Achieving shared prosperity, one of the World Bank’s twin-goals, isn’t just a middle-income country’s preoccupation. It has a special resonance in Tanzania, a US$1,000 per capita economy in East Africa.
Tanzania has seen remarkable economic growth and strong resilience to external shocks over the last decade. GDP grew at an annualized rate of approximately 7 percent. Yet, this achievement was overshadowed by the slow response of poverty to the growing economy. The poverty rate has remained stagnant at around 34 percent until 2007 and started a slow decline of about one percentage point per year, attaining 28.2 percent in 2012. To date, around 12 million Tanzanians continue to live in poverty, unable to meet their basic consumption needs, and more than 70 percent of the population still lives on less than US$2 per day. Promoting the participation of the poor in the growth process and improving their living standards remains a daunting challenge.
In Even it Up: Time to End Extreme Inequality, Oxfam has delivered another powerful report making the case that tackling inequality is essential to create a more just world and to eliminate extreme poverty. I was asked to comment on this newly released report at an October 31 event held at the IMF, and was as impressed by the presentation as I was with the report.
Oxfam effectively uses research findings to advocate for policy changes to reduce global inequality. This statistics-laden report also wisely features compelling stories about real people, helping the reader to better understand how vast disparities in wealth adversely affect wellbeing. Oxfam has consistently argued to bring inequality to the fore of policy discussions, and not surprisingly, this report appears to have created a groundswell for their global #Even It Up campaign. While there were instances where I found myself questioning the quality of some references supporting a few statements and estimates, my overall reaction was that the ‘big picture’ claims of the report were well substantiated. In my comments, I suggest that if this report is a call to action, a useful next step for Oxfam or a partner in this work, will be to bring more clarity to what it means to eliminate extreme inequality. Establishing a goal or a measure to monitor progress will help to create better policies, and ensure better collaboration across governments and institutions.
The data and processes needed to measure global poverty and gauge improvements in the prosperity of the bottom 40% of people in each country present complex challenges and provoke considerable debate amongst poverty experts.
From the comparability of household surveys and their use in policy design to the utility of purchasing power parity data as a unifying standard for measuring the poor, the devil in global poverty analysis is in the details. It’s also vital to understand the World Bank’s recently adopted twin goals in a broader context, to see how they fit into a broader array of monitorable indicators that each come with their own specific features and insights. We must also listen to client governments and outside partners when they prefer to go beyond income to look at multidimensional social welfare functions.
In April 2013, the World Bank Group endorsed two ambitious goals: (1) to end extreme poverty by 2030, and; (2) to promote “shared prosperity” by boosting the incomes of the poorest 40 percent of the population in every country. The introduction of the second goal marked a shift in the World Bank Group’s poverty reduction mission. Some might consider the goal #2 to constitute a refinement of a longer-standing -- albeit implicit -- emphasis on growth, widely considered a necessary condition for poverty reduction.
Is goal #1, ending extreme poverty by 2030, paramount and is goal #2 subsidiary to that first objective? On the other hand, if these two goals are prioritized equally, what might this mean for the extreme poor? What are the trade-offs between boosting the incomes of the bottom 40 percent in every developing country and ending extreme poverty globally?
There is a lot of public discussion about Thomas Piketty’s book on capital and its implications for inequality. His work strikes a chord with many of us because it outlines a future where basically your own or inherited wealth matters and where wage income and apparently your human capital does not matter that much for your income generation. So how do we escape such a one-sided and unequal world? Well, maybe one way is to understand better the interaction between growth, changes in the income distribution, and their implications for shared prosperity.
Last week the President of the World Bank Group launched at the Spring Meetings the report "Prosperity for All." One of the interesting areas the note reported on was the interrelationship between growth, movements in the income distribution and poverty reduction.
There are various ways of showing the impact of growth on people’s income and its interrelationship with a country’s income distribution. In comparing distributions over time, one of the more useful graphs is a Pen’s Parade (figure 1a), named after another Dutch economist as so many inequality or poverty measures are (other examples are the Theil index and Thorbecke for the Foster-Greer-Thorbecke Poverty Measure).