign look like?

Firstly, as poverty reduction starts hitting the hard core of chronic poverty, both poverty and inequality campaigning will have to look more at targeting excluded groups (disabled, mental health, elderly, ethnic minorities.) For some people, the debate stops right there.

But compared to poverty, there could be a number of additional and pretty fundamental conceptual shifts

• Inequality is all about relationships (a single individual can’t be unequal!), meaning a greater emphasis on power and politics within/between countries
• Inequality is a universal challenge – within countries, it involves everyone; internationally it obliterates North-South distinctions
• That in turn means ‘whole of society’ interventions become more important: aid agencies would do more on norms (do children have rights?); prejudice and discrimination (eg against women, indigenous, disabled); disabling environments (eg violence; market failures that exclude poor people);
• Inequality is structural – what kind of economy do we have/want? What’s balance between disequalizing sectors (finance, extractives, capital intensive agriculture) and equalizing sectors (smallscale ag, labour intensive manufacturing, smallscale retail)

In terms of specific themes:

• Taxation is the standout issue. A focus on the distributive imapct of how governments raise reveneue would be a necessary complement to the traditional focus on how they spend it. At the moment, there’s real potential for reforming the global system of tax evasion. But at national level, many tax systems are going in a regressive rather than progressive direction.
• More focus on ratchet mechanisms that drive up inequality – eg hyperinflation or shocks when the rich typically have more access to smoothing mechanisms (credit, social protection)
• Would there be a focus on ceilings as well as floors, eg on land ownership (South Korea) or Oxfam’s recent cheeky proposal for an end to ‘extreme wealth’?

time to change the title (and maybe lose the mullet)?

The shift to a more overtly political and relational approach to development might be welcome by campaigners (if not by their fundraisers), but it won’t be easy. INGOs and (even more) official donors would have to learn to strike a fine balance between becoming more explicitly engaged on issues of power, politics and redistribution, and being thrown out for meddling in internal politics. There are ways to do this:

• Work with and through local partner organizations and curb any messianic tendencies in our own staff
• Focus on the ‘enabling environment for redistribution’ (promoting norms and values for social cohesion, rule of law, governance, access to information, freedom of expression), rather than specific redistributive campaigns that might prompt a greater backlash
• Build the state’s capacity to redistribute (eg domestic resource mobilization): this includes supply (training, technical assistance), demand (eg citizens watchdogs) or a mixture of both
• Develop skills in ‘convening and brokering’, ensuring the voices of poor people and their organizations are at the table by bringing together dissimilar players to build trust and find collective solutions

• Compared to specific campaigns, society-wide interventions are a lot harder to communicate and inspire people about: ‘what do we want? New norms!’
• A shift to a more universalist and political project could seriously damage levels of political and financial support for aid agencies, where it is currently based on a rather unthinking (and disingenuous) ‘aid is about helping people, not politics’ narrative
• Many of these things demand skills more than cash – aid, with its pressure on a small number of aid agency staff to disburse large chunks of funding, may even be counterproductive to the long-term, subtle political engagement required to tackle the structural roots of inequality. This was definitely the trickiest question for those in the room in Brussels – can aid agencies find a way to spend the money, and still free up brain time for the more politically sophisticated, long term, rooted work needed to confront inequality? If not, is the conclusion that more money is a mixed blessing? Or can we divide up our approaches into aid-dependent low income countries (business as usual) and non-aid dependent unequal countries (new inequality lens, needing less money and more knowledge)?
• If engaging in domestic redistributive processes proves just too politically risky and complex for aid agencies with large budgets and limited attention spans. What about a renewed focus on global inequalities – collective action problems such as climate change, tax havens, trade, intellectual property rights, migration? But here the obstacles to change often seem even greater (contrast dynamic national progress with multilateral paralysis on numerous issues).

Conclusions? This is still churning around in my head, but it feels to me like MIH would be right but difficult, banging up against all kinds of institutional constraints including communications, fund-raising and coalition-building. A three tier approach might well emerge:

1. Make Poverty History: ‘Business as usual’ poverty reduction in low income, aid dependent countries
2. Make Inequality History: A more politically engaged MIH in middle income and other fast-growing countries with falling aid dependence
3. Make Externalities History: A global campaign for collective action on climate change, tax havens, intellectual property, arms trade etc

So over to you. With limited resources, and taking into account both the opportunities and the obstacles to success in each, which of the three approaches should aid agencies adopt? And to avoid the ‘both, and’ syndrome, you’re only allowed to vote for one option.

And here is the undoubted highlight of the Brussels show, ‘India’s first youtube star’ Wilbur Sargunaraj with the catchiest song I’ve heard on poverty and redistribution. OK, the only song…..

More Wilbur videos on the Why Poverty? Site – well worth it

Merit, Privilege or Slumdog Millionaires? Income Inequality and Social Mobility

In memory of Sebastian Levine, who liked to read these posts.

