MacroScope

Growth not enough to ease inequality: Oxfam

January 19, 2012

Rising income inequality in rich nations has cast doubt on the old adage, often upheld by the economics profession, that a rising tide lifts all boats. A new report from Oxfam reinforces the notion that wealth does not trickle down of its own accord. The anti-poverty advocacy group says sometimes actively redistributive policies may be needed to address huge income gaps. It also says that, contrary to conventional economic thinking, such policies will directly contribute to better growth rather than impede it.

Inequality, often viewed as an inevitable result of economic progress, in fact acts as a brake on growth. Among the best ways to assure inclusive, sustainable growth and fight poverty, finds the study, are policies that reduce inequality. […]

Inequality erodes the social fabric, and severely limits individuals’opportunities to escape poverty. Where income inequality is high or growing, the evidence is clear that economic growth has significantly less impact on poverty: a trickle-down approach does not work.

The report notes that the United States is the most unequal of the world’s wealthy nations – but that’s old news. More interesting is the finding that even strong rates of growth will not be enough to lift more people out of poverty over the next decade, particularly in the less wealthy G20 nations. The report found that inequality increased in 14 of 18 G20 countries since 1990 despite rapid rates of growth in some countries. Oxfam recommends the following:

The exact policy mix should be tailored to each national context, but policies in successful developing countries suggest the following starting points:

- Redistributive transfers

- Investment in universal access to health and education

- Progressive taxation

- Removal of the barriers to equal rights and opportunities for women

- Reforming land ownership, ensuring the right access to land and other resources, and investing in small-scale food producers

What kinds of redistribution would this involve? Oxfam turns to the United Nations’ Economic Council for Latin America and the Caribbean for answers:

ECLAC suggests that cash transfer programs in Latin America typically have three objectives:

- To alleviate poverty through direct income transfers

- To provide incentives for investment in human capacity-building

- To bring the target population into the social protection and promotion networks

Politically impossible? Perhaps. But Oxfam says some countries have already taken some steps successfully, with impressive results.

The experience of Brazil, Korea, and many low-income and lower middle-income countries shows that reducing inequality is within G20 policy makers’ power, whatever the level of economic development in their country. There is no shortage of potential policy levers. Instead, there has perhaps been a shortage of political will.

 

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