Social welfare functions that assign weights to individuals based on their income levels can be used to document the relative importance of growth and inequality changes for changes in social welfare. This method is applied in a new working paper by David Dollar, Tatjana Kleineberg, and Aart Kraay. They find that, in a large panel of industrial and developing countries over the past 40 years, most of the cross-country and over-time variation in changes in social welfare is due to changes in average incomes. In contrast, the changes in inequality observed during this period are on average much smaller than changes in average incomes, are uncorrelated with changes in average incomes, and have contributed relatively little to changes in social welfare.
Equitablog, run by the Washington Center for Equitable Growth, has launched a series of 'Notes and Finger Exercises on Thomas Piketty’s “Capital in the Twenty-First Century”.' Brad DeLong's post, 'There Are Four r’s', details some alleged oversights in Piketty's book. In particular, DeLong focuses on how the real interest rate behaves at different levels of economic activity. He highlights Larry Summers' concern about secular stagnation and the risk that rich folks might retreat from investing in industry. And DeLong pulls out some sexy math.
Matthew Gentzkow has won the John Bates Clark Medal, an honor conferred by the American Economic Association for his contributions to "our understanding of the economic forces driving the creation of media products, the changing nature and role of media in the digital environment, and the effect of media on education and civic engagement..."
Postcards from the World Urban Forum in Medellin, Colombia
From April 5th to 11th, in Medellin, the World Urban Forum (WUF) brought together a diverse group of urban thinkers and doers to discuss the world’s most urgent urban challenges. With participants meeting under the theme of “Urban Equity in Development – Cities for Life,” the overall atmosphere was one of cautious optimism. On the one hand, participants were highly aware of the vast challenges facing cities and their inhabitants. Cities remain home to shocking levels of inequality and highly pernicious forms of social and economic exclusion. In that respect, hosting the Forum in Medellin helped drive the point home—as UN-Habitat Executive Director Jon Clos observed before the event, “We want a realistic world urban forum, we want a forum in a real city that has real issues.” On the other, attendees were buoyed by the conviction that today’s rapid urbanization represents an unprecedented demographic and economic opportunity. Medellin itself has made astounding progress in recent years, focusing on improving transport and mobility, inclusive governance, and education.
Last week, Oxfam released a powerful report on inequality, “Working for the Many: Public services fight inequality.” The report makes a persuasive case for the need to bring more attention to the issue of inequality in policy discussions. Indeed, at the recent World Economic Forum Annual Meeting, World Bank President Jim Yong Kim stated that “at Davos, income inequality should be front and center” as an important item on the global agenda. I was recently a discussant in a session on the Oxfam report at a Spring Meetings event alongside Max Lawson of Oxfam Great Britain and David Coady of the IMF's Fiscal Affairs Department. The case Oxfam makes that inequality is harmful to the global economy is well articulated and their prescription for a solution is highly focused: increase the amount of progressive taxation to fund free and universal health and education. In the following slides, I provide a few examples of where we might want to broaden our thinking on the issue of inequality. In particular, I offer a couple of illustrations where a singular focus on inequality would lead us to undervalue some very important progress that has been made in the fight to eliminate poverty. In contrast, by ‘twinning’ the goals of eliminating extreme poverty and boosting shared prosperity, the policies we design may be more likely to ensure that everyone shares in growth and prosperity.
Next week, we’ll be hosting our Spring Meetings in Washington, D.C., which will attract a few thousand leaders in development from around the world. To set the stage for these meetings, I talked this week about the fundamental issues in global development and how we’re undergoing dramatic changes inside the World Bank Group to meet those great challenges.
We live in an unequal world. The gaps between the rich and poor are as obvious here in Washington, D.C., as they are in any capital. Yet, those excluded from economic progress remain largely invisible to many of us in the rich world. In the words of Pope Francis, “That homeless people freeze to death on the street is not news. But a drop … in the stock market is a tragedy.”
While we in the rich world may be blind to the suffering of the poor, the poor throughout the world are very much aware of how the rich live. And they have shown they are willing to take action.
The global diaspora of educated Africans, Asians, and Latin Americans living in the developed world stand accused of undermining the development of their countries of origin.
Paul Collier’s recent book, Exodus, makes the case for strict ceilings on the movement of people from poor countries to rich ones. My colleague Michael Clemens and I already reviewed the book at length for Foreign Affairs (ungated here), but Duncan asked me to respond to the specific issue Paul raised in his recent post for this blog: that skilled migration from some low-income countries is so high that it undermines the development prospects of people “left behind”.
I suspect many people reading this blog in Europe or North America share Professor Collier’s skepticism about skilled migration. You are not racist or xenophobic. You are concerned about the plight of the global poor, and you welcome diversity in your community. But you worry that maybe Paul’s right. Maybe the fate of your university-educated Haitian neighbor down the street, earning a good salary and sending her kids to good schools since moving to the UK, is a distraction from, and maybe even a hindrance to, reducing poverty in Haiti.
Elif Yavuz, a former World Bank consultant, was amongst the 68 people who died in the attack at the Westgate shopping mall in Nairobi in September of this year. At the time of her death, Elif was working for the Clinton Foundation. Hers had been a life dedicated to fighting poverty and disease.