This post is written by Ricardo Fuentes-Nieva, Oxfam’s Head of Research (twitter @rivefuentes)

In Danny Boyle’s movie Slumdog Millionaire, the young character wins a large pot of money against all odds. The movie is a fantasy tale for all practical purposes. The hero knows the responses posed to him in a quiz show through a number of coincidences and lucky breaks. It was his only chance to become wealthy.

What type of societies give better, more just chances to everyone? What is the connection between opportunity and socio-economic disparities? There are, at the risk of being simplistic, two broad sources of inequality: inequality resulting from individual entrepreneurship and effort (I’ll call it merit inequality) and the inequality that reproduces privilege and elite capture (I’ll call it privilege inequality).

A simple way to discover whether inequality is actually a result of merit is to think how far effort and hard work can take us. I recently heard Kaushik Basu, the new Chief Economist at the World Bank, detail an anecdote about this during a meeting with civil society people in London.  When Basu visits his home city of Kolkata he goes for long walks and sometimes he wanders around a privileged district that stands in sharp contrast with the nearby slums. The close proximity of the two vastly different lifestyles ensures that slum dwellers also visit this district. Then Basu said, to the best of my recollection: “it is not fair to tell a kid in the slum that by working hard he will be able to achieve the wealth needed to live in that neighbourhood.”

It is a candid story that got the attention of all people present in the meeting. It makes a powerful point. What Basu was pointing at is that perfect social mobility does not exist. Basu focused on the immorality of a development narrative that promotes aspirations that cannot be attained – the slum kid that will not become a rich mogul. I want to focus on the existing rigid class structures and how they limit opportunity.

Equality of opportunity is a central tenet of modern societies, but it implies that family characteristics should not have a strong influence on the opportunities someone faces throughout life. Empirical evidence shows that is not the case. There is a strong correlation between children’s chances and their parents socio-economic status. A book aptly titled “Persistence, Privilege, and Parenting” put it like this: “The abundant evidence in the economic, demographic, and sociological literature of the association between parents’ and children’s social positions makes it very clear that children’s chances for a good life are highly dependent on their social origins or socioeconomic status”

Social mobility is far from perfect – where you’re born will have some influence on where you end up. But what is the actual correlation between inequality and social mobility? It turns out it’s rather high. Several academic papers (look here, here and here) show this. Take, for instance, recent research by Miles Corak. In this graph, Corak plotted the Gini coefficient (a standard measure of inequality) against “intergenerational elasticity between fathers’ and sons’ earnings” (or how much someone’s income is determined by their parents’). In Denmark, for instance, a country with a low Gini, only 15 percent the a young adult’s income today is explained by their parents’; in Peru, where the Gini is amongst the highest in the world, two-thirds of what someone earns today is related to what their parents earned in the past. Alan Kruger, a former senior official in Obama’s administration and professor at Princeton, dubbed this relationship “The Great Gatsby Curve” (a movie with Leonardo Di Caprio is coming if you don’t feel like reading the book). The rich are different from you and me. And so their offspring are too.

Figure: Like father like son? Parents’ earnings influence income of offspring, and more so in countries with high inequality.

Note: Income inequality in the horizontal axis, persistence of income across generations in the vertical one.

Source: M Corak (2012) Inequality from generation to generation: the United States in Comparison.

A recent debate on The Economist site shed more light on the issue. In a blog post, Francisco Ferreira from the World Bank showed the relationship between opportunity and mobility. Here’s the graph.

You can only climb the social ladder if you have opportunities

Note: persistence of income across generations in the horizontal axis, inequality of economic opportunity in the vertical one.

Source: Brunori, Paolo; Ferreira, Francisco H. G.; Peragine, Vito. (2013) Inequality of opportunity, income inequality and economic mobility : some international comparisons

Countries where economic opportunity is low also present low levels of mobility – Norway is a mobile society where there is low inequality of opportunity, while Brazil, for all its progress, still shows a rigid society with higher levels of inequality of opportunity. The indicator Ferreira and co-authors use in their research (inequality of economic opportunity index) is not without flaws but it’s a solid attempt to capture how much someone’s ability to participate in the economy is determined by circumstances outside their control – characteristics you cannot change easily (race, parent’s education, sex and the like). Ferreira and his co-authors conclude: “The evidence reviewed suggests that an important portion of income inequality observed in the world today cannot be attributed to differences in individual efforts or responsibility. On the contrary, it can be directly ascribed to exogenous factors such as family background, gender, race, place of birth, etc.” Their evidence indicates that privilege inequality trumps merit inequality.

Why? Because privilege persists across generations through difference in access to education, health and social and professional networks and it starts very early in life. This is the connection between income inequality, inequality of opportunity and social mobility. In countries with high income inequality, you only have opportunities if your parents had them too. Ferreira explains “as the rungs of the ladder grow further apart, it gets harder for people to climb up (or move down). Conversely, countries with institutions that promote a level playing field, and redistribute income or opportunity, may also promote mobility”.

