Social inclusion and concentration of wealth – what the World Bank gets right and what it misses.

October 29, 2013

     By Duncan Green     

This guest post comes from Ricardo Fuentes-Nieva, Oxfam Head of Research, (@rivefuentes)Ricardo FuentesNieva

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

The new vision of the Bank’s “Shared Prosperity” strategy hints strongly at the issue of equity. There are plenty of references to the ills of large gaps in the distribution of income and wealth. However, there is no agreed goal to reduce inequality as part of the World Bank’s mission.

need to tackle both sides of the photo

need to tackle both sides of the photo

nd flows of such debates within the Bank may seem arcane, but they  matter – where the Bank goes, much of the rest of the aid industry follows. So a new Bank report Inclusion Matters – the Foundations for Shared Prosperity, released along with the new Bank’s strategy, is a welcome addition.  It moves beyond income and wealth dimensions and focuses on the relational nature of development. In their words, it highlights “the process of improving the ability, opportunity, and dignity of people, disadvantaged on the basis of their identity, to take part in society”.

It’s necessary reading. Here are some of the bits I found more important from the executive summary:

  • “The term social inclusion can add to the idea of equality, but much more importantly, it can explain why some inequalities exist or why some are particularly durable (Tilly 1999)” (Page 7)
  • Also, “Because social inclusion is also at its core about accountability of the state to its citizens, it is as much about occupying political space as it is about having an equitable share in markets and services.” (page 13)
  • Then “This report argues that reference groups and role models are important in the “capacity to aspire,” […] When individuals from disadvantaged groups see others around them performing at a low level, they set a much lower bar for themselves than they would have if they had belonged to a high-performing group. In addition, they may internalize exclusion in such a way that they do not even bother to try for better outcomes, knowing that people from their group are discriminated against” (page 14)
  • And “Perceptions of unfairness and injustice and frustration with social and political institutions or with the society at large often reflect individuals’ feelings of powerlessness. Feelings of fairness, justice, and “being part of society” can be manifestations of how much the society recognizes, respects and listens to its members” (page 21)

The arguments in the Report are very solid, well developed and illustrated with vivid examples. I’m mostly in agreement with them, but they seem incomplete. There is more to the problem of social exclusion and it relates to the growing concentration of income and wealth we observe in many countries. As Angus Deaton has written recently in his new book The Great Escape, citing the work by Louis Brandeis, “The political equality that is required by democracy is always under threat from economic inequality, and the more extreme the economic inequality, the greater the threat to democracy”.

Concentration of income and wealth actually hampers this process of social inclusion because it makes political representation harder for the disadvantaged to the benefit of the affluent groups. That’s why the World Bank should include in its vision tackling the growing concentration of income and wealth at the top end of the distribution. This is necessary for the goal of social inclusion and shared prosperity.

Recent exchange on inequality between Ricardo and the Bank here.

October 29, 2013
Duncan Green