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Last Updated: Tuesday, 20 September 2005, 17:04 GMT 18:04 UK
World Bank rediscovers inequality
by Steve Schifferes
BBC News economics reporter

Brazilian shanty town
Inequality is growing both within and between countries
When the World Bank's new president, Paul Wolfowitz, presides over his first annual meeting, he will be confronted with a radical new report from his own organisation that sees ending inequality as a key to reducing poverty.

The World Bank's annual development report often sets the tone for its discussion on development issues.

And this year's report squarely confronts one of the key issues in development - the role of inequality.

The "Equity and Development" report is the first time that the World Bank has explicitly acknowledged that redistribution - as well as economic growth - is needed to end world poverty.

Reducing (inequities) may be perfectly consistent with - and perhaps even necessary for - greater efficiency and prosperity in the long-term
World Bank Development Report

The authors are careful to emphasise that they are not anti-growth, but that equity enhances the effect of growth on poverty reduction.

They also put their main emphasis on equality of opportunity, pointing out that groups (such as religious or ethnic minorities) excluded from better health and education reduce the overall capacity of the economy to grow.

However, the report is in tune with other recent UN reports, such as the Human Development Report, which warned that millennium development goals would not be met without tackling inequality.

Globalisation and inequality

The report acknowledges that inequality between countries has grown sharply since globalisation and the expansion of world trade in the 19th century, and that the trend continued between 1950 and 1990.

In contrast, the differences within countries have become less important - although that trend seems to have reversed itself in recent years.

The World Bank estimates that global inequality doubled between l820 and 1990, while the contribution of inter-country inequality increased from just 10% to more than 60% over the same period.

International inequality declined in the last decade, because income growth in China and India offset the growing inequality within rich countries and the declining incomes in sub-Saharan Africa.

However, measured in absolute terms, the gap between rich and poor has been steadily increasing, both between citizens of rich and poor countries, and within countries.

Within nations inequality rose most in China, the US, Britain and New Zealand.

Excluded groups

The World Bank report argues that one of the biggest barriers to equity is that within countries, access to basic services like health and education varies greatly according to "predetermined group characteristics" like social, economic, and ethnic status.

Congolese army soldiers
Lack of equity has fed conflict and civil war

It points out that rates of childhood immunisation vary enormously, even in the poor countries of sub-Saharan Africa, by economic status.

For example, in Niger, 60% of the children of the rich have received protection, but only 10% of the poor.

Infant mortality, education and access to land and credit also vary dramatically - with women, people in rural areas, and those of low caste or status generally losing out.

The Bank estimates that between one-third and one-half of the inequalities within countries can be explained by "between-groups" differences.

It says that excluding such groups is economically inefficient, because they are prevented from contributing fully to the economy.

Policy implications

The Bank is cautious about how far to apply the lessons of its research.

A child in India
Health care is unequally distributed between rich and poor

It says that "it is not for us to advise countries on what exactly constitutes an equitable distribution in their societies".

But it says its role is "to point out the inequities we can observe and to note that reducing them may be perfectly consistent with - and perhaps even necessary for - greater efficiency and prosperity in the long-term".

It warns against too-great an emphasis on redistribution alone.

"The history of the twentieth century is littered with examples of ill-designed policies pursued in the name of equity that seriously harmed - rather than spurred - growth by ignoring individual incentives," it says.

However, it also says that policy makers "too often ignore the long-term, hard-to-measure but real benefits of greater equity" which can lead to "more efficient economic functioning, reduced conflict, greater trust, and better institutions, with dynamic benefits for investment and growth."

Theory and practice

In recent years the World Bank has shifted dramatically, from an emphasis on building infrastructure like dams and roads to taking account of institutions like good government and a functioning legal system, and advocating a bigger voice for the poor in tackling development.

But a new report from development campaigners suggests that rhetoric and the reality may have diverged.

The World Development Movement has analysed the "Poverty Reduction and Growth Strategy" documents that the World Bank now agrees with poor countries as a pre-condition for receiving loans.

It says that of the 308 policy recommendations agreed with 50 countries, only 11 diverged from the "Washington consensus" of strict monetary and fiscal policy, deregulation and privatisation, and opening of labour and product markets to international competition.

Make Poverty History is planning to campaign on these issues at the World Bank/IMF annual meeting, and has written to Chancellor Gordon Brown and Hilary Benn, the UK development secretary, urging them to "end the economic policy conditions the World Bank and IMF attach to their own aid and debt relief".

Failure to do so, they say, "would represent a clear failure of the G8 to translate their words into actions".

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