The evidence that income inequality limits our control over our destiny is strong. We know something about the dynamics of the class divide. There are some examples of increased mobility throughout history in Britain and the US. As The Economist puts it “…in both America and Britain the effect of high (or low) incomes in one generation lasts for at least two more. Yet [Long and Ferrie’s] study also suggests it is possible to break patterns of immobility. Although American and British mobility rates had converged by the middle of the 20th century, America’s social order was considerably more fluid than Britain’s in the 19th century. The past has a tight grip on the present. But in the right circumstances, it can apparently be loosened. “. So it is possible  to change the level of mobility in society.

We need to understand better how to loosen those circumstances to make societies more fluid but we know that inequality hampers it.  The higher the inequality level in societies, the farther we are from that ideal that with hard work we can achieve what we set our minds. Then, like in Slumdog Millionaire, only an implausible array of coincidences allows people to move up the ladder. How can we support the narrative that says hard work and effort will really improve poor people’s relative position in society when we know that with growing inequalities it becomes much harder?

Tomorrow, I wonder what the aid biz might actually do differently as a result of all this renewed focus on inequality

Kevin Watkins on inequality – required reading

If you want an overview of the current debates on inequality, read Kevin Watkins’ magisterial Ryszard Kapuściński lecture. Kevin, who will shortly take over as the new head of the Overseas Development Institute, argues that ‘getting to zero’ on poverty means putting inequality at the heart of the development debate and the post2015 agreement (he doesn’t share my scepticism on that one). As a taster, here are two powerful graphs, showing how poverty will fall globally and in India, with predicted growth rates, in a low/high/current inequality variants. QED, really.

Brazil v South Africa: what can the BRICS tell us about overcoming inequality?

The blog’s inequality week here in South Africa continues with some thoughts on inequality and the BRICS. An edited version of this post appeared earlier this week on the FT’s Beyond BRICS blog

The acronym may have been cooked up in far-off New York, but the BRICS grouping of countries is starting to generate some interesting life of its own. Last week, I was in Durban, chairing a discussion between academics and activists from South Africa and Brazil ahead of the BRICS summit later this month. The topic? ‘Tackling inequality across BRICS’.

The starting point was Brazilian exceptionalism. Long held up as exhibit A in Latin America’s gross distortions of wealth, Brazil is now the only BRIC where inequality is falling (and fast – see chart). In the wider G20 group of leading economies, only 4 can boast falling inequality levels; three of them – Brazil, Argentina and Mexico – are Latin American.

The stats, captured in a new Oxfam briefing, published in conjunction with Rio’s BRICS Policy Center, are striking. Over the last decade, the incomes of the poorest Brazilians have risen more than five times faster than those of the richest (but both are rising – no zero sum games here). In the words of Brazilian poverty guru Ricardo Paes de Barros, “the incomes of individuals in the lowest decile of the income distribution is growing at Chinese rates, while the income of the richest decile grows at German rates”.

Even though GDP growth is sluggish, two weeks ago President Dilma Rousseff was able to announce the end of ‘registered extreme poverty’ – note her careful choice of words. Some Brazilian academics put this historic turnaround on a par with the New Deal in the US, or Britain’s post war creation of its welfare state.

The fine grain is just as encouraging: women’s incomes are rising faster than men’s; black people’s faster than whites’; the impoverished North-east faster than the rich South-east. Hunger is ‘largely dealt with’ according to Oxfam’s country director Simon Ticehurst, speaking in Durban, although food insecurity continues to plague communities in the northeast of Brazil. Near full employment is transforming lives, as people move from a day to day scrabble for survival into the better paid, more stable world of the formal economy. Brazil’s middle classes complain bitterly about having to pay more for maids, and even give them days off, as labour markets tighten.

Not that Brazil has become some kind of development nirvana: the quality of state education remains poor, large scale agriculture sucks up state subsidies on a far greater scale than those going to poor farmers; and despite the progress, the country is still in the world’s top 15 most unequal countries, twice as unequal as the OECD average.

Caveats aside, how did Brazil pull this off? Ticehurst and Adriana Erthal Abdenur of the BRICS Policy Center both stressed that such a transformation is complex and multi-tiered, involving all parts of state and society. This is most definitely not a magic bullet story of Brazil’s famous ‘Bolsa Familia’ social protection system, a programme of cash transfers to women in return for getting their kids vaccinated and keeping them in school, which has won admirers and imitators as far afield as New York City. UNDP estimates that such spending programmes account for under a fifth of the fall in inequality. Ticehurst argued that other critical factors include:

-          The transition from military rule to democracy, which bequeathed a constitution and political process attuned to the importance of basic rights, such as the right to food

-          The election of a centre-left government, led by Lula, committed to tackling poverty and inequality

-          Major increases in the minimum wage, the introduction of a universal pension (particularly important in deprived rural households)

-          An integrated and more effective public administration, working tightly across ministries and between the different levels of a federal, decentralized political system.

