Special Report

The Economic and Social Purview

‘All men are created equal, that they are endowed by their Creator with certain unalienable Rights that among these are Life, Liberty and the Pursuit of Happiness.’- This concept of equality mentioned in the United States Declaration of Independence is a doctrine for all humanity and drives their quest for achieving the same. Ironically, the concept of ‘inequality’ an omnipresent reality, is as widely accepted and internalized by us as an inevitable phenomenon. 

Inequality, particularly when measured in economic terms, is presented in the form of income differentials, which creates the rich-poor divide, the resultant standard of living and social norms/practices which dictate the progress or lack there of of individuals and by extension, countries. While globally, all countries are trying to reduce economic inequality, the variance has continued to increase at an accelerated rate. What if instead of accepting being unequal as a constant phenomenon, nations start viewing it as a policy choice? What if, changes in economic policies and social policies and priorities could evidently reduce the income variance and usher the hopes of equity?
Oxfam’s Commitment to Reduce Inequality Index (CRI) has been developed with this very concept and could potentially revolutionize the approach towards addressing inequality. In 2015, global nations united to develop and commit to achieving the 17 Sustainable Development Goals.

‘Reduce Inequality between and within nations’ is Goal 10, but this is a cross-cutting goal and is relevant for the achievement of other major goals. The World Bank Poverty and Shared Prosperity Report 2016 provides some causal insights on the poverty and inequality linkage- ‘Despite decades of substantial progress in boosting prosperity and reducing poverty, the world continues to suffer from substantial inequalities. For example, the poorest children compared to the richest are four times less likely to be enrolled in primary education across developing countries. Among the estimated 780 million illiterate adults worldwide, nearly two-thirds are women. Poor people face higher risks of malnutrition and death in childhood and lower odds of receiving key healthcare interventions. Such inequalities are associated with high financial cost, affect economic growth, and generate social and political burdens and barriers. But leveling the playing field is also an issue of fairness and justice that resonates across societies on its own merits.

Oxfam’s research has shown that, since the turn of the century, the poorest half of the world’s population has received just 1% of the total increase in global wealth, while the top 1% received 50% of the increase. Furthermore, it has been made evidently clear that poverty shall remain and spread unless governments address inequality actively. Failing to do so may lead to half a billion people still living in poverty by 2030 according to the predictions stated in the World Bank Poverty and Shared Prosperity Report 2016.

The Household Income and Expenditure Survey 2016 (HIES) report conducted by Bangladesh Bureau of Statistics reflects the trend and shows the rise in income inequality in the country. Countries Ranked in the Top 10 according to the Commitment to Reduce Inequality Index demonstrates the Percentage Distribution of Income to HHS in Deciles, notably the deciles 1-5 constitutes only about 20% of income whereas it comprises of nearly 50% of the population. Income for the top three deciles, 8-10 from the table has increased albeit marginally over the period 2010-2016 and constitutes about 64% of the total income. Alarmingly, the lowest 5% of the households have seen their income more than halved. From 0.78% to 0.23% in duration, while the top 5% have experienced an increase of about 3%. Poverty pockets have increased throughout the country with Rangpur Division being hit the hardest with nearly 50% of their households below the upper poverty line and 30.5% of households below the lower poverty line (Chart 1).

The CRI Index has been developed by Development Finance Institutions (DFI) and Oxfam with the concept that inequality is not inevitable and countries have shown by example that directed steps for reducing inequality do work substantially. The CRI Index has been developed with data from 152 countries worldwide with indicators used to denote policies which directly addresses inequality in countries. The rationale behind this approach explained in the World Bank Poverty and Shared Prosperity Report 2016 is as follows:

Chart-1 : Poverty Profile (Lower) by Division

Source: Household Income and Expenditure Survey Preliminary Report 2016, BBS

“….. the past 30 years have seen a rapid increase in economic inequality – in the gap between the richest people and everyone else. In turn, this has exacerbated existing inequalities, for example, those based on gender and race. It has led to greater political inequality, as the wealthy increase their influence; and it has led to the declining influence of everyone else, particularly the most marginalized people, which undermines democracies and stifles citizens’ voices. It translates into greater social inequality and inequality of opportunity and outcomes, with ever-widening gaps between the health and education of the richest people and the rest, which in turn stifles social mobility. Finally, greater inequality has been linked with greater levels of crime and violence in society.”