The horror of what enfolded at Westgate is a reminder of the pervasive threat of insecurity, and at the same time of our efforts to protect lives and preserve human dignity the world over. The massacre raises questions, too. Are we deploying the right tools to help put an end to such violence? And what is the role, if any, that development practitioners can play in preventing them? The recently released World Bank report, Inclusion Matters: The Foundation for Shared Prosperity, provides us with some ideas.
The Al-Shabab attack in Nairobi was a tragedy for the victims and their families. Nevertheless, countless numbers of people across the globe die every day in less violent circumstances, and yet just as needlessly – from disease and malnutrition for example. Consider malaria – the issue on which Elif had been working: the latest data show that more than one million people, the majority of them children under the age of five in Africa, are likely to die of malaria this year. Many of these deaths occur in countries where wealth and opportunity are to be found, but the wealth is concentrated in the hands of only a few, while others are barred from opportunities. The evidence suggests that these inequalities, and the feelings of injustice and powerlessness they engender, have the potential to fuel conflict and tempt people to espouse radical ideologies and resort to violence as a means of addressing injustice.
This guest post comes from Ricardo Fuentes-Nieva, Oxfam Head of Research, (@rivefuentes)
No one expects the World Bank to be a simple organization. The intellectual and policy battles that occur inside the Bank are the stuff of wonk legends – I still remember the clashes around the poverty World Development Report in 2000/2001. This is not a criticism. One of the strengths of the World Bank is its dialectic nature – I observed that up close when I was part of the WDR on climate change a few years ago.
Kevin Watkins, the new director of the Overseas Development Institute, reminded me recently that in 1974 Hollis Chenery, then Vice President and Chief Economist of the World Bank, published a book titled “Redistribution with Growth: An Approach to Policy”. Kevin writes that the central idea of the book was “that the poor should capture a larger share of increments to growth than their current share. That idea has even more resonance today.”
The current battle inside the Bank seems to focus on the issue of skewed distribution of benefits of development and the problems this causes. On the one side there’s a resurgence of the argument that “growth is good for the poor” that argues there is no difference between “shared prosperity” and plain prosperity, as measured by economic growth; on the other hand, the Bank’s Chief Economist retorted that “[o]verall economic growth is important, but the poor should not have to wait until its benefits trickle down to them.”
A few years ago I was on the streets alongside fellow students protesting against spending cuts to education and rising tuition fees in the U.K. Although the government’s decisions did not apply to me directly (at the time I was finishing my studies), I empathized with the many students who faced increasing challenges in attaining higher education. We were protesting against a move which would limit the future choices for youth, and we did not think it was good policy to penalize the future due to the pains of the present.
Now I look at the events of the past three years as a social scientist. Globally, the youth cohort is the largest in history and it has increasing demands for opportunities, voice and justice – a global cry for social inclusion. The newly launched World Bank report Inclusion Matters: The Foundation for Shared Prosperity notes – “The Arab Spring may have been one of the most costly reactions to exclusion of educated youth.” But as one of those born into what media has called a ‘lost generation,’ I rather see us as a driving force for change in the current socio-economic and political environment. We can argue about the extent of our impact, but we are clearly a spark for discourse and action.
Underpinning almost every protest and social change movement – and even causing them – are young people, mostly students, or unemployed graduates, many of whom are now sadly being called “lost”. Young people are often more emotional, idealistic, passionate and less cautious about the consequences of their actions, and very often the ones who fight for the causes they believe in (remember the 14-year-old Pakistani girl Malala Yousafzai?). We are high-tech savvy and exploit social media to connect, organize groups, gatherings, events and use it to expose malfeasances. We want to be heard and be listened to, and at the forefront of global protests. We demand better alternatives for the sake of all people.
How do we go about bringing shared prosperity and ensure that development benefits the broad swath of population- and especially the bottom 40 percent of people living under 4 dollars a day? It is by no means an exaggeration to say that the path to shared prosperity inevitably runs through cities.
Today we are witnessing an unprecedented demographic and economic transformation. Some 2.7 billion more people will move into cities by 2030, mostly in developing countries and particularly in Africa and Asia. It is estimated that some 4 million people move to cities every week. They come to cities filled with hope and looking for opportunities.
Cities hold the key to jobs, housing, education, health. They also provide basic services such as water and sanitation and decent transport which are often missing in rural areas. So can urbanization be the platform to deliver these diverse goals? What makes some cities more competitive? Why do entrepreneurs and workers get attracted to some cities? Why do industries and services locate in one city and not another? Will mega-cities or intermediate-sized cities deliver these goals? What can policy makers do to improve the flow of goods, people, and ideas across cities? And what can be done to reduce fragmentation, segmentation, and social divisions within cities across formal and informal sectors, the rich and the poor, how do we ensure that cities are gender inclusive ? How does one tackle problems of air pollution, crime and violence, and the slums that one third of the world’s urban resident’s call home. Cities have not performed as well as can be expected in their transformative role as more livable, inclusive and people-centered places, and they face massive challenges from natural hazards and the impacts of climate change.