-          A high level of public participation, for example in holding 19 different ministries to account on Brazil’s ‘zero hunger’ effort to achieve universal access to food, through a virtuous circle of linking poor family farms to government procurement for school feeding programmes that in turn feed poor children.

-          Political and economic stability throughout the period of reforms.

In terms of economy and politics, Brazil is probably closer to South Africa than the other BRICS (commodity producer, democracy, transition from autocracy, centre left government) and the discussion inevitably centred on why South Africa has failed to emulate such successes. While there has been substantial progress since the end of Apartheid on access to health, education and housing, inequality remains obstinately high and rising.

The two elements of Brazil’s success that South Africa seems to be missing (by a mile) are full employment and more competent administration. Patronage and corruption exist in both countries, but their extent in South Africa is undermining the state’s ability to implement policies, however well designed. Brazil, with its more diversified economy and public investments, seems able to generate jobs in a way that remains a distant dream in South Africa, which remains dependent on agribusiness and mining, neither of which generate the employment the country needs. Substantial land redistribution seems essential to tackling the jobs crisis, yet has been systematically postponed by the government in the interests of stability. Even those who manage to navigate the dilapidated education system and emerge with a degree still find it difficult to find jobs. Alarm bells are ringing, with observers warning of anything from a slow meltdown of the ANC government to an Arab Spring style uprising led by educated, jobless youth.

While all sides stressed that merely trying to transfer policies from one country to another seldom works, this kind of South-South exchange holds huge potential for helping the BRICS develop their own solutions to some of the problems such as inequality that continue to plague the old guard of the G8.

And here’s a 25m video summary of the Durban event

On inequality, let’s do the Palma (because the Gini is so last century)

What better place than South Africa to run an inequality week on the blog? Today’s guest post from Alex Cobham (left) and Andy Sumner (right) summarizes their new paper on inequality – got a feeling this one might be quite important. Tomorrow, Brazil v South Africa.

There’s one measure of inequality that gets all the attention – the Gini index. The Gini was developed in the early 1900s – in fact about 100 years ago – by Italian Statistician, Corrado Gini (see pic, looks like a real party animal). A century later our paper argues that it may be time for a rethink on measuring inequality. Why?

it's no fun being a guru

The Gini reflects the difference between the actual cumulative distribution of income, or anything else in a population, and perfect equality (the yellow area in the graphic). A Gini value of zero would mean that the distribution is completely equal and a Gini value of one would mean that one person had all the income and everyone else nothing (i.e. all of the green area would be yellow).

Simple, eh? So, what’s the difference between a country A with a Gini of 0.4 and country B with a Gini of 0.45? We can say country B (0.45) is a bit less equal than country A (0.4). What we can’t is where that inequality exists. Is it a squeezed middle? Or is it at the poor’s end of the distribution?

So if you’re a policy maker working for an incoming president elected on a mandate to address inequality and increase the share of income to the poor, the Gini won’t be a great deal of help.

It’s also long been known thanks to inequality guru Tony Atkinson that the Gini is over-sensitive to changes in the middle of the distribution – and, as a consequence, insensitive to changes at the top and bottom. That’s a problem because we care most about what happens at the top and bottom in developing countries.

So, we’ve just put out a new paper, predictably titled ‘Putting the Gini back in the Bottle?’, exploring an alternative measure for policy, which is sensitive to exactly that. We’ve called it the ‘Palma’ as it is based on the research of Chilean economist, Gabriel Palma (below). When Palma started looking at the finer grain of inequality, rather than just the Gini, he made a startling observation (see Duncan’s take on it here).

He found that the ‘middle classes’ – more accurately the middle income groups between the ‘rich’ and the ‘poor’ (defined as the five ‘middle’ deciles, 5 to 9) – tend to capture around half of GNI – Gross National Income wherever you live and whenever you look. The other half of national income is shared between the richest 10% and the poorest 40% but the share of those two groups varies considerably across countries.

Palma suggested distributional politics is largely about the battle between the rich and poor for the other half of national income, and who the middle classes side with.

So, we’ve given this idea a name – ‘the Palma’ (brilliant eh?) or the Palma Ratio. It’s defined as the ratio of the richest 10% of the population’s share of gross national income (GNI), divided by the poorest 40% of the population’s share. We think this might be a more policy-relevant indicator than the Gini, especially when it comes to poverty reduction.

In the paper, we do a few things. First, we confirm the robustness of Palma’s main results over time: the remarkable stability of the middle class capture across countries, coupled with much greater variation in the 10/40 ratio.

Second, we suggest that the Palma might be a better measure for policy makers to track as it is intuitively easier to understand for policy makers and citizens alike. For a given, high Palma value, it is clear what needs to change: to narrow the gap, by raising the share of national income of the poorest 40% and/or reducing the share of the top 10%.

