Source: Branko Milanovic
If you thought the wealth gap was vast between the miser Ebenezer Scrooge and the oppressed Bob Cratchit in “A Christmas Carol,” then lend a Christmastime thought for the desperate Dickensian divide that’s now afflicting the global economy.
The biggest economic-policy issue of 2014 has certainly been the outpouring of alarm about the chronically intensifying divide between wealth and poverty – an uproar that has had a transformational effect on the worldwide debate on economic policy. As a seminar at the Center for Global Development recently discussed, the precise statistics on inequality (and the perception of inequality) are subtle, with many nuances of measurement (whether data should be derived, for example, from tax-return filings or from household surveys). Yet this year’s irrefutable interpretation among economists and business leaders has been driven by a landmark of economic scholarship: the bombshell book “Capital in the Twenty-First Century” by Thomas Piketty. "Capital" has forced economists, policymakers and scholars to reconsider the inexorable trends that are driving the modern-day economy toward an ever-more-intense concentration of capital in fewer and fewer hands.
No wonder Piketty’s “Capital” was acclaimed as the Financial Times/McKinsey “Business Book of the Year.” Piketty’s analysis has fundamentally changed the parameters of the public-policy debate, and many of its ideas challenge conventional economic theory.
To explore the implications of the alarming trends in income and wealth inequality, there’s no analyst more insightful than Branko Milanovic, the former World Bank economist who is now a scholar at the LIS Center (working on the authoritative Luxembourg Income Study) at the City University of New York. Milanovic has justly won acclaim for his work, “The Haves and the Have-Nots,” which pioneered the territory now being explored by Piketty.
Confirming the trends that Piketty identified in “Capital” – and taking those insights one significant step further, to measure the wealth gaps both within countries and between countries – Milanovic recently led a compelling CGD seminar on “Winners and Losers of Globalization: Political Implications of Inequality.”
The seminar’s sobering conclusion: If you think the wealth-and-incomes gap is painful now, just wait a decade or two. If allowed to go unattended, the widening economic divide will soon become a dangerous social chasm. That data-driven projection is leading many analysts to dread that inequality (whether between countries or within the same country) threatens to pose a stark challenge to social stability, and even to the survival of democracy.
The breakthtaking “a-ha!” moment of Milanovic’s CGD presentation was the chart (see the illustration, above) – hailed by seminar chairman Michael Clemens and discussant Laurence Chandy as “the Chart of the Century” – that plotted-out the pattern of how globalization has exerted relentless downward pressure on the incomes of the global upper-middle class, which roughly corresponds to the Western lower-middle class.
Globalization has helped promote the prosperity of skilled workers in developing nations, Milanovic explained, with the dramatic surge of China's economy being the greatest driver of global "convergence." Yet globalization has had an undeniable downward effect on the wealth and incomes of low- and medium-skilled workers in developed, industrialized nations. That certainly helps explain the angry mood among voters in Western Europe and North America, whose overall incomes and wealth have been stagnating for perhaps 40 years.
At the same time – reinforcing the significance of Piketty’s iconic formula that r>g (that the returns on capital are destined to be greater than overall economic growth) – a vast proportion of the world’s wealth has been concentrated in just the very top echelons of society. Milanovic’s meticulous data (see the illustration, below) confirm the extreme concentration of global absolute gains in income, from 1988 to 2008, in the top 5 percent of the world's income distribution. Rigorous empirical evidence from multiple sources indeed confirms that most of the global gains in wealth have accrued to the already-vastly-wealthy top One Percent. The data on increasing socioeconomic stratification are, by now, so well-established that only the predictable claque of free-market absolutists and dogmatic deniers cling (with increasing desperation) to the notion that the inequality gap is merely a myth.