THE CRI INDEX

The CRI index is developed using government data from three major policy areas- Social Spending, Taxation, and Labor. Government spending in these areas have shown substantial evidence of reducing inequality, a brief rationale for each spending area.

THE CRI INDEX AND PERFORMANCE OF COUNTRIES AND COUNTRY GROUPS
According to the CRI Index report, out of the 152 countries represented in the index, 112 are doing half of what they could be doing to address inequality. Countries at the top of the index along with the scores they received according to their spending on the major policy areas are shown below:

COUNTRIES RANKED IN THE TOP 10 ACCORDING TO THE COMMITMENT TO REDUCE INEQUALITY INDEX

Source: The Commitment to Reduce Inequality Index Report 2015

Sustainable Development Goals targeting Inequality and Poverty

Source: UN Sustainable Development
Goals Knowledge Platform

It must be noted here, that the ranks of the countries are calculated after taking the weighted average of their scores under the three major policy areas. Most of the top 10 nations are Organisation for Economic Co-operation and Development (OECD) nations, and they may vary according to their contribution under each pillar, but Sweden tops the list with a well-balanced spending structure which has fostered much greater equality in their society. When looking at each policy areas or ‘pillars,’ for social spending Norway tops the chart, for progressive tax structure Austria has performed significantly well, and for Labor Market policies Belgium is at the highest. Varying scores for each pillar essentially means a lot more remains on the countries’ part to improve on and they should, therefore, strive to do better. According to the Commitment to Reduce Inequality Index Report 2015, major countries like the US have performed very poorly and are therefore ranked low in the index, “The USA is the wealthiest country in the history of the world, but its level of inequality is also the highest among major industrial countries, leaving tens of millions of working people impoverished – especially women and people of color.”

Countries which are the worst performers are lagging behind in all of the policy areas massively. Hence, inequality in these countries is extremely large and a major hindrance to their development. The worst performing countries stated in the index are as follows:

THE 10 WORST PERFORMERS ACCORDING TO THE COMMITMENT TO REDUCE INEQUALITY INDEX

Source: The Commitment to Reduce Inequality Index Report 2015

Nigeria is at the bottom of the list since it has shockingly low social spending figure on health care and social safety net programs. According to the CRI Index Report, “More than 10 million children in Nigeria do not go to school, and 1 in 10 children do not reach their fifth birthday. The Africa Progress Panel (2013) has demonstrated that despite Nigeria’s positive economic growth for many years, poverty has increased, and the proceeds of growth have gone up to almost top 10% of the population.”