Third, we also present some tentative but striking evidence of a link between countries’ Palma and their rates of progress on the major Millennium Development Goal (MDG) poverty targets. More work is needed, and there are all sorts of caveats, but the results indicate that countries that reduced their Palma exhibit mean rates of progress which, compared to countries with rising Palmas, are three times higher in reducing extreme poverty and hunger, twice as high in reducing the proportion of people lacking access to improved water sources, and a third higher in reducing under-five mortality. If that isn’t worth a closer look we don’t know what is.

Of course not everyone is going to like our paper – we sent it around the great and the good of the inequality world and really got a ‘marmite effect’ –people love or hate it (Andy’s New Bottom Billion paper on poverty in middle income countries got much the same initial response). Who likes it? Without naming names, here are the main love/hate responses – stylized – for a few salient groupings (those who commented on the paper shouldn’t get too hung up on this table).

We think there’s an important debate to be had on measuring inequality, especially if the post-2015 discussions take it into central account. So let’s start with a vote (see right), preferably after you’ve taken a look at our paper.

Andy Sumner is co-director of the newly established, International Development Institute at King’s College London, that is seeking to study development from a different angle. Alex Cobham is a research fellow at the Center for Global Development in Europe and a member of the advisory group of the UN consultation on inequalities in post-2015.

Should we (and everyone in Davos) worry about extreme wealth? New Oxfam briefing

Good to see Oxfam highlighting inequality in its media briefing ahead of this week’s annual gathering of power & plutocrats in Davos. Because inequality is about the relationship between different social groups, it is inherently more political and more controversial than poverty. As our head of campaigns Ben Phillips, who packs a mean sound bite, said in his Al Jazeera interview, ‘’We sometimes talk about the ‘have-nots’ and the ‘haves’ – well, we’re talking about the ‘have-lots’.’ (I misheard it as ‘have yachts’, which would have been even better….)

An extreme concentration of wealth not only misallocates resources, it undermines political processes, as those who control wealth pay for increased lobbying, which in turn leads to decisions that further skew wealth (Joe Stiglitz has highlighted this kind of destructive feedback loop in relation to the finance industry).

The briefing calls for an end to ‘extreme wealth’. I helped out with our first killer fact of 2013:

‘The top 100 billionaires added $240 billion to their wealth in 2012 – enough to end world poverty four times over.’

I suspect this one could be around for a while, so here are the sources for the calculation:

First, Bloomberg for the increase in income of the richest 100 people:

‘The world’s 100 richest people added $241 billion to their combined wealth in 2012, according to the Bloomberg Billionaires Index. The top 100 controlled an aggregate $1.9 trillion as calculated by the prices on world stock markets December 31, for an average of nearly $20 billion apiece.’

Then the Brookings Institution calculated the money required to lift everyone in the world over the $1.25 a day line

‘Providing every person in the world with a minimum income of $1.25/day in 2010 would [cost] just $66 billion.’

Divide Bloomberg by Brookings and you get the figure of (roughly) four.

The more I think about it, the more astonishing this number is. A quarter of the additional wealth accumulated in 2012 by 100 people could end extreme poverty for 1.4 billion people – that’s a ratio of 1 to 14 million. So if each of the world’s top 100 billionaires gave up 25% of their income (we could call it a ‘tax’ or ‘extreme wealth surcharge’…), they could each take 14 million people out of extreme poverty. OK I know it’s not that simple, you can’t just get money directly to poor people (though it’s getting easier with mobile banking etc), but still, the disparity in scale is breathtaking.

What’s New in Development? Introducing the Second Edition of ‘From Poverty to Power’

Here’s what the new edition of FP2P adds to the first (in case you want to save yourselves a few quid). This was recently published by the UN University as part of its ‘WIDER Angle’ series

Updating a book on contemporary events can be unnerving. In the intervening years, events and new thinking combine to expose theweaknesses of any text. Even more so with a book like ‘From Poverty to Power: How Active Citizens and Effective States Can Change the World’ (henceforward, FP2P), whose second edition has just been published. In trying to present an overall NGO narrative on development, it offered a particularly rich variety of hostages to fortune.

FP2P’s core argument was that the driving force behind development (understood in the Sen formulation as ‘freedoms to do and to be’) is a combination of active citizens and effective states. Why active citizens? Because people living in poverty must have a voice in deciding their own destiny, fighting for rights and justice in their own society, and holding the state and private sector to account. Why effective states? Because history shows that no country has prospered without a state than can actively manage the development process in terms of infrastructure, rule of law, human capital and industrial upgrading. In addition, the first edition stressed the importance of inequality and redistribution, both in terms of social and economic waste, and social justice.

The three shocks, and a slow-motion train wreck

What’s new in the second edition? An update chapter covers the main events of the intervening years, which it identifies as three shocks: the global financial crisis; the food price spike(s) and the Arab Spring; and a slow-motion train wreck in the form of climate change.