Source: Branko Milanovic
Reinforcing Milanovic’s analysis, yet another well-documented study – this time, by the OECD – asserted this month that economic inequality is intensifying within the world's developed nations. That within-country trend accompanies the yawning inequality gap between developed and developing economies. The OECD thus joined the chorus that includes the World Bank Group, the International Monetary Fund, the United Nations’ Department of Economic and Social Affairs and the U.S. Federal Reserve System in sounding the alarm about the way that income and wealth disparities are becoming socially explosive. Even on Wall Street, many pragmatists are warning with increasing urgency that “too much inequality can undermine growth.”
Recent data from the World Bank’s PPP Group and PPIAF show that the telecommunications sector led private participation in infrastructure in emerging markets in 2013. At $57.3 billion, the telecoms sector barely edged out energy, with both representing 38 percent of total PPI. Although total PPI sank by 24.1 percent in 2013 compared with 2012 levels, the telecom sector fell by only 7 percent, demonstrating its relative resilience.
Unsurprisingly, more than half of PPI telecom investment is in the mobile access segment. The top five projects in the telecom sector in every region are in mobile. The next-largest segment is multi-service providers, with 44 percent of all investments.
Women don’t know how to manage Small and Medium-Sized Enterprises (SMEs).
Women can only run retail or services businesses.
Women-led businesses don’t create jobs.
Women don’t really want to grow their businesses – it’s just a hobby for them.
How many times have we heard these and similar sentiments?
There are indeed far fewer businesses led by women compared to men; female-led businesses do tend to be smaller and less profitable; and they do concentrate in the low-productivity retail and services sectors. Yet it is a vast oversimplification to underestimate the already-strong and potentially even greater economic contribution of women entrepreneurs. Even worse is the assumption that the underperformance of women-led enterprises is always something done by choice, or due to something inherently female.
A recent World Bank research report on supporting growth-oriented women entrepreneurs adds nuance to the dispiriting facts above. It focuses exclusively on growth-oriented women entrepreneurs and identifies the crucial elements needed to effectively support them. What merits the focus on growth entrepreneurs? Simply put: their ability to generate jobs, enhance national productivity, and stimulate socioeconomic transformation is greater. What merits the focus, specifically, on women growth entrepreneurs? Simply put: their immense untapped potential. There are an estimated 812 million women in the developing world (according to well-researched projections) with the potential to contribute more fully to national economies as workers and job creators, but who are unable to do so.
We find that firms led by women and men survive at the same rate, women-led firms employ more women as a share of their workforce, and far more dramatically, women and men lead equally productive firms . . . as long as the firms operate in the same sectors.
Unraveling these trends allows us to identify the underlying obstacles that result in both the underperformance of women-led enterprises and their comparable performance in specific sectors. We find that women growth entrepreneurs are held back by a complex intersection of factors – driven both by individual preferences and external constraints. These include gaps in management skills and knowledge, limited financial literacy, lack of access to finance, lack of mentoring, over-representation in low-productivity and low-growth sectors, restricted access to networks and supply chains, and legal and regulatory obstacles. While we now know more about what holds women entrepreneurs back, the support programs by the World Bank and others do not always adequately reflect this knowledge in program design and delivery.
What can we, through the World Bank, do to ensure that our programs have greater impact, are more relevant to women growth entrepreneurs, and demonstrate a replicable model for other development actors and client governments?
The answer: We should start by “gendering” our programs.
In the case of business education for example, “gendering” means more than just limiting program participation to women. Program content must explicitly speak to gender-related challenges like interacting and negotiating with buyers and suppliers in male-dominated markets, navigating team dynamics in a culture where women are not considered “leaders,” and managing intra-household dynamics and mobility constraints. In a related concern, program delivery must also be gender-sensitive: That includes offering in-class examples of successful women-led businesses, inviting successful women as guest speakers, and addressing the patriarchal attitudes of the people implementing the program.
The World Bank’s Public Private Partnership Group and the Public-Private Infrastructure Advisory Facility (PPIAF) support public discussion on the role of private participation in infrastructure, or PPI. To provide relevant information on this topic, they maintain a PPI database that includes information on over 6,000 infrastructure projects implemented from 1984 through 2013 in 92 emerging economies. The information is useful for analysts, policymakers, private sector firms involved in infrastructure, donors, NGOs and other stakeholders.