CHART-2 : TOTAL ADP, EDUCATION AND HEALTH ALLOCATION AS % OF GDP

Source: Budget Documents, Ministry of Finance and Author’s calculations

BANGLADESH’S PERFORMANCE IN THE CRI INDEX
Bangladesh is ranked 141 out of 152 countries, just barely missing the bottom 10 cut-off, in the CRI Index. A regional comparison of other South Asian nations ranks Bangladesh as 6th out of 8 nations considered. A closer look at the disaggregated spending patterns by countries shows that the nation performed very poorly in social spending, ranking 7th out of 8, just barely above India which is at the lowest. Surprisingly, the performance regarding taxation ranks Bangladesh 2nd among the 8 nations with Sri Lanka topping the list. However, while this may be the case in regional comparison, this is hardly a reason for rejoicing, as the country has a long way to go in contrast to the other countries in the full index. Unsurprisingly, the country ranks 5th among 7 nations regarding labor market policies. This is a clear reflection of the labor rights and safety concerns which has marred the readymade garments sector since the Rana Plaza incident. While progress is being enforced, the rate is very slow and explicitly calls for greater national level policy changes regarding labor acts and policies. A concerted and decisive initiative from the government can bring forth the changes necessary for a more equitable labor market and for reaping the ‘demographic dividend.’
The deficiency in social spending- particularly in health and education- is evident in Chart 2. This spending shows the Annual Development budget in total and allocations for education and health development as a percentage of GDP. It is apparent that while the ADP has consistently grown, the allocations for these two sectors have been stagnant, with the health sector being worse off. There is an urgent need to address this at the national level since the burgeoning working population requires skills and good health to perform optimally to boost up their own and the country’s development.
The social protection expenditure as shown by the social safety net programs (SSNP) budget has been hovering around the 2% of GDP mark for the last couple of years. However, not all of the allocation is directed at the welfare of the vulnerable and marginalized section of the population. Owing to the lack of a contributory public pension system, the budget for government employee pension is lumped together with the social safety net budget. When the social safety budget is considered independently, it amounts to around 1.3-1.5% of the GDP and has been on the decline in the past couple of years as shown in Chart 3.

BANGLADESH’S PERFORMANCE IN THE OVERALL CRI INDEX AND REGIONALLY

Source: The Commitment to Reduce Inequality Index Report 2015

A FUTURE THAT WORKS FOR EVERYONE
We have committed as part of the global nations to address the issue of inequality by 2030, which leaves us with just over a decade to make broad changes. Poverty and inequality are strongly linked, and we cannot commit to moving forward as a nation by leaving behind the vulnerable population. Thus, it is high time that education, health and ‘graduation’ models of social protection programs must be prioritized as much as infrastructure and energy sectors now. Physical infrastructure only, cannot take us further if we do not provide sufficient intellectual and personal capital for our population to utilize and benefit from it. Lastly, we must remember, inequality is not necessarily a constant but a policy choice and hence can be addressed and rectified.

Chart-3 :  SSNP Budget (w/wo Govt Pension) as % of GDP


CRI INDEX- RATIONALE FOR SPENDING AREAS CONSIDERED


Social Spending:
Social spending comprises of government expenditure on health, education and social protection of the population. The virtues of equitable, timely and affordable access to health care directly address the physical limitations that income restrictions may have imposed and ensure a healthy labor force. Universal access to quality education ensures the development of skilled and economically strong population which in itself fosters innovation and creates a strong, knowledgeable working population. Social security for lower-income and vulnerable groups tend to create an additional source of income which can act as a measure taken towards a better quality of life through improved access to essential services and goods.

Taxation: A tax structure which is progressive with the rich segment of the population taxed at a higher rate, helps redistribute income more equitably in the economy. This dynamic provides sufficient tax relief for the lower income segments to utilize the additional disposable income better while also providing substantial resources for the government to finance the services required to lift up the marginalized and vulnerable population without having to depend heavily on foreign sources of funding and loans.

Labor: The United States Declaration of Independence policy states, “There is strong evidence that higher wages for ordinary workers and stronger labor rights, especially for women, are key to reducing inequality.” If governments can ensure a sufficiently high minimum wage for workers, they can thereby raise the wage floor which will have a chain effect on income distribution throughout the economy. Additionally, while there is an evident decline in trade unionization globally, allowing workers to form unions ensures that their rights are appropriately represented, and they have a voice in the way organizations are run. This structure also confirms that women are represented and get access to equal income and are hired almost at an equal rate.

Source: CRI Index Report and Author’s narrative

Source: United States Declaration of Independence;World Bank Poverty and Shared Prosperity Report 2016;Household Income and Expenditure Survey Preliminary Report 2016, Bangladesh Bureau of Statistics;World Bank Poverty and Shared Prosperity Report 2016;The Commitment to Reduce Inequality Index Report 2015; Africa Progress Panel (2013). Equity in Extractives: Stewarding Africa’s natural resources for all.

THE AUTHOR IS A ‘Policy Specialist’ in the Advocacy for Social Change Program at BRAC, and can be reached at tahera_ahsan@hotmail.com. The views and opinions expressed here within are of the author’s alone.

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