The global financial crisis was a watershed event, triggering historic geopolitical change, including the shift from G8 to G20 and the rise of the emerging powers. It drew attention to the risks of an excessively ‘financialized’ global economy, but failed to lead to a reining in of the excessive size and volatility of ‘hot money’, condemning us to future financial crises, possibly starting with Europe in the coming months. More broadly, the advent of the G20 has failed to re-energise the multilateral system, with global talks on climate change, trade and arms control all paralysed. Some commentators are even talking of a ‘G zero’, with no one in charge.

The food price spike, which in many countries traumatized the lives of poor people to a much greater extent than the financial crisis, reversed a decades-long trend of low and falling prices, thus threatening the long-term progress on hunger and nutrition.  This has led to renewed attention to food security worldwide, but with some unfortunate side effects such as ‘land grabs’ across the developing world by investors from rich countries.

The Arab Spring confirmed the importance of active citizenship in processes of change, and made us think much harder about the role of women (who were very active) in Islamic contexts, along with the granular and complex nature of social movements.

But an even more intriguing aspect of updating the book has been trying to identify how these events, along with the research and ‘public conversation’ of the development world, have changed the way we think about development.

Taken together, the three shocks, along with the growing frequency of extreme weather events, have made us much more aware of the impact of volatility, risk and vulnerability on the lives of poor people. That leads both to a focus on building resilience, and trying to dampen or prevent them in the first place. Shock absorbers, from social protection to food reserves to ‘circuit breakers’ in financial markets, have become a much more central part of the development debate.

Accounting for complexity: shifts in thinking and communicating

But it goes deeper than that. The unpredictability and systemic nature of the shocks has driven home the inadequacy of development thinking predicated on linear processes of change. That raises real challenges for traditional systems of planning and measuring results. Oxfam recently sent a complexity physicist to visit its programme in northern Kenya, and the insights from this kind of interdisciplinary work are likely to play an important role in transforming our thinking in coming years.

A further consequence of systems thinking is that we are trying to work out the implications of seeing the world’s ecosystem as a closed system, operating within clear planetary boundaries. Kate Raworth’s work on how to combine these planetary boundaries with a ‘social floor’ has great promise in this area.

Over the last five years, the nature of authorship itself has been transformed by technology. The From Poverty to Power blog, initially launched to promote the first edition, has rapidly acquired a life and readership of its own. It has also provided the first draft of many of the updates incorporated into the second edition. Twitter has only added to the daily churn of links, ideas and opinions. Wrestling to impose a coherent narrative on the greatly increased information flood is one of the growing challenges of authorship.

So how has the first edition survived the assault of history?

I think the central argument still holds—that development happens primarily through the interaction of citizens and states, with aid and the global system playing only a second order role. However climate and finance are two examples of collective action problems that cannot be resolved at national level. The paralysis of international action in those areas is perhaps the darkest cloud on the development horizon, threatening to reverse sixty years of unprecedented human progress.

Inequality and redistribution have become far more mainstream debates, with even the IMF weighing in on how high levels of inequality imperil both growth and stability. Tighter constraints placed by ecosystem boundaries (for example on the right to pollute), further heighten the importance of who gets which slice of the pie.

Many people, both inside and outside Oxfam, have questioned the absence of the private sector from the citizen-state binary. My response has been that an effective state creates the enabling conditions in which private enterprise can flourish. However, I now think that I, along with many others, confused and conflated the roles of private sector, markets, and economic power. The lacklustre response to the financial meltdown has demonstrated the central role of economic power, and we do need to make the visibility and regulation of economic power a more central part of our narrative.

Finally, one area of the first edition has expanded enormously in the last five years, its focus on ‘how change happens’. Better understanding of processes of change, and the accompanying analysis of the distribution and redistribution of different kinds of power within change processes, is rapidly becoming a central component of development thinking at Oxfam and many other development agencies. It is also the subject of my next book—now there’s a hostage to fortune!

And in case you missed it, here’s me coveringe the same ground on video, reading an autocue, waving my arms and looking slightly deranged

Milanovic on inequality (continued): implications for politics, alliances and migration

In which, following on yesterday’s post,  Ricardo Fuentes and I decide to carry on chatting about the new Milanovic paper on inequality

Duncan: Great intro to the Milanovic paper, Ricardo, but there’s plenty more juice to be had, I think. First let’s take a closer look at the graph you put up of change in global real income 1988-2008 (below). As well as the spike of the top 1% (and do we know whether the financial crisis has moderated or amplified the spike?), the bit that jumps out at me is the stagnation of incomes above the 75^th percentile. For that portion of the world’s population in the top quarter of the income bracket, but below the super-rich 1%, the last 20 years have been pretty terrible.

Milanovic calls this the ‘global upper-middle class’ and says it includes many in the former Communist countries and Latin America. But my guess would be that it mostly corresponds to the non-elite working population in the formerly rich countries – reflecting the kinds of income stagnation we have seen in the US and (to a lesser extent) Europe. Is that right, or might this also be hitting the upper income levels of middle classes in emerging economies?