The data can be used to identify regional or sectoral trends. The recently-released 2013 Global PPI Update, for example, shows that PPI in 2013 in emerging markets fell by 24 percent in comparison with 2012, with decreases in Brazil and India accounting for much of the change. The data also show that investments in telecom and energy top the list, each accounting for 38 percent of global PPI.
Somalia has the reputation of being a mysterious and conflict-ridden land. Who hasn’t heard of the infamous “Black Hawk down” episode, the militant group al-Shabaab or the pirates off the Somali coast?
But in the northwest corridor of war-ravaged Somalia lies Somaliland, a self-declared independent state that claims to be open for business. Really?
It’s easy to dismiss the “open for business” claim by Somaliland’s Ministry of Planning as mere fantasy or wishful thinking. Flying from Nairobi on a painfully slow UN-chartered plane, being greeted at the hotel by Kalashnikov-armed guards, or traveling to your meeting in an armored car is enough to discourage even the most adventurous entrepreneur.
At first sight, Somaliland has all the characteristics of a fragile and conflict-affected situation (FCS). However, you never want to judge a book by its cover. In Somaliland, I’d argue that the conventional narrative of fragility needs to be revisited.
The World Bank’s Public-Private Partnership Group and Public-Private Infrastructure Advisory Facility report that total private participation in infrastructure (PPI) fell in the transportation sector in emerging markets by 39 percent to $33.2 billion in 2013, compared with 2012 levels.
In part, this reflects a broader trend – overall, PPI in all infrastructure sectors fell by 24 percent. The biggest drop was in South Asia, which saw PPI in transport fall from just over $20 billion in 2012 to approximately $3 billion in 2013, mostly because of significant decreases in India. Two other regions – Latin America & the Caribbean (LAC) and Eastern Europe and Central Asia (ECA) – also saw decreases. PPI in transport increased in East Asia and the Pacific (EAP) and Africa, but not by enough to offset decreases elsewhere.
2013 Transport PPIs by region
This is not good news for the world’s poor. Transportation is a critical component of development and growth, enabling people to access schools, hospitals and markets. It facilitates labor mobility and ensures that raw materials and finished goods get to customers. In rural areas, transportation systems provide an economic and social connection with the rest of the country. Within cities, good urban transportation is often the only form of transportation available to the poor. It also improves the flow of goods and services, reduces greenhouse gas emissions, and improves the overall quality of life.
Follow the money, and you’ll find out how and why corruption has become "Public Enemy Number One" for those who are promoting global development – as crony capitalists in the private sector connive with corrupt officials in the public sector to short-circuit sound business practices, reward self-interested insiders, subvert the broad public interest, and undermine the ideals of good governance.
This week’s gathering of the third-ever conference of the International Corruption Hunters Alliance (ICHA) – a global network of prosecutors, lawyers, detectives, forensic accountants and policymakers who track down illegal and unethical financial practices – will underscore the continuing drain on development imposed by public-sector graft, private-sector lawbreaking, and the worldwide flow of illicit funds from sinister financial transactions.
Monday morning’s opening plenary session at the World Bank Group’s headquarters in Washington – headlined by Prince William, the Duke of Cambridge and heir to the British throne, along with Bank Group President Jim Yong Kim – began a week that should help focus worldwide attention on the way that systematic corruption enriches lawbreakers, undermines respect for the rule of law, thwarts good-governance efforts and drains scarce resources from effective development.
The three-day conference should also raise public awareness of the vigorous international action that has been mobilized in recent years, as corruption-related concerns have risen to a leading position on the global diplomatic agenda.
Inspired by then-World Bank President James D. Wolfensohn’s landmark “cancer of corruption” speech at the 1996 Annual Meetings, global action has been steadily gaining momentum – through such channels as the G20 leaders’ working group to tighten policies and procedures; the Financial Action Task Force’s standard-setting vigilance; the OECD’s Anti-Bribery Convention and its continuing monitoring of corruption’s toll; and civil-society organizations’ diligent watchdog efforts to ensure that development dollars will go, not toward graft, but toward the places where aid is desperately needed.
