One of the two goals of the World Bank Group’s new strategy is to promote shared prosperity, defined as the income growth of the bottom 40 percent of the population. The simple monitoring indicator then is the income per capita of the bottom 40 percent of the population.
The World Bank Group (WBG) has established that its mission, endorsed by the governors of its client countries, is centered around the goals of sustainably ending extreme poverty and promoting shared prosperity. Extreme poverty is monitored by the percent of people living below the $1.25-a-day threshold. The Bank’s mission thus gives a clear message: Extreme poverty, hunger, destitution must come to an end.
To monitor progress in shared prosperity, the WBG will track the income growth of the bottom 40 percent of the population in each country. The clear signal the WBG wants to give is that the institutional mission is about reducing poverty, fostering growth and increasing equity, so we need to monitor what happens to welfare of the less well off in every country. Improving averages is not enough; a laser focus on those who are at the bottom of the distribution at all times, everywhere, is needed.
Incomes in the poorest two quintiles on average increase at the same rate as overall average incomes, according to a new working paper by David Dollar (Brookings Institution), Tatjana Kleineberg and Aart Kraay. In a global dataset spanning 118 countries over the past four decades, changes in the share of income of the poorest quintiles are generally small and uncorrelated with changes in average income. The variation in changes in quintile shares is also small relative to the variation in growth in average incomes, implying that the latter accounts for most of the variation in income growth in the poorest quintiles. These findings hold across most regions and time periods, as well as conditional on a variety of country-level factors that may matter for growth and inequality changes. This evidence confirms the central importance of economic growth for poverty reduction and illustrates the difficulty of identifying specific macroeconomic policies that are significantly associated with the relative growth rates of those in the poorest quintiles. This reprise of Dollar and Kraay's earlier work also looks at the World Bank's new "shared prosperity" goal by considering the income growth rates of the poorest 40% of the population in each country in addition to looking at the poorest 20%.
The last few months have been a busy time for inequality. And over the last few days the poor thing got busier still. Inequality is now dancing on two stages. It must be really quite dizzy.
We need an inequality goal. No we don’t. Yes we do
One of the two stages is the post-2015 development goals. At some point, someone seems to have decided that reducing inequality needs to be an explicit commitment in the post-2105 goals. The UN System Task Team on the Post-2015 UN Development Agenda wrote a report on inequality and argued that “addressing inequalities is in everyone’s best interest.” Another report by Claire Melamed of Britain’s Overseas Development Institute argued that “equity, or inequality, needs to be somehow integrated into any new framework.” Last week a group of 90 academics wrote an open letter to the High Level Panel on the Post 2015 Development Agenda demanding that inequality be put at the heart of any new framework.