World Bank in inequality warning

Many families are caught in "inequality traps", the Bank warns

Reducing inequality is central to tackling poverty and bringing about sustainable economic growth, the World Bank has said in a key report.

Wider access to education and jobs could "level the economic playing field" and improve livelihoods, it said in its 2006 World Development Report.

It acknowledged that wealth differences had risen between and within countries.

Trade liberalization and effective development aid were among measures needed to help close gaps, it added.

'Persistent inequalities'

The report represents the development agency's most public acknowledgment that redistribution, in addition to economic growth, is needed to reduce world poverty.

It said its view was consistent with other international bodies including the United Nations which has warned that its Millennium Development Goals - the UN's bid halve the number of people living poverty by 2015 - would not be met without progress in addressing inequality.

If the middle and poorer groups are not able to exploit their talent, society loses opportunities for innovation and investment Francisco Ferreira, World Bank World Bank rediscovers inequality

Measured in absolute terms, economic inequality is widening, not only between the richest and poorest countries but also within industrialized nations such as the US, UK and New Zealand.

The World Bank said action was needed to eradicate "persistent inequalities" in societies such as poor access to water, sanitation, power, medicine and communications.

It warned of growing "inequality traps" in which individuals, families and whole social groups had become stuck in a cycle of deprivation marked by high child mortality rates, unemployment and low incomes.

Political exclusion

The report highlighted a direct link between economic and political marginalisation of social groups and poor economic performance.

Exclusion from the political process and discrimination in the labour and financial markets reduced incentives for people to innovate and invest which, in turn, hurt a country's growth potential.

"Inequitable institutions impose economic costs," Francisco Ferreira, one of the report's authors said.

Global trade reform is crucial to helping reduce inequality

"They tend to protect the interests of politically influential and wealthy people, often to the detriment of the majority.

"If the middle and poorer groups are not able to exploit their talent, society loses opportunities for innovation and investment."

The report cited effective examples of redistribution such as land reform in the Indian state of West Bengal which had given sharecroppers greater security and helped boost output.

Trade reform

The world's richest nations could tackle inequality by scrapping subsidies and allowing greater migration of skilled workers from developing countries.

"Public action should seek to expand the set of opportunities of those who have the least voice and fewest resources and capabilities," said World Bank president Paul Wolfowitz.

"It should do so in a manner that respects and enhances individual freedoms, as well as the role of markets in allocating resources."

Development agencies have criticised the World Bank's poverty reduction policies, claiming that they force poor countries to open up their markets and adopt unsuitable fiscal policies.