This week’s events at the Bank Group – focusing on the theme of “Ending Impunity,” and pivoting around International Anti-Corruption Day, which the United Nations has designated as this Tuesday – are timed to coincide with the launch of the OECD’s latest Foreign Bribery Report.
The World Bank Group continues to champion the anticorruption ideal and good-governance standards: by enforcing a “zero tolerance” policy for corruption, closely tracking furtive patterns of suspicious financial flows, and working with law-enforcement officials worldwide to track down assets that have been looted and hidden by kleptocratic regimes. This week’s conference is organized by the Integrity Vice Presidency – which coordinates the Bank Group-wide effort to expunge all corrupt or unethical practices – with the support of such Bank Group units as the Governance Global Practice and the Stolen Assets Recovery Initiative.
- anti-corruption; politics; open government; accountability; transparency; collaborative governance; collaboration; inclusive development; open contractring; open contracting data standard; open data;
- Stolen Assets
- Stolen Assets Recovery
- Stolen Asset Recovery Initiative
- Anti-Corruption Initiatives
- Anti-Corruption Day
- Public Sector and Governance
- Private Sector Development
- Law and Regulation
- Global Economy
- Financial Sector
Infrastructure bottlenecks have created seemingly perpetual traffic jams in and around São Paulo. Photo credit: Marcelo Camargo/ABr.
There’s a lot of time for innovative thought when you’re stuck in traffic in São Paulo.
Perhaps that’s why, in the words for Deborah L. Wetzel, World Bank Country Director for Brazil, “São Paulo has continuously innovated to overcome its infrastructure bottlenecks, often becoming a model to other states in Brazil.”
With a loan signed last month between the state and Banco Santander, and insured by the Multilateral Investment Guarantee Agency (MIGA), the state is at the vanguard of infrastructure financing.
Forty-one million people use the state’s transportation networks. While the network is one of the most developed and modern in Brazil, it is still insufficient for the state’s needs.
The State of São Paulo has sought to address the situation for some time, and the World Bank has played an important role through lending and technical assistance. An important component of this work is the São Paulo State Sustainable Transport Project that aims to rehabilitate roads in several key corridors and to reconstruct two bridges.
Yet, with a total cost estimated at $729 million, this project has faced a major financing hurdle. In September 2013, the World Bank approved a $300-million loan toward the initiative. But with growing demand for loans from Brazil’s poorest states, the bank was unable to commit additional funds. The State of São Paulo itself committed $129 million. That left a shortfall of $300 million.
How was the state going to mobilize these funds at a cost that would be acceptable to taxpayers?
A partnership with MIGA was a natural answer. In addition to political risk insurance, MIGA provides credit-enhancement products that protect commercial lenders against non-payment by a sovereign, sub-sovereign or state-owned enterprise.
In an unprecedented move, the State of São Paulo bid out the project to commercial banks with a requirement that their loans be backed by MIGA’s credit-enhancement instrument.
The result: MIGA issued guarantees to Banco Santander on a $300-million loan. With MIGA’s credit enhancement, the cost of the commercial loan was lower, and the length of the loan was longer, than São Paulo could have achieved on its own. The additional financing will be used to increase the scope of the project’s activities.
If you’re in the private sector, and if you somehow imagine that social issues don’t have anything to do with your business, then you’d better think again. The dollars-and-cents costs of chronic social problems and dysfunctional behavior have a direct impact on private-sector productivity and profitability.
As Harvard Business School professor Michael Porter told a World Bank Group audience not long ago, explaining his theory of “creating shared value”: If business leaders are serious about ensuring future private-sector-led growth – and about the long-range stability of the economy – then the corporate sector had better prioritize pro-active steps to address serious social issues as a significant part of their strategy.