Ricardo:  I think you are right, the middle class in Western democracies have suffered stagnation in their standards of living – when they’ve been lucky. There is plenty of evidence of that happening in terms of wages but also in terms of perceptions. When you ask middle class Americans about their future, they don’t seem optimistic. It would be interesting to identify the percentiles in Milanovic’s graphs with per capita income and try to figure where they live.

Duncan: The politics of that seem at first sight a bit grim. Taking a crudely reductionist line that people support the status quo if it delivers them faster than average rising incomes, and oppose it if it doesn’t , you would expect a pro-globalization alliance between the super rich and the 10-70^th centiles (= emerging economies and their governments?), opposed by the non-elite rich country populations in between. Is this the graph that underlies rising European/North American hostility to immigration, northern trade liberalization etc? If they could establish any kind of political connection, their natural allies would be the people at the bottom of the pile – the bottom decile. Maybe that’s what (some) INGOs are doing?!

Ricardo: I’m not sure this kind of alliance would naturally happen because the source of income gains is likely to be different. I don’t have strong evidence on this (my best read is this report from the OECD) but the guess, being overly simplistic, is that the improvements we see in the bottom of the global distribution are related to increases in wages for workers in emerging economies (the jobs that have been outsourced). The gains in the super rich most likely come from returns to assets and benefits from the financial system. Again, I’m mostly guessing. This is something we could look more into.

Duncan: The Milanovic paper also dug up some startling findings in other parts of the inequality debate. How about this:

‘Perhaps for the first time since the Industrial Revolution, there may be a decline in global inequality. Between 2002 and 2008, global Gini decreased by 1.4 points. We must not rush to conclude that what we see in the most recent years represents a real or irreversible decline, or a new trend, since we do not know if the decline of global inequality will continue in the next decades. It is so far just a tiny drop, a kink in the trend, but is indeed a hopeful sign.’

That’s dynamite. As I understand the paper, this is driven by the rise of India and China, despite their soaring internal inequality. I don’t have the maths, but you do – is it possible for the global income distribution to get more equal, even if all its major players are becoming less equal internally? And if so, is that a temporary statistical blip til global inequality once again starts to rise?

Ricardo: This apparent contradiction is very plausible – in fact, it was at the heart of an old and influential paper by Xavier Sala-I-Martin. The Economist summarized it better than I could here.  According to Sala-I-Martin, the global distribution of income inequality declined between 1980 and 1998 but this conversation can quickly become very technical if we contrast the results. For me, the global Gini is a moot point because, for all we wish, we are still not a global community. Aspirations, tastes , institutional rules and the sense of community is still determined by the nation-state. Except for the global one percent. That’s partly why I think the most important part of Milanovic’s paper is the spike at the top of the distribution.

Duncan: The other really nice piece of his paper, although I’ve seen it written about elsewhere, was his ‘migration v Marx’ chart (above). Decomposing the sources of inequality, he finds that in 1870, the class position within countries determined 2/3 of global inequality; whereas now it is down to a third. Instead, it is geography – which county you live – that explains 2/3 of global inequality. That also has profound political implications, as Milanovic recognizes:

‘If the world’s actual situation is such that the greatest disparities are due to the income gaps between nations, then proletarian solidarity does not make much sense. Indeed income levels of poor individuals in poor countries are much lower than income levels of poor people in rich countries. Those who are considered nationally poor in the United States or the European Union have incomes which are many times greater than the incomes of the poor people in poor countries and moreover often greater than the incomes of the middle class in poor countries. And if that gap is so wide, then one  cannot expect any kind of coalition between these income-heterogeneous groups of nationally poor people, or at least not any  coalition based on the similarity of their material  positions and  near-identity of their  economic  interests.’

Unless global inequality falls, and some new convergence of interests occurs, of course. But even if you accept his reversal of the last few years, that still seems an awfully long way off.

Finally on migration, I really liked his question: ‘can we treat location, and thus citizenship, as a rent or a premium (or obversely, as a penalty)?’ He points out the double standards of disapproving of inherited wealth, and yet accepting it when that wealth springs from the geographical accident of birth:

‘In one case, we frown upon the transmission of family-acquired wealth to offspring if two different individuals belong to the same nation. In the other case, we take it as normal that there is a transmission of collectively acquired wealth over generations within the same nation, and if two individuals belong to two different nations, we do not even think, much less question, such acquired differences in wealth, income and global social position.‘

He doesn’t try and draw out the political implications of this – perhaps just as well!

Ricardo: And I won’t try either. Let me just say this: inclusive migration policies could do a lot for the lives of poor people. But that’s something we should discuss some other time.

