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Aid Must Change in order to Tackle Inequality: The OECD Responds to Angus Deaton

Duncan Green's picture

Jon Lomoy OECD
Guest post from
Jon Lomøy, Director of the OECD Development Co-operation Directorate (DCD)

Official development assistance – or aid – is under fire. In The Great Escape, Angus Deaton argues that, “far from being a prescription for eliminating poverty, the aid illusion is actually an obstacle to improving the lives of the poor.”

Yet used properly, “smart aid” can be very effective in improving lives and confronting the very issue that Deaton’s book focuses on, and which US President Obama has called the “defining challenge of our time”: rising inequalities.

As a recent UNDP report shows, more than three-quarters of the global population lives in countries where household income inequality has increased since the 1990s. In fact, today many countries face the highest inequality levels since the end of World War II.

There is clearly moral ground for arguing that it is unjust for the bottom half of the world’s population to own only as much as the world’s richest 85 people. Above and beyond this, however, academics, think tanks, and international organizations such as the OECD have found that rising inequalities threaten political stability, erode social cohesion and curb economic growth.

It is not surprising, then, that reduction of socio-economic inequality has moved to the centre of global discussions on the post-2015 goals. The OECD, responsible for monitoring official development assistance (ODA) and other financial flows for development, is complementing these discussions by exploring ways to better use existing financial resources – and mobilise additional ones – to promote inclusive and sustainable development. This includes redefining what we mean by ODA, as well as looking at the ways it can best be used to complement other forms of finance.

When It Comes to Tackling Inequality, Start Early

Ana Revenga's picture

It seems that everyone is talking about inequality these days, and I, for one, am happy to see this issue at the forefront in the development discussion.

We can look at inequality in a number of ways, which are not unrelated. One of the most visible types of inequality on the radar is inequality of outcomes — things like differences in academic achievements, career progression, earnings, etc. — which, in and of themselves, are not necessarily bad. Rewarding an individual’s effort, innate talents and superior life choices can provide incentives for innovation and entrepreneurship, and can help drive growth.  

However, not all inequalities are “good.” When inequality perpetuates itself because those born poor consistently do not have access to the same opportunities as those born rich, what emerges is a deep structural inequality that is bad for poverty reduction, bad for economic growth, and bad for social cohesion. How pervasive are these deep inequalities? Much more than we would like. Indeed, when we examine what is happening in many countries around the world today, we find large and persistent, even growing, gaps in earnings between rich and poor. And we find that those who start out in poverty or are part of a disadvantaged group tend to remain there, with little opportunity to work their way out.

How do we explain this, and what can we do to tackle it? We need to take a step back and look at where this inequality originates, and that is where the concept of equality of opportunity comes in to play. This concept broadly refers to access to a basic set of services that are necessary, at the minimum, for a child to attain his or her human potential, regardless of the circumstances — such as gender, geographic region, ethnicity, and family background — into which he or she is born. Too often, access to such basic services like electricity, clean water, sanitation, health care and education is much lower among children born into circumstances that place them at a disadvantage. Children from disadvantaged groups thus set off on an unequal path from day one, which curbs their opportunities and potential into adulthood.

Weekly Wire: The Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

Could Mobile Phones Save Millions From Illiteracy?
According to UNESCO, the answer is yes. Or at least, they could help. The United Nations Educational, Scientific and Cultural Organization periodically publishes detailed report about mobile phones usage in some of the poorest regions of the world. This time, for the study Reading in the Mobile Age, the organization tried to understand not only if people in developing countries use mobiles at all, but also, if they use them in a way that could help fight illiteracy. The research found out that, while mobile phones are still used primarily for basic communication, they are also, increasingly, a gateway to long-form text. Often, for millions, the only chance of reading a text where books are almost unknown.

Press Freedom at the Lowest Level in a Decade
Freedom House
While there were positive developments in a number of countries, most notably in sub-Saharan Africa, the dominant trends were reflected in setbacks in a range of settings. The year’s declines were driven by the desire of governments— articularly in authoritarian states or polarized political environments—to control news content, whether through the physical harassment of journalists covering protest movements or other sensitive news stories; restrictions on foreign reporters; or tightened constraints on online news outlets and social media. In addition, press freedom in a number of countries was threatened by private owners—especially those with close connections to governments or ruling parties—who altered editorial lines or dismissed key staff after acquiring previously independent outlets.

Weekly Wire: The Global Forum

Roxanne Bauer's picture

These are some of the views and reports relevant to our readers that caught our attention this week.

Can Big Data Stop Wars Before They Happen?
Foreign Policy
It has been almost two decades exactly since conflict prevention shot to the top of the peace-building agenda, as large-scale killings shifted from interstate wars to intrastate and intergroup conflicts. What could we have done to anticipate and prevent the 100 days of genocidal killing in Rwanda that began in April 1994 or the massacre of thousands of Bosnian Muslims at Srebrenica just over a year later? The international community recognized that conflict prevention could no longer be limited to diplomatic and military initiatives, but that it also requires earlier intervention to address the causes of violence between nonstate actors, including tribal, religious, economic, and resource-based tensions. For years, even as it was pursued as doggedly as personnel and funding allowed, early intervention remained elusive, a kind of Holy Grail for peace-builders. This might finally be changing. The rise of data on social dynamics and what people think and feel -- obtained through social media, SMS questionnaires, increasingly comprehensive satellite information, news-scraping apps, and more -- has given the peace-building field hope of harnessing a new vision of the world.

The economist who revealed how media bias works
It’s heady company. When he won the John Bates Clark Medal earlier this month, University of Chicago economics professor Matthew Gentzkow suddenly found himself among legends such as Paul Samuelson and Milton Friedman. Both are past recipients of the award, which the American Economic Association bestows on the American economist under the age of 40 who “who is judged to have made the most significant contribution to economic thought and knowledge.” Plenty of past winners have worked in familiar areas, such as wage dynamics or health economics. Gentzkow’s work is less orthodox: an interesting mix of the history and micro-economics of the media world.

Friday roundup: Malaria, Piketty and Ravallion, Oxfam Challenges IFIs on Inequality, and Global Flows in the Digital Age

LTD Editors's picture

'Our goal: Defeat malaria forever' is the title of a Path blog to commemorate World Malaria Day. Written by Dr. Carlos C. (Kent) Campbell and Bindiya Patel to commemorate World Malaria Day, it stresses that malaria control alone won't be enough to stop the disease.

Meanwhile, the economics world continues to be rocked by Piketty. His powerpoint on Capital in the 21st Century, presented recently at an IMF event where Martin Ravallion played the role of discussant, can be downloaded here. Ravallion provided his own take on historic inequality trends and explained why he thinks there is still hope that extreme poverty in the developing world will continue to fall, thanks in no small part to growth and other factors.

Growth, Inequality, and Social Welfare: Cross-Country Evidence

LTD Editors's picture

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.

Friday Roundup: DeLong on Piketty, Gentzkow wins Bates Medal, Mobile Money, and Remittances in Africa

LTD Editors's picture

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..."

What Will it Take to End Poverty in Cities?

Abha Joshi-Ghani's picture

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.

Of Oxfam, inequality, public services and twinning

Dean Mitchell Jolliffe's picture

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.

How We’re Taking On Extreme Poverty

Jim Yong Kim's picture

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.