Social issues might not readily rise to the top of corporate leaders’ in-boxes, since many hard-headed businessmen – and I use the suffix “men” advisedly – might presume that “soft” human concerns aren’t central to day-to-day business operations. Yet the painful human toll inflicted by social dysfunction is everybody’s business. Corporate executives who truly aim to fulfill a positive leadership role in society, to which they so often aspire rhetorically, have a duty to raise their voices about the many kinds of social trauma that impede socioeconomic progress.
If a sense of social responsibility isn’t enough to get corporate leaders thinking pro-actively, they should at least consider their business’ long-term enlightened self-interest. A workforce that’s de-motivated or demoralized – or, worse, physically injured or emotionally abused – will suffer lower morale and higher absenteeism, will trigger higher health-care costs, will be distracted from seizing new business opportunities, and will fall short of fulfilling its full productive potential. That economic reality should spur the private sector to take constructive, preventive action.
An event on Wednesday at the World Bank Group will offer a reminder of how one vicious form of extreme antisocial behavior – violence against women and girls – acts as a drag on society, a drain on the economy and an impediment to achieving every development priority. The 2 p.m. event in the J Building auditorium will launch a new World Bank Group report – the “Violence Against Women and Girls Resource Guide” – that surveys a wide range of analyses on the human suffering and social pain caused by gender-based violence.
Jointly sponsored by the Bank Group, the Inter-American Development Bank and the Global Women’s Institute based at George Washington University, the afternoon event will follow a morning panel discussion – at 10 a.m. in GWU’s Jack Morton Auditorium – featuring the authors of a landmark series of analyses of gender-based violence in The Lancet, the UK's pre-eminent medical journal.
Recognizing gender-based violence as a medical and public-health emergency – and reinforcing the World Health Organization’s recent declaration that gender-based violence is a global threat “of epidemic proportions” – The Lancet’s special edition is blunt about the grim toll of violence that deliberately victimizes women and girls: “Every day, millions of women and girls worldwide experience violence. This abuse takes many forms, including intimate physical and sexual partner violence, female genital mutilation, child and forced marriage, sex trafficking, and rape.”
Technological changes and globalization have transformed the kind of skills required of workers in many sectors of the economy. Yet, with employment opportunities becoming more fluid, it has also become harder to predict the skill content of next year’s jobs than it was when Korea, Malaysia and Singapore industrialized through industrial and training policies.
It is in this context that skill gaps have entered public discourse. Employers around the world routinely report large skill gaps and warn of dire consequences for industrial competitiveness if they are not filled. Governments, from India to the United States, have taken up this call.
How do employers identify these "skill gaps"? What does this mean for skills delivery systems around the world? These questions were recently discussed at a conference at the World Bank Group in Washington on "New Growth Strategies." Here are some thoughts we presented to kick off that discussion.
That the skills gap narrative has become so prominent in recent years does not sit well, for five reasons.
- First, as the 2013 World Development Report reminds us, the world is overflowing with educated workers, many of whom are unemployed or underemployed.
- Second, the wage returns to secondary education have been falling in many countries. Secondary attainment is the education level most critical to the performance of production tasks in most internationally tradable sectors.
- Third, vocationally trained workers often do not find jobs.
- Fourth, employers often don’t act as if there is a skill gap: In many internationally competing sectors, they do not cast a wide net in search of skilled workers, and retention rates are low.
- Fifth, the high-employment tradable sectors are not very education-intensive. In most economies, workers in agriculture, fishing, forestry, textiles, garments, furniture, food processing and leather-goods production are among their country’s least educated.
So, why does this cacophony over skills gaps arise and how can we design skill-development systems that are robust to it?
The confusion arises because we have perverse incentives in place. When we ask employers to identify skill gaps, we do not usually ask them to bear, or even consider, the cost of training workers. This is much like asking them whether they prefer strawberries or strawberries covered in chocolate, without asking them to pay extra for the chocolate. They therefore routinely report a crippling shortage of chocolate. Yet, behind this strange exercise, there are some industries that are actually seriously skill constrained and there are other industries that are not skill constrained. The way we ask the question simply does not induce them to differentiate themselves.