Inequality and the rise of the global 1%: great new paper by Branko Milanovic

Ricardo Fuentes on an important new paper. Tomorrow, Ricardo and I continue the conversation

The rich in the West are getting richer. Many countries have experienced a sharp concentration of incomes over the last three decades. The top 1% of Americans have doubled their share of national income (from 8 to 17%) since Ronald Reagan was inaugurated 32 years ago – see graph, source here. The elite in other advanced economies, including, Australia, the UK, Japan and Sweden, have also gotten a larger share of the pie. We have been able to understand the concentration of incomes at the national level thanks to the study of tax records by enterprising scholars such as Emmanuel Saez, Thomas Picketty and Sir Anthony Atkinson. But until recently, we didn’t know much about the global concentration of incomes (there’s no global tax collector with a similar database).

Share of income of the top 1%

Enter Branko Milanovic, a lead economist from the World Bank. A quick detour before going to the global concentration of incomes. Milanovic has been working on inequality for decades – even when the topic was unfashionable. He describes the difficulty in talking about inequality here where he recalls

“In many social parties or professional meetings in Washington and elsewhere, when introduced to and informed that I worked on inequality, my (more polite) interlocutors would make a [...] similar [point] (“why should inequality matter at all”); others, perhaps less polite, would wave their hands basically ascribing the fact that anyone would pay a person to study inequality to profligate ways of international bureaucracy.”

But inequality is rightly back in the center of academic and policy agenda and in a new paper Milanovic uses a large database of household survey to identify the winners and losers of the global economy between 1988 and 2008. He finds that:

“…it is indeed among the very top of the global income distribution and among the “emerging global middle class”, which includes more than a third of world population, that we find most significant increases in per capita income. The top 1% has seen its real income rise by more than 60% over those two decades. The largest increases however were registered around the median….These two groups—the global top 1% and the middle classes of the emerging market economies— are indeed the main winners of globalization….The surprise is that those at the bottom third of the global income distribution have also made significant gains….The only exception is the poorest 5% of the population whose real incomes have remained the same.” (page 12)

Milanovic explains with a single graph (below) – where he plots the increase in income of each global percentile – the reduction in global poverty where the most deprived are left behind, the stagnation of lifestyles for the middle class in many industrialized countries and the rise of the global plutocrats.

I want to focus in this post on the last element – the increase in income of the global elite and its implications. First, who are the global 1%? Around 60 million people scattered around the world but mostly concentrated in Europe and the US. In his book The Haves and the Have-Nots, Milanovic calculated that people with an average income of US$34,000 a year would make it into this group. It doesn’t seem like much, but remember it is income per person. Take an average family of four and then we are talking about US$136,000 – well above the average household income in OECD countries.

So, the global 1% has benefited from economic development and globalization since 1988 – their income has risen by about 60% in those two decades. But why does it matter if the global elite become richer? I’ve written elsewhere about why inequality matters, but most of the policies to reduce income inequality operate at the national level: redistributive taxation and equalization of opportunity lie in the realm of national governments. And as Milanovic explains “In a single country, people share the same government; if they feel that inequality is too high or society too unjust, they have a political mechanism – elections in a democracy; revolt in an autocracy- to make their concerns known. And the rulers, whether democratic or not, must, for reasons of self-preservation, take into account, in their thinking and decision making, the views of the population” (The Haves and the Have-nots, page 160). These mechanisms are not perfect (elite-capture and rent-seeking are common around the world) but at least they exist.

In contrast, we do not have them at the global level, and this absence of checks and balances is well exploited. The only truly globalised group are probably among these 60 million people – their physical and financial mobility way higher than the rest of the world’s population.  This weekend, as I was taking a break from writing this blog post, I went for a coffee and bought the Financial Times. The cover story reads “Moscow’s rich buy £1m entry into the UK – Visa applications by foreign millionaires up 75%. Chinese elite also join rush to settle in London”. As Chrystia Freeland says in her book Plutocrats, ”today’s super-rich are increasingly a nation unto themselves”. A nation of powerful individuals and corporations without a coherent state to regulate their activities.

Take taxes, for instance. Or rather, don’t take taxes, because you can’t. Probably one of the most harmful effects of the rapid increase in the incomes of the global rich is the expansion and size of tax havens. By the nature of the issue, it’s very hard to come up with reliable numbers but the extent of the problem is staggering. The Tax Justice Network estimated earlier in the year that between $21 to $32 trillion has been invested “virtually tax-free through the world’s still- expanding black hole of more than 80 “offshore” secrecy jurisdictions.” Another estimate indicates that “households own globally about 8% of their financial wealth in tax havens ”.  And recently, the parliamentary spending watchdog in the UK released a report outlining the extent of tax avoidance by Amazon, Google and Starbucks – and the companies don’t look good. The report states “Global companies structure their companies in ways that are impenetrable to the public and HMRC [HM Revenue and Custom] disclose very little about their approach to collecting tax from them.“

National concentration of income and rising inequality is very worrying as political and economic processes become biased towards the interest of elites but the evidence from Milanovic’s papers suggest that we shouldn’t forget the rising influence of the global 1%. The absence of systematic international rules allows them to avoid paying their share, while leveraging their wealth even more effectively to increase their benefit and influence. They become more powerful and capable of bending the rules in their favor.